10-K

QuickLinks -- Click here to rapidly navigate through this document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended September 30, 2007

Commission File Number 1-32203

PROSPECT MEDICAL HOLDINGS, INC.

Delaware (State or other jurisdiction of incorporation or organization)	33-0564370 (IRS Employer Identification No.)
10780 Santa Monica Blvd., Suite 400 Los Angeles, California (Address of principal executive offices)	90025 (Zip Code)
(310) 943-4500 (Registrant's telephone number, including area code)

        Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Name of each exchange on which registered:
Common stock, Par value $0.01 per share	American Stock Exchange

        Securities registered pursuant to Section 12(g) of the Act: None

        Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. o Yes    ý No

        Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. o Yes    ý No

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. o Yes    ý No

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o Yes    ý No

        Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definitions of "large accelerated filer" and "accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer ý

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

        The aggregate market value of common stock held by non-affiliates of the Registrant as of March 30, 2007 (the last business day of our most recently completed second fiscal quarter) was approximately $26,709,045 based upon the closing price for shares of our common stock as reported by the American Stock Exchange on such date.

        As of May 23, 2008, 11,782,567 shares of the Registrant's common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

        Not applicable

Table of Contents

Form 10-K

PART I
Item 1.	Business	3
Item 1A.	Risk Factors	35
Item 1B.	Unresolved Staff Comments	55
Item 2.	Properties	56
Item 3.	Legal Proceedings	58
Item 4.	Submission of Matters to a Vote of Security Holders	58
PART II
Item 5.	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	59
Item 6.	Selected Financial Data	61
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	63
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	88
Item 8.	Financial Statements and Supplementary Data	89
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	89
Item 9A.	Controls and Procedures	89
Item 9B.	Other Information	91
PART III
Item 10.	Directors and Executive Officers and Corporate Governance	92
Item 11.	Executive Compensation	96
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	110
Item 13.	Certain Relationships and Related Transactions, and Director Independence	112
Item 14.	Principal Accounting Fees and Services	113
PART IV
Item 15.	Exhibits and Financial Statement Schedules	115
Signatures		123

2

PART I

Item 1.    Business.

Overview

        Our business consists principally of providing hospital services and health care management services. We provide management services to affiliated physician organizations that operate as independent physician associations ("IPAs") or medical clinics and, following our August 8, 2007 acquisition of Alta Healthcare System, Inc., we own and operate four community-based acute care hospitals in Southern California.

        With our acquisition of Alta Healthcare System, Inc., our operations are now organized into two reporting segments: IPA Management and Hospital Services. You will find information concerning the financial results and the total assets of each segment in Note 15 to the Consolidated Financial Statements. These two complementary reporting segments enable us to offer a comprehensive medical services platform.

IPA Management—Our fifteen affiliated physician organizations enter into agreements with health maintenance organizations ("HMOs") to provide enrollees of the HMOs with a full range of medical services in exchange for fixed, prepaid monthly fees known as "capitation" payments.

        Our IPAs sub-contract with physicians (primary care and specialist) and other health care providers to provide all required medical services for the HMO enrollees. Our medical clinics employ their primary care physicians, which provide the vast majority of their medical services, but also contract with specialist physicians and other health care providers to provide certain other required medical services for the HMO enrollees.

        Through our three management subsidiaries—Prospect Medical Systems, Sierra Medical Management and ProMed Health Care Administrators—we have entered into long-term agreements to provide management services to each of our affiliated physician organizations in exchange for a management fee.

Hospital Services—We own and operate four urban acute-care community hospitals in the greater Los Angeles area with a combined 339 licensed beds served by 351 on-staff physicians. Our three hospitals in Hollywood, Los Angeles and Norwalk offer a comprehensive range of medical and surgical services, including general acute care hospital services, pediatrics, obstetrics and gynecology, pediatric sub-acute care, general surgery, medical-surgical services, orthopedic surgery, and diagnostic, outpatient, skilled nursing and urgent care services. Our hospital in Van Nuys provides acute inpatient and outpatient psychiatric services on a voluntary basis. Admitting physicians are primarily practitioners in the local area.

        All of our hospitals are accredited by the Joint Commission (formerly, the Joint Commission on Accreditation of Healthcare Organizations). With such accreditation, our hospitals are deemed to meet the Medicare Conditions of Participation and are, therefore, eligible to participate in government-sponsored payment programs, such as the Medicare and Medicaid programs. Our hospitals have payment arrangements with Medicare, Medi-Cal and other third-party payers including some commercial insurance carriers, HMOs and Preferred Provider Organizations ("PPOs").

        Our principal executive offices are located at 10780 Santa Monica Blvd., Suite 400, Los Angeles, CA 90025. Our telephone number is (310) 943-4500. Our web site address is www.prospectmedicalholdings.com. A copy of this filing is posted on our web site.

        A chart of the organizational structure of our business is set forth on the next page, followed by a narrative summary of the chart.

3

ORGANIZATIONAL STRUCTURE OF OUR BUSINESS

4

Summary of the Structure of Our Business

1.

Prospect Medical Holdings, Inc. ("PMH") is the owner of 100% of the outstanding membership interests of Alta Hospitals System, LLC, a California limited liability company ("Alta"), the successor by merger to Alta Healthcare System, Inc. Alta, in turn, holds 100% of the outstanding stock of its two subsidiaries, Alta Los Angeles Hospitals, Inc. and Alta Hollywood Hospitals, Inc.

2.

Samuel S. Lee is our Chief Executive Officer and the Chairman of our Board of Directors. Mr. Lee is also the Chief Executive Officer and a director of Sierra Medical Management, a Vice-President and a director of ProMed Health Services Company, and the Chief Executive Officer and sole Manager of Alta.

3.

Jacob Y. Terner, M.D. currently is the nominee shareholder of Prospect Medical Group; Chief Executive Officer and the sole director of Prospect Medical Group and all of our other affiliated physician organizations, except that Dr. Terner is the Secretary and a director of Nuestra Familia Medical Group, which is 55% owned by Prospect Medical Group; and Chief Executive Officer of Santa Ana-Tustin Physicians Group, which is a 50% joint venture partner in AMVI/Prospect Health Network.

4.

Prospect Medical Group is an affiliated physician organization and owns 100% of the stock of all of our other affiliated physician organizations, except that Prospect Medical Group owns 55% of Nuestra Familia Medical Group and, through its subsidiary, Santa Ana-Tustin Physicians Group, owns a 50% interest in AMVI/Prospect Health Network.

5.

Prospect Medical Systems, Prospect Medical Group and Dr. Terner are parties to an Assignable Option Agreement whereby Prospect Medical Systems can change the owner/shareholder of Prospect Medical Group at any time. Prospect Medical Systems and PMH are deemed to control all the affiliated physician organizations, except AMVI/Prospect Health Network, for financial accounting purposes, dictating a consolidation of the financial statements of all these entities with PMH and its management subsidiaries. We account for our interest in AMVI/Prospect Health Network using the equity method of accounting and we record only the net results derived from our specifically identified portion of the joint venture's operations. In addition, we record the management fee revenue we earn for providing management services to our partner's specifically identified portion of the joint venture operations.

6.

All of the affiliated physician organizations operate as independent physician associations ("IPAs") except Sierra Primary Care Medical Group and Pegasus Medical Group, which also operate as medical clinics.

History and Development of Our Business

        Our business effectively commenced in 1996, when, as the surviving entity in a merger transaction, we began to implement our growth strategy through a series of acquisitions and affiliations, primarily through one of our affiliated physician organizations, Prospect Medical Group. Between 1996 and 2005, Prospect Medical Group acquired fourteen physician organizations. These acquisitions provided us with a substantial concentration of managed care enrollees in our three Southern California service areas—North and Central Orange County, West Los Angeles and the Antelope Valley region of Los Angeles County.

        In 2007 we completed two major acquisitions, described below, which resulted in the addition of managed care enrollees in San Bernardino County and in the establishment of our Hospital Services segment.

        On June 1, 2007, Prospect Medical Group completed the acquisition of ProMed Health Services Company, a California corporation ("ProMed") and its subsidiary, ProMed Health Care Administrators, Inc., and two affiliated IPAs, Pomona Valley Medical Group, Inc. ("PVMG") and

5

Upland Medical Group, A Professional Medical Corporation ("UMG"), for consideration of $48,000,000, consisting of $41,040,000 of cash and 1,543,237 shares of Prospect Medical Holdings common stock, valued at $6,960,000, or $4.51 per share. As a result of the acquisition, ProMed became a wholly-owned subsidiary of Prospect Medical Holdings and PVMG and UMG became wholly-owned subsidiaries of Prospect Medical Group. At the time of the acquisition, PVMG and UMG had approximately 80,000 HMO enrollees.

        On August 8, 2007, we acquired Alta by way of a merger of Alta Healthcare System, Inc., a California corporation into our newly formed, wholly-owned subsidiary, Prospect Hospitals System, LLC, a California limited liability company ("Sub"), with Sub was the surviving entity. Concurrently with this merger, the name of Sub was changed to Alta Hospitals System, LLC ("Alta"), and we repaid approximately $41,500,000 of Alta's existing debt. Total merger consideration, exclusive of the Alta debt repaid, consisting of approximately $103 million, was paid one-half ($51.3 million) in cash and one-half in stock (valued, for transaction purposes only, at $5.00 per share of our Common Stock). The equity portion of the merger consideration consisted of 1,887,136 shares of Common Stock and 1,672,880 shares of Series B Preferred Stock. The Series B Preferred Stock is non-convertible until such time as the stockholders vote to approve its convertibility. We have agreed to seek such stockholder approval at our next annual meeting of stockholders. After the receipt of such stockholder approval, each share of Series B Preferred Stock will become convertible into five shares of Common Stock at a conversion price of $5.00 per share of Common Stock (subject to adjustments). Thus, the 1,672,880 shares of Series B Preferred Stock issued in the merger will, assuming receipt of stockholder approval, become convertible into 8,364,400 shares of Common Stock.

        Also on August 8, 2007, in connection with the closing of the Alta acquisition, Bank of America, N.A. (the "Lender") agented $155 million of financing for us in the form of term loans totaling $145 million and a $10 million revolving line of credit facility, $3 million of which was drawn at closing. The term loans were used to refinance approximately $41.5 million of existing Alta debt, refinance approximately $47 million of our existing debt that had previously been provided by the Lender in connection with our acquisition of ProMed, and pay the cash portion of the Alta purchase price.

Our Strategy

        Our strategy is to operate as an entrepreneurial, high growth integrated healthcare delivery system by developing vertically integrated hospital and IPA systems that will generate increased returns through providing high quality, efficient care, effective utilization management, cost efficiencies and expansion. The HMOs with which we contract have increasingly expressed a desire for their managed care partners, such as us, to provide them with a combined physician-hospital solution. With our acquisition of Alta, we have the ability to provide this model, over time, as we expand our physician networks into areas where Alta has hospitals and seek hospital acquisition opportunities in areas where Prospect has physician networks.

        Prior to our acquisition of Alta in 2007, our business strategy was focused on the management and acquisition of IPAs. In that regard, our basic strategy was to target geographical regions with many IPAs and to achieve growth and scale within those regions, primarily through the acquisition of selected IPAs by Prospect Medical Group. Our June 2007 acquisition of ProMed represented our expansion into the targeted geographical region of San Bernardino County.

        With our acquisition of Alta, we have augmented our business strategy, with the addition of our Hospital Services segment to our pre-existing IPA Management segment. Our business strategy, post-Alta, contemplates growth in both of our business segments, organically and by acquisition.

Growth Through Integration of IPA and Hospital Operations

        We seek to obtain organic growth primarily through improvement in the operating efficiency of both our IPA Management and Hospital Operations segments, and same store revenue growth at our

6

hospitals. With our acquisition of Alta, we have undertaken the following initiatives to increase the organic growth and profitability of both of our reporting segments:

•

Development and growth of IPA networks around the Alta hospitals, leveraging existing physician relationships, to compress development time and costs;



•

Utilization of our existing IPA networks to drive business to our hospital facilities when geographic and market conditions are favorable;



•

Utilization of our existing IPA networks to enhance payer diversification for our hospitals;



•

Increasing admission and discharge levels in existing hospitals by continuing to recruit physicians through our physician-centric hospital operating model;



•

Selective development of additional surgical and medical hospital programs to optimize operating income; and



•

Negotiation of expanded arrangements with our HMO partners by offering a combined physician-hospital healthcare solution for their members.

Growth Through Increasing Hospital Participation in Managed Care

        Our hospitals do not have significant relationships with managed care organizations, including Medicaid managed care and Medicare Advantage Plans. We have responded with a proactive and carefully considered strategy developed specifically for each of our facilities. Our experienced management team reviews and approves all managed care contracts, which are organized and monitored using a central database.

Growth Through Improvement of Operations of Existing IPA and Hospital Services

        We seek to increase the operating revenues and profitability of our IPAs and owned hospitals by the introduction of new services, improvement of existing services, physician recruitment and the application of financial and operational controls.

Growth Through Improvement of the Quality and Efficiency of IPA and Hospital Services

        We continue to implement programs at our hospitals designed to improve financial performance and efficiency while providing quality care, including more efficient use of professional and para-professional staff, monitoring and adjusting staffing levels and equipment usage, improving patient management and reporting procedures and implementing more efficient billing and collection procedures. In addition, we will continue to emphasize innovation in our response to the rapid changes in regulatory trends and market conditions, while fulfilling our commitment to patients, physicians, employees, communities and our stockholders.

Growth Through Acquisitions

        Our consolidated business has grown through the acquisition of IPAs and hospitals. We intend to continue our strategy of growth through acquisition of IPAs and hospitals when acquisition opportunities present themselves and acquisition funding is available to us.

        We believe that different IPAs and hospitals present different medical cultures and are best served by local medical management. Therefore, our preference, wherever possible, is to attempt to retain the senior medical management of the entities that we acquire, or with which we affiliate.

        We have chosen to concentrate our growth geographically by limiting our acquisitions to certain areas in Southern California.

7

        IPA Acquisitions.    According to industry studies, as of December, 2007, there were approximately 150 small, medium and large IPAs in California. Many IPAs cannot, or have been unwilling to, invest significantly to enhance their facilities, information technology, or other critical areas in order to grow. Smaller IPAs are often disadvantaged in that they have fewer members and revenue over which to spread high fixed costs and the increasing cost of governmental regulation. Additionally, because of their size, many smaller IPAs do not have as much leverage in physician and HMO contracting negotiations. Owners of IPAs that fall into this category may be acquisition candidates for us.

        As Prospect gets larger in the markets in which we operate, our increasing size should allow us to manage the high fixed costs and cost of governmental regulation, while also providing additional benefits to our physician and HMO partners.

        To date, we have focused on acquisition candidates in Southern California. We select acquisition candidates based in large part on the following broad criteria:

•

A history of profitable operations or predictable synergies such as opportunities for economies of scale through a consolidation of management functions;



•

A competitive marketplace environment with a high concentration of hospitals and physicians; and



•

A geographic proximity to current operations, or a material share held by the potential acquisition candidate in its local market. Our subsidiary Prospect Medical Systems conducts substantially all of its operations in Orange and Los Angeles Counties of Southern California. Our subsidiaries Sierra Medical Management ("SMM") and ProMed Health Care Administrators, Inc. conduct their medical management operations in the Antelope Valley region of Los Angeles County, and Inland Empire region of San Bernardino County, respectively. SMM shares some functions with Prospect Medical Systems in Orange County. Our June 2007 acquisition of ProMed has, in this regard, provided us with a platform to expand into San Bernardino County.

        To support our growth strategy, we have invested significantly in the expansion of our operational infrastructure, implementing a sophisticated management information system called IDX Systems Managed Care Application ("IDX"). IDX processes and monitors virtually all facets of our IPA management operations, including claims management and eligibility. The IDX system provides timely operating information and trend data, to enable rapid and proactive management action, where necessary. Additionally, we have developed significant specific industry knowledge and expertise within our key operating departments to manage the key areas of our affiliated physician organizations. These departments include:

•

Clinical operations, including case management, member services and quality control;



•

Claims adjudication and processing;



•

Contracting and credentialing, including provider relations;



•

Eligibility;



•

Finance and accounting;



•

HMO relations;



•

Information technology;



•

Physician networks, including business development and marketing.

        On behalf of our affiliated physician organizations, we managed data for approximately 159,000 HMO enrollees (exclusive of ProMed) as of September 30, 2007. We estimate that our IDX system has the capacity to process the data of at least an additional 350,000 HMO enrollees. Therefore, we believe

8

that the cost per enrollee of adding a large number of new enrollees would be significantly less than our current cost per enrollee. ProMed utilizes another nationally recognized system EZ-CAP to manage their approximately 80,000 members; and believes that their current system has considerable capacity for expansion of membership.

        Hospital Acquisitions.    Our Alta acquisition provides us with the necessary expertise to acquire and operate additional hospitals in core areas. We will seek hospital acquisition candidates meeting most or all of the following criteria:

•

Hospitals that are failing to achieve their marketplace potential;



•

Hospitals where our physician-centric operating model can be successfully applied; and



•

Hospitals located in a service area where we have the potential to create geographic clusters or to become the primary provider in that area.

Our Market

        We operate our business in Southern California, which is a mature managed care market. According to the California Department of Finance (Demographic Research Unit), the California population was approximately 37.7 million as of January 2007, representing an increase of approximately 470,000 from January 2006. According to the latest survey by Cattaneo and Stroud, Inc. (a for-profit California managed care industry research group funded, in part, by the California Healthcare Foundation), approximately 17.4 million individuals, or approximately 46% of California residents were enrolled in HMOs as of March 2006, representing a decrease of approximately 69,000 HMO enrollees compared to March 2005. HMO enrollment in California has declined slightly over the past three years, which has been attributed to the economy, unemployment, and a consumer move to preferred provider organizations ("PPOs"), which are another type of managed care plan modeled after the original fee-for-service indemnity plans, but requiring physicians to accept discounted fees. PPO customers pay higher premiums, co-payments and increased deductibles in exchange for a greater ability to choose their own physicians, whereas HMO enrollees receive virtually all necessary healthcare coverage with minimal co-payments.

        Another reason we believe that California offers significant opportunity for us is because physicians and hospitals have established practice and referral patterns that are consistent with providing services within a managed care framework. With a substantial portion of the California population utilizing either an HMO or a PPO, managed care is commonplace.

Description of Our Business—Our IPA Management Segment

Overview

        We operate our business in the managed health care industry. The managed health care industry represents a shift away from the traditional fee-for-service method of paying for health care to managed health care models, such as HMOs, that rely on the concept that pre-payment based on prior negotiation is an effective way of reducing administrative costs and controlling health care costs.

        HMOs offer a comprehensive health care benefits package in exchange for a fixed prepaid monthly fee or premium per enrollee that does not vary regardless of the quantity of medical services required or used. HMOs enroll members by entering into contracts with employer groups, or directly with individuals, to provide a broad range of health care services for a prepaid charge, with minimal deductibles or co-payments required of the members. HMOs contract directly with medical clinics, independent physician associations, hospitals and other health care providers to provide medical care to HMO enrollees. The contracts with independent physician associations ("IPAs"), for example, provide for payment by the HMOs to the IPAs a fixed monthly fee per enrollee, which is called a capitation payment. Once negotiated, the total payment is based on the number of enrollees covered, regardless

9

of the actual need for and utilization of covered services. This requires the IPAs to assume the financial risk that all necessary health care services, and the management costs associated with the provision of services under the HMO contracts, can be provided at a cost less than the amount paid to the physician organizations by the HMOs.

        Physicians, especially those in small to mid-sized IPAs, have limited time and expertise to support the management functions required in the current managed care environment. Physicians increasingly are responding to these pressures within the managed care industry by affiliating with organizations such as our company to mitigate their economic risk and to perform the non-medical management and administrative tasks that arise from the delegated managed care model. We control our affiliated physician organizations through, among other things, an assignable option agreement with Prospect Medical Group, which serves as a holding company for our affiliated physician organizations. See "Assignable Option Agreement," below.

        Through our management subsidiaries, we provide necessary management services to our affiliated physician organizations in return for a management fee. The management services we provide include the negotiation of contracts with physicians and HMOs, physician recruiting and credentialing, human resources services, claims administration, financial services, provider relations, member services, medical management including utilization management and quality assurance, data collection and management information systems. See "Management Services Agreements" and "Risk Management," below. Our affiliated physician organizations, with our assistance, contract with physicians in order to provide medical services to HMO enrollees as required under the applicable HMO contracts. See "Provider Agreements," below.

Our Affiliated Physician Organizations

        Our three management subsidiaries currently provide management services to fifteen affiliated physician organizations, including Prospect Medical Group, including the thirteen affiliated physician organizations that Prospect Medical Group owns or controls, and one affiliated physician organization that is a joint venture in which Prospect Medical Group owns a 50% interest. We have utilized Prospect Medical Group, which was our first affiliated physician organization, to acquire the ownership interest in all of our other affiliated physician organizations. Thus, while Prospect Medical Group is itself an affiliated physician organization that does the same business in its own service area as all of our other affiliated physician organizations do in theirs, Prospect Medical Group also serves as a holding company for our other affiliated physician organizations.

        Physician organizations, by California law, may only be owned by physicians. We have designated Jacob Y. Terner, M.D., the Chief Executive Officer of Prospect Medical Group, to be the owner of all of the capital stock of Prospect Medical Group. As such he indirectly controls Prospect Medical Group's ownership interest in each of our other affiliated physician organizations. Dr. Terner is also the Chief Executive Officer of all of the affiliated physician organizations that Prospect Medical Group owns (except Nuestra Familia Medical Group where he is the Secretary) and of one of the two general partners of our joint venture affiliated physician organization.

        We control each of our affiliated physician organizations through an assignable option agreement that we have entered into through our management subsidiary, Prospect Medical Systems, with Dr. Terner and Prospect Medical Group. See "Assignable Option Agreement," below. For financial reporting purposes, we are deemed to control Prospect Medical Group under U.S. Generally Accepted Accounting Principles (see Item 7, "Financial Information—Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies—Consolidation of Financial Statements") and are therefore required to consolidate the financial statements of Prospect Medical Group with those of our management subsidiaries.

        Our affiliated physician organizations consist of affiliated IPAs and affiliated medical clinics. Our affiliated IPAs contract with physicians (primary care and specialist) and other health care providers, to

10

provide all of their medical services. Our affiliated medical clinics employ their primary care physicians to provide the vast majority of their medical services, while contracting with specialist physicians and other health care providers to provide other required medical services.

        All of our affiliated physician organizations enter into contracts with HMOs to provide medical services to enrollees of the HMOs. Most of the HMO agreements have an initial term of two years renewing automatically for successive one-year terms. Increased capitation rates under the HMO agreements are usually negotiated at the end of the initial term of such HMO agreements, typically taking the form of new agreements or amendments for additional two-year terms.

        The HMO agreements generally provide for a termination by the HMOs for cause at any time, although we have never experienced a for-cause termination. The HMO agreements generally allow either the HMOs or the affiliated physician organizations to terminate the HMO agreements without cause within a four to six month period immediately preceding the expiration of the term of the agreement.

        As of September 30, 2007, our affiliated physician organizations employed 13 physicians, and had independent contracts with approximately 71,000 physicians.

        The physicians of the affiliated physician organizations are exclusively in control of and responsible for all aspects of the practice of medicine, subject to specialist guideline referrals developed by multi-specialty medical committees composed of our contracted physicians and chaired by one of our medical directors.

11

        Information about our fifteen affiliated physician organizations is listed in the tables below. Except where noted, each organization is a medical corporation owned by a single shareholder, currently, Jacob Y. Terner, M.D.

	As of September 30, 2007
Affiliated Physician Organizations	Primary Care Physicians		Specialists		Enrollees	Area of Operations
Prospect Medical Group, Inc.	313		8,832		35,900	Orange, Los Angeles & Riverside Counties
Prospect Health Source Medical Group, Inc.	76		7,707		17,900	West Los Angeles
Sierra Primary Care Medical Group, Inc.(1)	16		7,243		10,800	Antelope Valley (Los Angeles County)
Pegasus Medical Group, Inc.	3		7,215		2,700	Antelope Valley (Los Angeles County)
Nuestra Familia Medical Group, Inc(2).	68		6,598		4,800	East Los Angeles
Antelope Valley Medical Associates, Inc.	11		7,224		6,500	Antelope Valley (Los Angeles County)
AMVI / Prospect Health Network(3)	447		2,847		9,900	Orange County
Prospect Professional Care Medical Group	189		9,615		24,200	East Los Angeles & Orange County
Prospect NWOC Medical Group, Inc	116		9,037		8,500	North Orange County
StarCare Medical Group, Inc.(4)	152		8,754		23,200	North Orange County
Genesis HealthCare of Southern California	192		8,114		14,800	North Orange County
Pomona Valley Medical Group	112		231		65,400	San Bernardino County
Upland Medical Group	82		181		16,200	San Bernardino County
Less: Physicians counted at multiple IPAs	(747	)	(12,888	)	—
Total	1,030		70,710		240,800

(1)

Excludes 13 full time physicians employed by Sierra Primary Care Medical Group and Pegasus Medical Group.

(2)

55% owned by Prospect Medical Group.

(3)

50% owned Joint venture partnership with AMVI/IMC Health Network, originally formed to service Medi-Cal (Medi-Cal is the California Medicaid program), Healthy Families and OneCare members under the CalOptima contract. Effective January 1, 2007, the Medi-Cal and Healthy Family enrollees that we manage for our own economic benefit were reassigned from the joint venture to Prospect Medical Group and similarly, the Medi-Cal and Healthy Family enrollees that we manage for the economic benefit of our partner were reassigned to AMVI Care Health Network ("AMVI Care"). Included in the total enrollment were approximately 2,200 enrollees that we manage for our own economic benefit, and approximately 7,700 enrollees in the joint venture and in AMVI Care that we manage for the economic benefit of our partner, for which we earn management fee income.

12

(4)

StarCare and APAC historically shared many of their specialist physicians. APAC enrollees were moved to StarCare beginning in December 2006.

Enrollment Statistics
As of September 30

	2001	2002	2003	2004	2005	2006	2007
Commercial	105,000	102,000	136,200	168,500	144,900	140,300	184,300
Medicare	9,800	7,000	11,200	15,500	12,500	14,100	23,700
Medi-Cal	6,300	8,500	13,700	14,400	14,500	17,000	32,800
Totals	121,100	117,500	161,100	198,400	171,900	171,400	240,800

        The Medi-Cal enrollment statistics above include both enrollees that we manage for our own economic benefit, and enrollees that, starting in 1999, we manage for the economic benefit of our partner in the AMVI/Prospect Health Network joint venture. The number of enrollees included in the above table for which we provide management services to our joint venture partner, but in which we have no beneficial ownership interest, was 4,000, 5,600, 7,100, 7,100, 7,300, 7,100 and 7,700 as of September 30, 2001, 2002, 2003, 2004, 2005, 2006 and 2007, respectively.

Revenue Concentration Statistics of our Affiliated Physician Organizations
For the Fiscal Years Ended September 30, 2005, 2006, and 2007

        Currently, our affiliated physician organizations have contracts with approximately fifteen HMOs, from which our revenue is primarily derived. All of the contracts between our affiliated physician organizations and the HMOs provide for the provision of medical services to the HMO enrollees by the affiliated physician organization in consideration for the prepayment of the fixed monthly capitation fee paid by the HMOs.

        For the fiscal years ended September 30, 2005, 2006 and 2007 our affiliated physician organizations recognized capitation revenue of $129,143,656, $131,436,858 and $160,905,653, respectively. During those periods, the four largest HMOs of our affiliated physician organizations, PacifiCare of California, Health Net of California, Blue Cross of California and Blue Shield of California accounted for approximately 79%, 79% and 73% of total capitation revenue, respectively:

	Capitation Revenue				Capitation Revenue				Capitation Revenue
	Year Ended September 30, 2005		% of Total Capitation Revenue		Year Ended September 30, 2006		% of Total Capitation Revenue		Year Ended September 30, 2007(1)		% of Total Capitation Revenue
PacifiCare	$	40,155,679	31	%	$	39,337,714	30	%	$	41,698,230	26	%
Health Net		25,224,324	20	%		27,113,638	21	%		34,153,902	21	%
Blue Cross		21,365,598	17	%		20,948,066	16	%		24,436, 362	15	%
Blue Shield		14,802,756	11	%		15,954,577	12	%		18,268,356	11	%
Totals	$	101,548,357	79	%	$	103,353,995	79	%	$	118,556,850	73	%

(1)

Fiscal year 2007 amounts include ProMed since its June 1, 2007 acquisition.

13

        As of December 1, 2007, our affiliated physician organizations were listed by Cattaneo & Stroud as having a combined market share (based on number of HMO enrollees served) of approximately 8.2 percent in Orange County (114,100 enrollees compared to 1,399,100 total enrollees in Orange County), approximately 1.0 percent in Los Angeles County (45,100 enrollees compared to 4,944,050 total enrollees in Los Angeles County), and approximately 8.0 percent in San Bernardino County (81,600 enrollees compared to 1,014,900 total enrollees in San Bernardino County).

Assignable Option Agreement

        The assignable option agreement is an essential element of our "single shareholder model." The assignable option agreement between our management subsidiary, Prospect Medical Systems, and Prospect Medical Group provides Prospect Medical Systems the right, at will and on an unlimited basis, to designate a successor physician to purchase the capital stock of Prospect Medical Group for nominal consideration ($1,000) and thereby determine the ownership of Prospect Medical Group. The assignable option agreement terminates or expires coterminous with the management services agreement between Prospect Medical Systems and Prospect Medical Group, which has a thirty-year term with successive automatic ten-year renewal terms. There is no limitation on whom we may name as a successor shareholder except that any successor shareholder must be duly licensed as a physician in the State of California or otherwise be permitted by law to be a shareholder of a professional corporation.

        As a result of the assignable option agreement and our control of Prospect Medical Systems, we have control over the ownership of Prospect Medical Group. Because Prospect Medical Group is the owner of all or a significant amount of the capital stock of all of the other affiliated physician organizations, control over the ownership of Prospect Medical Group ensures that we can control the ownership of each of our affiliated physician organizations.

        Jacob Y. Terner, M.D. is currently the sole shareholder, sole director and Chief Executive Officer of Prospect Medical Group. He is Chief Executive Officer of each of our other affiliated physician organizations, except for AMVI/Prospect Health Network and Nuestra Familia Medical Group. As such, Dr. Terner has a fiduciary duty to protect the interests of each entity and its shareholders. Effective May 12, 2008, Dr. Terner resigned from his positions as director and officer of Prospect Medical Holdings, Inc. and its subsidiaries and agreed to continue to serve temporarily as the sole shareholder, sole director and Chief Executive Officer of Prospect Medical Group and other affiliated physician organizations, as described above, until a suitable replacement can be found.

        We believe that the cumulative effect of the assignable option agreement and the fiduciary duty imposed on Dr. Terner (and any physician replacing him) as the single physician shareholder of Prospect Medical Group is sufficient to safeguard our control over all business decisions of the affiliated physician organizations, including any currently unforeseeable insolvency, liquidation or dissolution of Prospect Medical Group.

Management Services Agreements

        Upon completion of every IPA acquisition, one of our three management subsidiaries (Prospect Medical Systems, Sierra Medical Management, and, possibly in the future, ProMed Health Care Administrators) enters into a long-term management services agreement with the newly-acquired physician organization. Our management subsidiaries provide management services to our affiliated IPAs and affiliated medical clinics under management services agreements that transfer control of all non-medical components of the business of the affiliated physician organizations to our management subsidiaries to the full extent permissible under federal and state law.

        Under the management services agreements, we, through our management subsidiaries, provide management functions only. Under these agreements, each affiliated physician organization delegates to

14

us the non-physician support activities that are required by the affiliated physician organizations in the practice of medicine. The management services agreements require us to provide suitable facilities, fixtures and equipment and non-physician support personnel to each affiliated physician organization. The primary services that we provide under management services agreements include the following:

•

Utilization management and quality assurance;



•

Medical management;



•

Physician contracting;



•

Physician credentialing;



•

HMO contracting;



•

Claims administration;



•

Financial services;



•

Provider relations;



•

Management information systems;



•

Patient eligibility and services;



•

Member services; and



•

Physician recruiting.

        In return for these management and administrative support services we receive a management fee. Our current standard management fee is 15% of each organization's gross revenues, which we receive from each of our affiliated physician organizations, with the exception of Prospect Health Source Medical Group (12.5%), Nuestra Familia Medical Group (12%) and AMVI/Prospect Health Network (approximately 8.5%).

        In addition to these management fees, we receive an incentive bonus based on the net profit or loss of each wholly-owned affiliated physician organization. We are allocated a 50% residual interest in the profits above 8% of the profits or a 50% residual interest in the net losses, after deduction for costs to the management subsidiary and physician compensation.

        ProMed Health Care Administrators receives a management fee of 12%, with no profit split. Because of the ownership of a controlling financial interest by Prospect Medical Group or Dr. Terner in all of our affiliated physician organizations, other than AMVI/Prospect Health Network, we have the ability to adjust our management fees (other than for AMVI/Prospect Health Network) should we determine that an adjustment is appropriate and warranted, based on increased costs associated with managing the affiliated physicians organizations. In the case of AMVI/Prospect Health Network, because Prospect Medical Group's ownership interest is a 50% interest, in the event we determine that an adjustment of the management fee for AMVI/Prospect Health Network is appropriate, an adjustment would require negotiation with the joint venture partner.

        Notwithstanding our ability to control the management fee adjustment process, we are limited by laws affecting management fees of health care management service companies. Such laws require that our management fees reflect fair market value for the services being rendered, giving consideration however to the costs of providing the services. Such laws also limit our ability to increase our management fees more frequently than once a year.

        The management services agreements with our affiliated physician organizations that are 100% owned by Prospect Medical Group each have a thirty-year term and renew automatically for successive ten-year terms unless either party elects to terminate them 90 days prior to the end of their term. The

15

management services agreements with those affiliated physician organizations in which Prospect Medical Group has less than a 100% interest have different terms. Our contract with Nuestra Familia is for only ten years; however, because Prospect Medical Group is a 55% shareholder, any renewal or termination must be approved by us. Similarly, our joint venture with AMVI is year-to-year, but because Prospect Medical Group is a 50% owner of that joint venture, we cannot be terminated without approval of the board of directors, of which Prospect Medical Group represents 50%. The management services agreements are terminable by the unilateral action of the particular physician organization prior to their normal expiration if we materially breach our obligations under the agreements or become subject to bankruptcy-related events, and we are unable to cure a material breach within sixty days of the occurrence. All management fees are eliminated in consolidation in our financial statements.

Risk Management

        We must control the medical expense or medical risk of our affiliated physician organizations. We use sub-capitation as our primary technique to control this risk. Sub-capitation is an arrangement that exists when an organization that is paid under capitated contracts with an HMO, in turn contracts with other providers on a capitated basis, for a portion of the original capitated premium. Historically, approximately half of the medical costs of our affiliated physician organizations are sub-capitated.

        The medical costs of our affiliated physician organizations which are not sub-capitated are controlled in various ways. For those specialties for which we cannot, or do not choose to obtain a sub-capitated contract, we negotiate discounted fee-for-service contracts. Further, by contract, our affiliated physician organizations generally do not assume responsibility for the costs of providing medical services ("medical costs") that occur outside of their service area, which has been defined as a 30-mile radius around the office of the HMO enrollee's primary care physician. All non-emergent care requires prior authorization, in order to limit unnecessary procedures and to direct the HMO enrollee requiring care to the physicians contracted with our affiliated physician organizations, and to the most cost effective facility. Our affiliated physician organizations utilize board certified pulmonologists and internists, trained in intensive care to maintain control over the patient's stay in the hospital, reducing unnecessary consultations and facilitating the patient's treatment and discharge. We also review medical costs monthly on a region by region basis and compare those costs to the trend of patient utilization of medical services in each region. In those instances where the patient utilization is trending very low, we determine whether it would be less expensive for our affiliated physician organizations to pay their providers on a discounted fee-for-service basis rather than on a capitated basis.

        In addition, our affiliated physician organizations' agreements with HMOs and hospitals contain risk-sharing arrangements under which the affiliated physician organizations can earn additional compensation by coordinating the provision of high quality, cost-effective health care to enrollees, but, in certain very limited cases, they may also be required to assume a portion of any loss sustained from these arrangements. Risk-sharing arrangements are based upon the cost of hospital services or other services for which our physician organizations are not capitated. The terms of the particular risk-sharing arrangement allocate responsibility to the respective parties when the cost of services exceeds a budget, which results in a "deficit," and permit the parties to share in any amounts remaining in the budget, known as a "surplus," which occurs when actual cost is less than the budgeted amount. The amount of non-capitated and hospital costs in any period could be affected by factors beyond our control, such as changes in treatment protocols, new technologies and inflation. To the extent that such non-capitated and hospital costs are higher than anticipated, revenue paid to our affiliated physician organizations may not be sufficient to cover the risk-sharing deficits they are responsible for paying, which could reduce our revenues and profitability. It is our experience that "deficit" amounts for hospital costs are applied to offset any future "surplus" amount we would otherwise be entitled to receive. We have historically not been required to reimburse the HMOs for any hospital cost deficit amounts. Most of

16

our contracts with HMOs specifically provide that we will not have to reimburse the HMO for hospital cost deficit amounts.

        In addition to hospital risk-sharing arrangements, many HMOs also provide a risk-sharing arrangement for pharmaceutical costs. Unlike hospital risk pools, where nearly all the HMO contracts mandate participation by our affiliated physician organizations in the risk sharing for hospital costs, a lesser number of the HMO contracts mandate participation in a pharmacy risk-sharing arrangement, and although (unlike hospital pools) our affiliated physician organizations are generally responsible for their 50% allocation of pharmacy cost deficits, the deficit amounts related to pharmacy costs have to date not been material.

        HMOs may insist on withholding negotiated amounts from the affiliated physician organizations' professional capitation payments, which the HMOs are permitted to retain, in order to cover the affiliated physician organizations' share of any risk-sharing deficits; and hospitals often demand cash settlements of risk sharing deficits as a "quid pro quo" for joining in these arrangements. Whenever possible, we seek to contractually reduce or eliminate our affiliated physician organizations' liability for risk-sharing deficits.

Provider Agreements

        The physicians of our affiliated physician organizations are exclusively in control of and responsible for all aspects of the practice of medicine, and are subject to specialist guideline referrals developed by multi-specialty medical committees composed of our contracted physicians and chaired by one of our medical directors. Each affiliated physician organization enters into the following types of contracts for the provision of physician and ancillary health services:

        Primary Care Physician Agreement.    A primary care physician agreement provides for primary care physicians contracting with independent physician associations to be responsible for both the provision of primary care services to enrollees and for the referral of enrollees to specialists affiliated with the independent physician association, when appropriate. Primary care physicians receive monthly sub-capitation for the provision of primary care services to enrollees assigned to them.

        Specialist Agreement.    A specialist agreement provides for a specialty care physician contracting with the independent physician association to receive either sub-capitated payments or discounted fee-for-service payments for the provision of specialty services to those enrollees referred to them by the independent physician association's primary care physician.

        Ancillary Provider Agreement.    An ancillary provider agreement provides for ancillary service providers—generally non-physician providers such as physical therapists, laboratories, etc.—to contract with an independent physician association to receive either monthly sub-capitated, discounted fee-for service or case rate payments for the provision of service to enrollees on an as-needed basis.

Competition

        The managed care industry is highly competitive and is subject to continuing changes with respect to the manner in which services are provided and how providers are selected and paid. We are subject to significant competition with respect to physicians affiliating with our physician organizations. Generally, both we and our affiliated physician organizations compete with any entity that enters into contracts with HMOs for the provision of prepaid health care services, including:

•

Other companies that provide management services to health care providers but do not own the affiliated physician organization;



•

Hospitals that affiliate with one or more physician organizations;

17

•

HMOs that contract directly with physicians; and



•

Other physician organizations.

        We believe that we offer competitive services in the Southern California managed care market based upon our historical stability, our competitive compensation relative to other organizations, and our high quality of service.

        There is competition for patients and primary care physicians in every market in which our affiliated physician organizations operate. The number of significant competitors varies in each region. The following summary of information about our competitors and their estimated enrollment in various markets is based on a recent report published by Cattaneo and Stroud, Inc., consultants to the California managed care industry. Enrollment numbers that follow differ from updated enrollment numbers of our affiliated entities provided elsewhere in this filing, due to differing dates of presentation.

        Based on the December 2007 Cattaneo and Stroud estimates, total HMO enrollment in Los Angeles County was approximately 4,944,050, of which Prospect had approximately 45,100 enrollees, or approximately 1%. Our five largest competitors in Los Angeles County are Kaiser Foundation, Healthcare Partners Medical Group, Heritage Provider Network, La Vida Medical Group, and Facey Medical Foundation. HMO enrollment in Orange County was estimated at approximately 1,399,100 of which Prospect had approximately 114,100 enrollees, or approximately 8.2%. Our five largest competitors in Orange County are Kaiser Foundation, St. Joseph Heritage Healthcare, Monarch Healthcare, Greater Newport Physicians Medical Group, and Bristol Park Medical Group. HMO enrollment in San Bernardino County was estimated at approximately 1,014,900 of which Prospect had approximately 81,600 enrollees, or approximately 8.0%. Our five largest competitors in San Bernardino County are Beaver Medical Group, Chino Medical Group, New Horizon Medical Group, PrimeCare of San Bernardino and Regal Medical Group.

        Based on the December 2007 Cattaneo and Stroud statistics, we believe that the combined enrollment of our affiliated physician organizations is the eighth largest in California.

        Some of our competitors are larger than us, have greater resources and may have longer-established relationships with buyers of their services, giving them greater leverage in contracting with physicians and HMOs. Such competition may make it difficult to enter into affiliations with physician organizations on acceptable terms and to sustain profitable operations.

Description of Our Business—Our Hospital Services Segment

Overview

        The hospital services sector is comprised of at least three sub-sectors that do not generally compete with each other because they largely serve three distinct patient populations:

•

Tertiary Hospitals:    Tertiary hospitals are generally owned by the larger philanthropic organizations and for-profit hospital companies which tend to be well funded and utilize state of the art facilities to treat commercially insured patients and higher acuity care patients.



•

Community Hospitals:    Community hospitals are both for-profit and not-for-profit and operated in generally older properties, use generally less state-of-the-art equipment, and are equipped to care for patients of lower acuity. Efficient hospitals in this group are able to provide care profitably because of their significantly lower cost structures.



•

Public Hospitals:    Public hospitals are generally owned by government entities that are set up to treat uninsured, indigent patients with the full range of acuity needs.

18

        Both government and managed care payers are under pressure to reduce the cost of health coverage. One means of doing this is to match patients to the facility best suited to delivering the quality of care required in the most cost-efficient setting. Because of the focused, cost efficient structures of community hospitals, both patients and payers can benefit economically from utilizing community hospitals where feasible. In the managed care context, patient co-pays in many instances increase as the cost structure of the hospital increases, thereby providing an incentive to the patient, as well as the managed care payer, to utilize focused cost efficient community hospitals. Further, government payers generally pay tertiary hospitals higher per diem amounts for care under Medicare and Medi-Cal than the per diem amounts paid to community hospitals. Companies operating community-based hospitals are positioned to benefit from this market dynamic as focused quality, cost efficient providers.

Our Hospitals

        Through our Alta subsidiary we own and operate four community-based hospitals in high density population areas in the greater Los Angeles area with a combined 339 available beds. Our hospitals in Hollywood, Los Angeles and Norwalk offer a comprehensive range of medical and surgical services, and our hospital in Van Nuys provides acute, inpatient and outpatient, psychiatric services. Our hospitals in Los Angeles and Norwalk are jointly licensed under Alta Los Angeles Hospitals, Inc., and our hospitals in Hollywood and Van Nuys are jointly licensed under Alta Hollywood Hospitals, Inc.

        Hollywood Community Hospital.    Hollywood Community Hospital is a 100-bed community-based hospital with an ambulatory urgent care center located in a moderate income area, approximately six miles northwest of downtown Los Angeles. The hospital serves a local community that spans a radius of approximately 10 miles. Hollywood Community Hospital offers intensive care, critical care, orthopedic and general medical and surgical services. The facility is a six-story building comprising 65,199 square feet and sits on 2.25 acres.

        Van Nuys Community Hospital.    Van Nuys Community Hospital is a 59-bed psychiatric hospital located in the San Fernando Valley, approximately twenty miles northwest of downtown Los Angeles. The hospital serves a local community that spans a radius of approximately 10 miles. Van Nuys Community Hospital has both inpatient and outpatient psychiatric programs, all of which serve fully insured patients on a voluntary basis. The facility is 44,048 square feet and sits on 1.85 acres.

        Los Angeles Community Hospital.    Los Angeles Community Hospital is a 130-bed full service acute care hospital located approximately 4.5 miles southeast of downtown Los Angeles in one of the most densely populated areas of Los Angeles County. Los Angeles Community Hospital offers intensive care, critical care, obstetrics, pediatrics, skilled nursing, orthopedic, general medical and surgical services. In addition, the hospital has a very active stand-by emergency room and sub-acute care. The facility is 60,449 square feet and sits on 1.84 acres.

        Norwalk Community Hospital.    Norwalk Community Hospital is a 50-bed acute care hospital located approximately 17 miles southeast of downtown Los Angeles. Norwalk Community Hospital offers general surgery, emergency services (paramedic receiving), intensive care, critical care, orthopedic and general medical and surgical services. In addition, the hospital has a basic emergency room. The facility is 22,326 square feet and sits on 1.88 acres.

19

Selected Operating Statistics

        The table below sets forth selected operating statistics.

	Year Ended September 30, 2007
Licensed beds as of the end of the period(1)	339
Admissions(2)	1,910
Adjusted admissions(3)	2,052
Emergency room visits(4)	1,862
Surgeries(5)	510
Patient days(6)	10,756
Acute care average length of stay in days(7)	4.80
Occupancy rates(8)	58.6	%

(1)

Licensed beds are beds for which a hospital has obtained approval to operate from the applicable state licensing agency.



(2)

Admissions are patients admitted to our hospitals for inpatient treatment. This statistic is used by our management, investors and other readers of our financial statements as a measure of inpatient volume.



(3)

Adjusted admissions are total admissions adjusted for outpatient volume. Adjusted admissions are computed by multiplying admissions (inpatient volume) by the sum of gross inpatient charges and gross outpatient charges and then dividing the resulting amount by gross inpatient charges. This statistic is used by our management, investors and other readers of our financial statements as a measure of inpatient and outpatient volume.



(4)

The number of emergency room visits is a critical operational measure that is used by our management, investors and other readers of our financial statements to gauge our patient volume. Much of our inpatient volume is a byproduct of a patient's initial encounter with our hospitals through an emergency room visit.



(5)

The number of surgeries includes both inpatient and outpatient surgeries. This statistic is used by our management, investors and other readers of our financial statements as one component of overall patient volume and business trends.



(6)

Patient days are the total number of days that patients are admitted in our hospitals. This statistic is used by our management, investors and other readers of our financial statements as a measure of inpatient volume.



(7)

Acute care average length of stay in days represents the average number of days admitted patients stay in our hospitals. This statistic is used by our management, investors and other readers of our financial statements as a measure of our utilization of resources.



(8)

Occupancy rates are affected by many factors, including the population size and general economic conditions within particular market service areas, the degrees of variation in medical and surgical products, outpatient use of hospital services, quality and treatment availability at competing hospitals and seasonality.

Our Hospital Operating Model

        Our hospital operating model is physician-centric. We have found that a physician friendly environment is key to recruiting physicians. We also strive to provide convenience in scheduling and collaborative patient case management in order to assist in the treatment of the patient and in the

20

physician's time management. We have, for example, developed an admissions process that enables the physician's office to make a hospital admission with a single telephone call to our admissions coordinator. We also provide admissions through our emergency room and urgent care centers to help better evaluate medical necessity.

        Our hospital physicians are not employed by us. However, some physicians provide services in our hospitals under contracts which generally describe a term of service, provide and establish the duties and obligations of such physicians, require the maintenance of certain performance criteria and fix compensation for such services. Any licensed physician may apply to be admitted to the medical staff of any of our hospitals in accordance with established credentialing criteria.

        We have also developed transfer processes with a significant number of hospitals to receive patients that are more appropriately treated in one of our hospitals. Hospitals with which we have such a transfer relationship include some community hospitals that do not accept Medi-Cal patients and tertiary hospitals with high cost structures that consider certain non-tertiary-level care patients to be unprofitable. Correspondingly, our hospitals will transfer patients to another hospital with which we have a transfer relationship when the patient's individual circumstances warrant.

Hospital Revenues and Reimbursement

        We record gross patient service charges on a patient-by-patient basis in the period in which services are rendered. Patient accounts are billed after the patient is discharged. When a patient's account is billed, our accounting system calculates the reimbursement that we expect to receive based on the type of payer and the contractual terms of such payer. We record the difference between gross patient service charges and expected reimbursement as contractual adjustments.

        At the end of each month, we estimate expected reimbursement for unbilled accounts. Estimated reimbursement amounts are calculated on a payer-specific basis and are recorded based on the best information available to us at the time regarding applicable laws, rules, regulations and contract terms. We continually review our contractual adjustment estimation process to consider and incorporate updates to laws, rules and regulations, as well as changes to managed care contract terms that result from negotiations and renewals.

        Hospital revenues depend upon inpatient occupancy levels, the ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or negotiated payment rates for such services. Charges and reimbursement rates for inpatient services vary significantly depending on the type of service and geographic location of the hospital. Our hospitals receive revenues for patient services from a variety of sources, including the federal Medicare program, state Medicaid (Medi-Cal) programs, managed care payers (including PPOs and HMOs), indemnity-based health insurance companies and self-pay patients. The basis for payments involving inpatient and outpatient services rendered includes prospectively determined rates per discharge and cost-reimbursed methodologies. Our hospitals are also eligible for State of California Disproportionate Share ("DSH") payments based on a prospective payment system for hospitals that serve large populations of low-income patients.

        Our hospitals receive payment for patient services from the federal government primarily under the Medicare program, the California Medicaid program, health maintenance organizations ("HMOs"), preferred provider organizations ("PPOs") and other managed care plans, as well as directly from patients ("self-pay"). All of our hospitals are certified as providers of Medicare and Medicaid services. Amounts received under the Medicare and Medicaid programs are generally significantly less than a hospital's customary charges for the services provided. Since a substantial portion of our revenue comes from patients under Medicare and Medicaid programs, our ability to operate our business successfully in the future will depend in large measure on our ability to adapt to changes in these programs.

21

        For the period August 8, 2007 through September 30, 2007, the amount of Alta's revenue from Medicare, Medicaid, self pay, and private insurers were $5,998,079 (39.3%), $8,226,765 (53.9%), $527,807 (3.4%) and $501,874 (3.3%), respectively.

Medicare

        Medicare is a federal program that provides medical insurance benefits to persons age 65 and over, some disabled persons, and persons with end-stage renal disease. Under the Medicare program, we are paid for inpatient and outpatient services performed by our hospitals. Payments for inpatient acute services are generally made pursuant to a prospective payment system, commonly known as "PPS." Under PPS, our hospitals are paid a predetermined amount for each hospital discharge based on the patient's diagnosis. Specifically, each discharge is assigned to a diagnosis-related group, commonly known as a "DRG," based upon the patient's condition and treatment during the relevant inpatient stay. For the federal fiscal year 2007 (i.e., the federal fiscal year beginning October 1, 2006), each DRG was assigned a payment rate using 67% of the national average charge per case and 33% of the national average cost per case. For the federal fiscal year 2008, each DRG is assigned a payment rate using 67% of the national average cost per case and 33% of the national average charge per case and 50% of the change to severity adjusted DRG weights. Severity adjusted DRG's more accurately reflect the costs a hospital incurs for caring for a patient and accounts more fully for the severity of each patient's condition. For the federal fiscal year 2009, each DRG is assigned a payment rate using 100% of the national average cost per case and 100% of the severity adjusted DRG weights. DRG payments are based on national averages and not on charges or costs specific to a hospital. However, DRG payments are adjusted by a predetermined geographic adjustment factor assigned to the geographic area in which the hospital is located. While a hospital generally does not receive payment in addition to a DRG payment, hospitals may qualify for an "outlier" payment when the relevant patient's treatment costs are extraordinarily high and exceed a specified regulatory threshold.

        The DRG rates are adjusted by an update factor on October 1 of each year, the beginning of the federal fiscal year. The index used to adjust the DRG rates, known as the "market basket index," gives consideration to the inflation experienced by hospitals in purchasing goods and services. Under the Medicare Prescription Drug, Improvement and Modernization Act of 2003, DRG payment rates were increased by the full "market basket index," for the federal fiscal years 2006, 2007 and 2008 or 3.7%, 3.4% and 3.3%, respectively. The Deficit Reduction Act of 2005 imposes a 2% reduction to the market basket index beginning in the federal fiscal year 2007, and thereafter, if patient quality data is not submitted. We intend to comply with this data submission requirement. Future legislation may decrease the rate of increase for DRG payments, but we are not able to predict the amount of any reduction or the effect that any reduction will have on us.

Medicaid

        Medicaid is a federal-state funded program, administered by the State of California, which provides medical benefits to individuals who are unable to afford healthcare. Our state Medicaid hospital payments are made under a prospective payment system similar to DRGs. Medicaid is currently funded jointly by state and federal government. The federal government and the State of California are currently considering significantly reducing Medicaid funding, while at the same time expanding Medicaid benefits. We can provide no assurance that reductions to Medicaid fundings will not have a material adverse effect on our results of operations.

        Subject to the terms and conditions of the Medi-Cal contracts between the California Department of Health Services (the "State") and each of our hospitals, a significant portion of our hospital businesses are subject to termination of contracts and subcontracts at the election of the Government. The contract between the State and Alta Los Angeles Hospitals, Inc. dba Los Angeles Community Hospital and Norwalk Community Hospital was entered into on October 11, 2007, and is effective until

22

December 31, 2008. The contract between the State and Alta Hollywood Hospitals, Inc. dba Hollywood Community Hospital and Van Nuys Community Hospital was entered into May 10, 2007, and is effective until July 10, 2009. Thereafter, the contracts are renewed, on an annual basis, by mutual written agreement by the parties. We can provide no assurance whether these contracts will be renewed upon their expiration.

Disproportionate Share Payments

        We receive Disproportionate Share Hospital ("DSH") adjustments that provide additional payments to hospitals that treat a high percentage of low-income patients. The adjustment is based on the hospital's DSH patient percentage, which is the sum of the number of patient days for patients who were entitled to both Medicare Part A and Supplemental Security Income benefits, divided by the total number of Medicare Part A patient days. The Medi-Cal adjustment is based either on the Hospital's Medi-Cal utilization or its low-income utilization percentage. Alta hospitals qualify because its Medi-Cal utilization was greater than one standard deviation above 42% of the Hospital's total patient days. No Medi-Cal DSH payments were received by our hospitals for the period August 8, 2007 through September 30, 2007.

Medicare Bad Debt Reimbursement

        Under Medicare, the costs attributable to the deductible and coinsurance amounts which remain unpaid by the Medicare beneficiary can be added to the Medicare share of allowable costs as cost reports are filed. Hospitals generally receive interim pass-through payments during the cost report year which were determined by the fiscal intermediary from the prior cost report filing.

        Bad debts must meet the following criteria to be allowable:

•

the debt must be related to covered services and derived from deductible and coinsurance amounts;



•

the provider must be able to establish that reasonable collection efforts were made;



•

the debt was actually uncollectible when claimed as worthless; and



•

sound business judgment established that there was no likelihood of recovery at any time in the future.

        The amounts uncollectible from specific beneficiaries are to be charged off as bad debts in the accounting period in which the accounts are deemed to be worthless. In some cases, an amount previously written off as a bad debt and allocated to the program may be recovered in a subsequent accounting period. In these cases, the recoveries must be used to reduce the cost of beneficiary services for the period in which the collection is made. In determining reasonable costs for hospitals, the amount of bad debts otherwise treated as allowable costs is reduced by 30%. Under this program, our hospitals incurred an aggregate of approximately $260,507, which is subject to the 30% reduction, for the period August 8, 2007 through September 30, 2007. Amounts incurred by a hospital as reimbursement for bad debts are subject to audit and recoupment by the fiscal intermediary. Bad debt reimbursement has been a focus of fiscal intermediary audit/recoupment efforts in the past.

Annual Cost Reports

        Hospitals participating in the Medicare and some Medicaid programs are required to meet specified financial reporting requirements. Federal and state regulations require submission of annual cost reports identifying medical costs and expenses associated with the services provided by each hospital to Medicare beneficiaries and Medicaid recipients. Annual cost reports required under the Medicare and Medicaid programs are subject to routine governmental audits. These audits may result

23

in adjustments to the amounts ultimately determined to be due to us under these reimbursement programs. Finalization of these audits often takes several years. We can appeal any final determination made in connection with an audit. DRG outlier payments and other cost report abuses have been and continue to be the subject of audit and adjustment by the Centers for Medicare & Medicaid Services, or "CMS" (a federal agency within the U.S. Department of Health and Human Services).

Inpatient Psychiatric

        As of September 30, 2007, we operated 2 inpatient psychiatric units. Effective for reporting periods after January 1, 2005, CMS replaced the cost-based system with a PPS for inpatient hospital services furnished in psychiatric hospitals and psychiatric units of general, acute care hospitals and critical access hospitals ("IPF PPS"). IPF PPS is a per diem prospective payment system with adjustments to account for certain patient and facility characteristics. IPF PPS contains an "outlier" policy for extraordinarily costly cases and an adjustment to a facility's base payment if it maintains a full-service emergency department. IPF PPS is being implemented over a three-year transition period with full payment under PPS to begin in the fourth year. Also, CMS has included a stop-loss provision to ensure that hospitals avoid significant losses during the transition. CMS has established the IPF PPS payment rate in a manner intended to be budget neutral and has adopted a July 1 update cycle. Thus, the initial IPF PPS payment rate was effective for the 18-month period January 1, 2005 through June 30, 2006. In May 2007, CMS released its final IPF PPS regulation for July 1, 2007 through June 30, 2008, which states that IPF PPS rates increased an average of 3.1% effective July 1, 2007. Under this program, our hospitals received an aggregate of approximately $804,864 for the period August 8, 2007 through September 30, 2007.

Competition

        All four hospitals are located in Los Angeles County and each hospital serves its own local community.

        Within the Los Angeles Community Hospital ("LACH") service area, three urban hospitals are considered competitors of LACH. They are Mission Hospital of Huntington Park, a 127 licensed bed acute care hospital, Monterey Park Hospital, a 101 licensed bed acute care facility, and East Lost Angeles Doctors Hospital, which is licensed for 122 acute care beds and 25 skilled nursing beds.

        The Norwalk Community Hospital service area has two main competitors, Coast Plaza Doctors Hospital, located in Norwalk, and Presbyterian Intercommunity Hospital, which is located in Whittier. Coast Plaza Doctors Hospital is licensed for 123 beds, of which 12 are skilled nursing beds. Presbyterian Intercommunity Hospital is licensed for 444 beds, of which 35 are licensed as skilled nursing beds.

        In the surrounding service area of Hollywood Community Hospital, there are two main competitors, Olympia Medical Center, an acute care hospital licensed for 204 beds and Valley Presbyterian Hospital, a 350 acute care licensed bed hospital.

        Van Nuys Community Hospital is the only Psychiatric hospital in the area. There are two competing acute care facilities that offer acute psychiatric services. Mission Community Hospital in Panorama City is licensed for 60 acute psychiatric beds and Pacifica Hospital of the Valley, located in Sun Valley, is licensed for 38 acute psychiatric beds.

24

        We believe that each of our hospitals is able to compete within its respective service areas based upon three primary factors:

•

Competitive Cost Structure.    We have been historically successful in increasing operating revenue and developing improved service delivery capabilities. We have implemented stringent staffing guidelines that allow our hospitals to flex staffing levels to census on a daily basis. We are able to provide the most cost effective services with optimal quality of care through focusing and streamlining programs, services and procedures to best meet the demands of the physicians and needs of the community, with favorable volume levels. We seek to achieve our efficiencies through higher margin revenue growth and continual process improvements, rather than through defensive cost-cutting.



•

Quality of Service.    Our physician-centric model has allowed our hospitals to develop a reputation for delivering high-quality care and easy access to the communities they serve. We maintain a strong local following of high-quality physicians in our service areas. Our medical staffs typically practice at several hospitals concurrently, including some major tertiary facilities located within the same metropolitan areas as our hospitals.



•

Leverageable Platform.    The recent merger of Prospect and Alta provides synergies between Prospect's IPA business and Alta's hospital, allowing the Company the opportunity to offer patients comprehensive healthcare services through the continuum of care. The Company will seek to bridge the healthcare needs of the Prospect IPA patients with the healthcare services of the Alta hospitals. These synergies are accomplished through Hospital Services Agreements, Risk Sharing Agreements and the shared mission of high-quality, cost-effective healthcare.

Health Care Regulation

General Regulatory Overview

        Both we and our hospitals and affiliated physician organizations are subject to numerous federal and state statutes and regulations that are applicable to the management and provision of health care services and to business generally, as summarized below. The healthcare industry is required to comply with extensive government regulation at the federal, state, and local levels. Under these regulations, hospitals must meet requirements to be certified as hospitals and qualified to participate in government programs, including the Medicare and Medicaid programs. These requirements relate to the adequacy of medical care, equipment, personnel, operating policies and procedures, maintenance of adequate records, hospital use, rate-setting, compliance with building codes, and environmental protection laws. There are also extensive regulations governing a hospital's participation in these government programs. If we fail to comply with applicable laws and regulations, we can be subject to criminal penalties and civil sanctions, our hospitals can lose their licenses and we could lose our ability to participate in these government programs. In addition, government regulations may change. If that happens, we may have to make changes in our facilities, equipment, personnel, and services so that our hospitals remain certified as hospitals and qualified to participate in these programs. We believe that our hospitals and affiliated physician organizations are in substantial compliance with current federal, state, and local regulations and standards.

        In addition to the regulations referenced above, our affiliated physician organization operations may also be affected by changes in ethical guidelines and operating standards of professional and trade associations such as the American Medical Association. Changes in existing ethical guidelines or professional organization standards, adverse judicial or administrative interpretations of such guidelines and standards, or enactment of new legislation could require us to make costly changes to our business that would reduce our profitability. Changes in health care legislation or government regulation may restrict our existing operations, limit the expansion of our business or impose additional compliance

25

requirements and costs, any of which could have a material adverse effect on our business, financial condition, results of operations and the trading price of our stock.

Corporate Practice of Medicine and Professional Licensing

        Federal and state laws specify who may practice medicine and limit the scope of relationships between medical practitioners and other parties. Under these laws, we are prohibited from practicing medicine or exercising control over the provision of medical services. We do not employ physicians to provide medical services, exert control over medical decision-making or represent to the public that we offer medical services. We have entered into management services agreements with our affiliated physician organizations that reserve exclusive control and responsibility for all aspects of the practice of medicine and the delivery of medical services to the physician organizations. We believe that our contractual arrangements with physician networks, hospitals, or physician groups are appropriate and that we are in compliance with applicable state laws in relation to the corporate practice of medicine and fee-splitting. However, changes in the corporate practice of medicine or fee-splitting laws may require modifications in our relationships with our physicians.

        State law also imposes licensing requirements on individual physicians and on facilities operated by physicians. Federal and state laws regulate HMOs and other managed care organizations with which physician organizations may have contracts. Some states also require licensing of third-party administrators and collection agencies. This may affect our operations in states in which we may seek to do business in the future. In connection with our existing operations, we believe we are in compliance with all such laws and regulations and current interpretations thereof. Our ability to operate profitably will depend, in part, upon our ability and the ability of our affiliated physician organizations to obtain and maintain all necessary licenses and other approvals and operate in compliance with applicable health care laws and regulations, including any new laws and regulations or new interpretations of existing laws and regulations.

Anti-Kickback

        Medicare and Medicaid anti-kickback and anti-fraud and abuse amendments codified under Section 1128B(b) of the Social Security Act (the "Anti-kickback Statute") prohibit certain business practices and relationships that might affect the provision and cost of health care services payable under the Medicare and Medicaid programs and other government programs, including the payment or receipt of remuneration for the referral of patients whose care will be paid for by such programs. Sanctions for violating the Anti-kickback Statute include criminal and civil penalties, as well as fines and possible exclusion from government programs, such as Medicare and Medicaid. Many states have statutes similar to the federal Anti-kickback Statute, except that the state statutes usually apply to referrals for services reimbursed by all third-party payers, not just federal programs. In addition, it is a violation of the federal Civil Monetary Penalties Law to offer or transfer anything of value to Medicare or Medicaid beneficiaries that is likely to influence their decision to obtain covered goods or services from one provider of service over another. The federal government has also issued regulations that describe some of the conduct and business relationships that are permissible under the Anti-kickback Statute. These regulations are often referred to as the "Safe Harbor" regulations. The fact that certain conduct or a given business arrangement does not meet a Safe Harbor does not necessarily render the conduct or business arrangement illegal under the Anti-kickback Statute. Rather, such conduct and business arrangements risk increased scrutiny by government enforcement authorities and should be reviewed on a case-by-case basis.

        There are several aspects of our hospitals' relationships with third parties and our relationships with physicians to which the Anti-kickback Statute may be relevant. The government may construe some of the marketing and managed care contracting activities that we historically performed as arranging for the referral of patients to the physicians with whom we had a management agreement.

26

We believe our business activities are not in violation of the Anti-kickback Statute. Further, we believe that the business operations of our affiliated physician organizations do not involve the offer, payment, solicitation or receipt of remuneration to induce referrals of patients, because compensation arrangements between the physician organizations and the primary care physicians who make referrals are designed to discourage referrals to the extent they are medically unnecessary. These physicians are paid either on a sub-capitation or fee-for-service basis and do not receive any financial benefit from making referrals.

        Noncompliance with, or violation of, the Anti-kickback Statute can result in exclusion from the Medicare and Medicaid (Medi-Cal in California) programs and civil and criminal penalties. California also has a similar anti-kickback prohibition with similar penalties. Although we believe our activities to be in compliance, if we were found to be in violation of the anti-kickback legislation, we could suffer civil penalties, criminal fines, imprisonment or possible exclusion from participation in the reimbursement programs, which could reduce our revenues, increase our costs and decrease our profitability.

Self-Referral

        Section 1877 of the Social Security Act (commonly referred to as the "Stark" law) generally restricts referrals by physicians of Medicare or Medicaid patients to entities with which the physician or an immediate family member has a financial relationship, unless one of several exceptions applies. The referral prohibition applies to a number of statutorily defined "designated health services," such as clinical laboratory, physical therapy, radiology, and inpatient and outpatient hospital services. The exceptions to the referral prohibition cover a broad range of common financial relationships. These statutory, and the subsequent regulatory, exceptions are available to protect certain permitted employment relationships, leases, group practice arrangements, medical directorships, and other common relationships between physicians and providers of designated health services, such as hospitals. A violation of the Stark law may result in a denial of payment, required refunds to patients and the Medicare program, civil monetary penalties of up to $15,000 for each violation, civil monetary penalties of up to $100,000 for "sham" arrangements, civil monetary penalties of up to $10,000 for each day that an entity fails to report required information, and exclusion from participation in the Medicare and Medicaid programs and other federal programs. Our hospitals' participation in and development of other financial relationships with physicians could be adversely affected by amendments to the Stark law or similar state enactments.

        The self-referral prohibition applies to our services, and we believe our relationships comply with the law. We believe our business arrangements do not involve the referral of patients to entities with whom referring physicians have an ownership interest or compensation arrangement within the meaning of federal and state self-referral laws, because referrals are made directly to other providers rather than to entities in which referring physicians have an ownership interest or compensation arrangement. We further believe our financial arrangements with physicians fall within exceptions to state and federal self-referral laws, including exceptions for ownership or compensation arrangements with managed care organizations and for physician incentive plans that limit referrals. In addition, we believe that the methods we use to acquire existing physician organizations and to recruit new physicians do not violate such laws and regulations. Nevertheless, if we were found to have violated the self-referral laws, we could be subject to denial of reimbursement, forfeiture of amounts collected in violation of the law, civil monetary penalties, and exclusion from the Medicare and Medicaid programs, which could reduce our revenues, increase our costs and decrease our profitability. California also has a self-referral law that provides for similar penalties.

27

Federal False Claims Act

        The federal False Claims Act prohibits providers from knowingly submitting false claims for payment to the federal government. This law has been used not only by the federal government, but also by individuals who bring an action on behalf of the government under the law's "qui tam" or "whistleblower" provisions. When a private party brings a qui tam action under the federal False Claims Act, the defendant will generally not be aware of the lawsuit until the government makes a determination whether it will intervene and take a lead in the litigation.

        Civil liability under the federal False Claims Act can be up to three times the actual damages sustained by the government plus civil penalties for each separate false claim. There are many potential bases for liability under the federal False Claims Act, including claims submitted pursuant to a referral found to violate the anti-kickback statute. Although liability under the federal False Claims Act arises when an entity knowingly submits a false claim for reimbursement to the federal government, the federal False Claims Act defines the term "knowingly" broadly. Although simple negligence generally will not give rise to liability under the federal False Claims Act, submitting a claim with reckless disregard for its truth or falsity can constitute "knowingly" submitting a false claim.

        The State of California has enacted false claims legislation. These California false claims statutes are generally modeled on the federal False Claims Act, with similar damages, penalties, and qui tam enforcement provisions. An increasing number of healthcare false claims cases seek recoveries under both federal and state law. Provisions in the Deficit Reduction Act of 2005 ("DRA") that went into effect on January 1, 2007 give states significant financial incentives to enact false claims laws modeled on the federal FCA. Additionally, the DRA requires every entity that receives annual payments of at least $5 million from a state Medicaid plan to establish written policies for its employees that provide detailed information about federal and state false claims statutes and the whistleblower protections that exist under those laws. Both provisions of the DRA are expected to result in increased false claims litigation against health care providers. We have complied with the written policy requirements.

Fraud and Abuse

        Existing federal laws governing Medicaid, Medicare and other federal health care programs, as well as similar state laws, impose a variety of fraud and abuse prohibitions on the company. These laws are interpreted broadly and enforced aggressively by multiple government agencies, including the Office of Inspector General of the Department of Health and Human Services (the "OIG"), the Department of Justice and various state authorities. In addition, in the DRA, Congress created a new Medicaid Integrity Program to enhance federal and state efforts to detect Medicaid fraud, waste and abuse and provide financial incentives for states to enact their own false claims acts as an additional enforcement tool against Medicaid fraud and abuse. Violations of these laws are punishable by substantial penalties, including monetary fines, civil penalties, criminal sanctions (in the case of the anti-kickback law), exclusion from participation in government-sponsored health care programs, and forfeiture of amounts collected in violation of such laws, any of which could have an adverse effect on our business and results of operations.

Emergency Medical Treatment and Active Labor Act

        All of our hospital facilities are subject to the Emergency Medical Treatment and Active Labor Act ("EMTALA"). This federal law requires any hospital that participates in the Medicare program to conduct an appropriate medical screening examination of every person who presents to the hospital's emergency department for treatment and, if the patient is suffering from an emergency medical condition, to either stabilize that condition or make an appropriate transfer of the patient to a facility that can handle the condition. The obligation to screen and stabilize emergency medical conditions exists regardless of a patient's ability to pay for treatment. There are severe penalties under EMTALA

28

if a hospital fails to screen or appropriately stabilize or transfer a patient or if the hospital delays appropriate treatment in order to first inquire about the patient's ability to pay. Penalties for violations of EMTALA include civil monetary penalties and exclusion from participation in the Medicare program. In addition, an injured patient, the patient's family or a medical facility that suffers a financial loss as a direct result of another hospital's violation of the law can bring a civil suit against that other hospital.

        During 2003, CMS published a final rule clarifying a hospital's duties under EMTALA. In the final rule, CMS clarified when a patient is considered to be on a hospital's property for purposes of treating the person pursuant to EMTALA. CMS stated that off-campus facilities such as specialty clinics, surgery centers and other facilities that lack emergency departments should not be subject to EMTALA, but that these locations must have a plan explaining how the location should proceed in an emergency situation such as transferring the patient to the closest hospital with an emergency department. CMS further clarified that hospital-owned ambulances could transport a patient to the closest emergency department instead of to the hospital that owns the ambulance. CMS's rules did not specify "on-call" physician requirements for an emergency department, but provided a subjective standard stating that "on-call" hospital schedules should meet the hospital's and community's needs. Although we believe that our hospitals comply with EMTALA, we cannot predict whether CMS will implement new requirements in the future and whether our hospitals will comply with any new requirements.

Health Care Facility Licensing, Certification and Accreditation Requirements

        All of our hospitals are subject to compliance with various federal, state and local statutes and regulations. Our hospitals must also comply with the conditions of participation and licensing requirements of federal, state and local health agencies, as well as the requirements of municipal building codes, health codes and local fire departments. Various other licenses and permits also are required in order to dispense narcotics, operate pharmacies, handle radioactive materials and operate certain equipment. Our health care facilities hold all required governmental approvals, licenses and permits material to the operation of our business.

        Hospitals are subject to periodic inspection by federal, state, and local authorities to determine their compliance with applicable regulations and requirements necessary for licensing and certification. All of our hospitals are licensed under appropriate state laws and are qualified to participate in Medicare and Medicaid programs. In addition, all of our hospitals are accredited by the Joint Commission. This accreditation indicates that a hospital satisfies the applicable health and administrative standards to participate in Medicare and Medicaid programs. If any of our facilities were to lose its Joint Commission accreditation or otherwise lose its certification under the Medicare and Medicaid programs, the hospital may be unable to receive reimbursement from the Medicare and Medicaid program and other payers. We believe that our hospitals are in substantial compliance with current applicable federal, state, local and independent review body regulations and standards. The requirements for licensure, certification and accreditation are subject to change and, in order to remain qualified, it may become necessary for us to make changes in our facilities, equipment, personnel and services in the future, which could have a material adverse impact on operations.

Utilization Review Compliance and Hospital Governance

        Federal law contains numerous provisions designed to ensure that services rendered by hospitals to Medicare and Medicaid patients meet professionally recognized standards, 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 peer review organizations, which review the appropriateness of Medicare and Medicaid patient admissions and discharges, the quality of care provided, the validity of DRG classifications and the appropriateness of

29

cases of extraordinary length of stay or cost. Peer review organizations may deny payment for services provided, or assess fines and also have the authority to recommend to the Department of Health and Human Services ("DHHS") that a provider which is in substantial noncompliance with the standards of the peer review organization be excluded from participation in the Medicare program. Utilization review is also a requirement of most non-governmental managed care organizations.

        Medical and surgical services and practices are extensively supervised by committees of staff doctors at each of our hospitals, are overseen by each facility's local governing board, the members of which primarily are community members and physicians, and are reviewed by our clinical quality personnel. The local hospital governing board also helps maintain standards for quality care, develop long-range plans, establish, review and enforce practices and procedures, and approve the credentials and disciplining of medical staff members.

California Seismic Standards

        California's Alfred E. Alquist Hospital Facilities Seismic Safety Act (the "Alquist Act") requires that the California Building Standards Commission adopt earthquake performance categories, seismic evaluation procedures, standards and timeframes for upgrading certain facilities, and seismic retrofit building standards. These regulations require hospitals to meet seismic performance standards to ensure that they are capable of providing medical services to the public after an earthquake or other disaster. The Building Standards Commission completed its adoption of evaluation criteria and retrofit standards in 1998. The Alquist Act requires that within three years after the Building Standards Commission had adopted evaluation criteria and retrofit standards:

•

hospitals in California must conduct seismic evaluation and submit these evaluations to the Office of Statewide Health Planning and Development, Facilities Development Division for its review and approval;



•

hospitals in California must identify the most critical nonstructural systems that represent the greatest risk of failure during an earthquake and submit timetables for upgrading these systems to the Office of Statewide Health Planning and Development, Facilities Development Division for its review and approval; and



•

hospitals in California must prepare a plan and compliance schedule for each regulated building demonstrating the steps a hospital will take to bring the hospital buildings into substantial compliance with the regulations and standards.

        We were required to conduct engineering studies at our hospitals to determine whether and to what extent modifications to the hospital facilities will be required. We believe that our hospitals satisfy all current requirements, however, we may be required to make significant capital expenditures in the future to comply with the seismic standards, which could impact our earnings.

Hospital Conversion Legislation

        California has adopted legislation regarding the sale or other disposition of hospitals operated by not-for-profit entities. The California attorney general has demonstrated an interest in these transactions under its general obligations to protect charitable assets. These legislative and administrative efforts primarily focus on the appropriate valuation of the assets divested and the use of the proceeds of the sale by the not-for-profit seller. These reviews and, in some instances, approval processes can add additional time to the closing of a not-for-profit hospital acquisition. Future actions by state legislators or attorneys general may seriously delay or even prevent our ability to acquire certain hospitals.

30

Environmental Regulation

        Our hospitals and certain affiliated physician organizations generate medical waste that must be disposed of in compliance with federal, state and local environmental laws, rules and regulations. Our operations, as well as our purchases and sales of hospitals, are also subject to compliance with various other environmental laws, rules and regulations. Such compliance costs are not significant and we do not anticipate that such compliance costs will be significant in the future.

HIPAA Transaction, Privacy and Security Requirements

        Federal regulations issued pursuant to HIPAA contain, among other measures, provisions that require us to implement very significant and potentially expensive new computer systems, employee training programs and business procedures. The federal regulations are intended to protect the privacy of healthcare information and encourage electronic commerce in the healthcare industry. Our hospitals and affiliated physician organizations are covered entities subject to these regulations. As a business associate of such entities and contracted health plans, we are also subject to many HIPAA requirements pursuant to a business associate contract required between covered entities and their business associates. We are also subject to state regulations regarding privacy and medical information.

        Among other things, HIPAA requires healthcare facilities to use standard data formats and code sets established by DHHS when electronically transmitting information in connection with several transactions, including health claims and equivalent encounter information, healthcare payment and remittance advice and health claim status. We have implemented or upgraded computer systems utilizing a third party vendor, as appropriate, at our facilities and at our corporate headquarters to comply with the new transaction and code set regulations and have tested these systems with our payers.

        HIPAA also requires DHHS to issue regulations establishing standard unique health identifiers for individuals, employers, health plans and healthcare providers to be used in connection with the standard electronic transactions. DHHS published on January 23, 2004 the final rule establishing the standard for the unique health identifier for healthcare providers. All healthcare providers, including our facilities, were required to obtain a new National Provider Identifier to be used in standard transactions instead of other numerical identifiers beginning no later than May 23, 2007. We cannot predict whether our facilities may experience payment delays during the transition to the new identifier. Our facilities have fully implemented use of the Employer Identification Number as the standard unique health identifier for employers.

        HIPAA regulations also require our facilities to comply with standards to protect the confidentiality, availability and integrity of patient health information, by establishing and maintaining reasonable and appropriate administrative, technical and physical safeguards to ensure the integrity, confidentiality and the availability of electronic health and related financial information. The security standards were designed to protect electronic information against reasonably anticipated threats or hazards to the security or integrity of the information and to protect the information against unauthorized use or disclosure. We expect that the security standards will require our facilities to implement business procedures and training programs, though the regulations do not mandate use of a specific technology. We have performed comprehensive security risk assessments and are currently in the remediation process for the systems/devices that have been identified as having the highest levels of vulnerability. This will be an ongoing process as we update, upgrade, or purchase new systems/technology.

        DHHS has also established standards for the privacy of individually identifiable health information. These privacy standards apply to all health plans, all healthcare clearinghouses and healthcare providers, such as our facilities, that transmit health information in an electronic form in connection with standard transactions, and apply to individually identifiable information held or disclosed by a

31

covered entity in any form. These standards impose extensive administrative requirements on our facilities and require compliance with rules governing the use and disclosure of this health information, and they require our facilities to impose these rules, by contract, on any business associate to whom we disclose such information in order for them to perform functions on our facilities' behalf. In addition, our facilities will continue to remain subject to any state laws that are more restrictive than the privacy regulations issued under HIPAA. These laws vary by state and could impose additional penalties. Compliance with these standards requires significant commitment and action by us.

Antitrust

        Federal and state antitrust laws prohibit agreements in restraint of trade, the exercise of monopoly power and other practices that are considered to be anti-competitive. We believe that we are in material compliance with federal and state antitrust laws in connection with the operation of our physician relationships.

Health Plan Licensing and Regulation

        The California Department of Managed Health Care ("DMHC") is responsible for licensing and regulating health plans in California under the Knox-Keene Health Care Service Plan Act of 1975.

        Our affiliated physician organizations contract with health plans (also known as "HMOs") to provide physician and certain ancillary services to the health plans' enrollees. The Knox-Keene Act imposes numerous requirements on health plans regarding the provision of care to health plan enrollees. HMOs, in turn, require their contracted physician organizations to comply with those requirements where applicable. Health plans also require their contracted physician organizations to ensure compliance with applicable Knox-Keene Act requirements on the part of the organizations' sub-contracted physicians. Thus, our physician organizations are indirectly subject to many of the requirements of the Knox-Keene Act. While health plans are bound by the provisions of the Knox-Keene Act directly, our physician organizations are indirectly bound by many of these same provisions as embodied in their contracts with plans.

        Our affiliated physician organizations typically enter into contracts with HMOs, pursuant to which the affiliated physician organizations are paid on a capitated (per member/per month) basis. Under capitation arrangements, health care providers bear the risk, subject to specified loss limits, that the total costs of providing medical services to members will exceed the premiums received. Because they are compensated on a prepaid basis in exchange for providing or arranging for the provision of health care services to assigned patients, the physician organizations may be deemed, under state law, to be in the business of insurance. If the physician organizations are deemed to be insurers, they will be subject to a variety of regulatory and licensing requirements applicable to insurance companies or HMOs, resulting in increased costs and corresponding reduced profitability for us.

Financial Solvency Regulations

        The DMHC has instituted financial solvency regulations mandated by California Senate Bill 260. The regulations are intended to provide a formal mechanism for monitoring the financial solvency of capitated physician groups. Management believes that our affiliated physician organizations that are subject to these regulations will be able to comply with them. However, these regulations could limit the company's ability to use its cash resources, including to make future acquisitions.

        Under the regulations, our affiliated physician organizations are required to comply with specific criteria, including:

•

Maintain, at all times, a minimum "cash-to-claims ratio" (where "cash-to-claims ratio" means the organization's cash, marketable securities and certain qualified receivables, divided by the

32

organization's total unpaid claims liability. The regulations require a cash-to-claims ratio of 0.75 beginning January 1, 2007 and thereafter.

•

Submit periodic reports to the DMHC containing various data and attestations regarding performance and financial solvency, including IBNR (incurred but not reported) calculations and documentation, and attestations as to whether or not the organization was in compliance with Knox-Keene Act requirements related to claims payment timeliness, had maintained positive tangible net equity; and had maintained positive working capital.

        In a case where an organization is not in compliance with any of the above criteria, the organization would be required to describe in the report submitted to the DMHC the reasons for non-compliance and actions to be taken to bring the organization into compliance.

        Further, under these regulations, the DMHC will make public some of the information contained in the reports, including, but not limited to, whether or not a particular physician organization met each of the criteria.

        In the event we are not able to meet certain of the financial solvency requirements, and fail to meet subsequent corrective action plans, we could be subject to sanction, or limitations on, or removal of, our ability to do business in California.

        Our cash-to-claims ratio on September 30, 2007, was 1.0.

Government Investigations

        The government increasingly examines arrangements between health care providers and potential referral sources to ensure that they are not designed to exchange remuneration for patient referrals. Investigators are increasingly willing to look behind formalities of business transactions to determine the underlying purpose of payments. Enforcement actions have increased and are highly publicized.

        In addition to investigations and enforcement actions initiated by governmental agencies, we could become the subject of an action brought under the False Claims Act by a private individual on behalf of the government. Actions under the False Claims Act, commonly known as "whistleblower" lawsuits, are generally filed under seal to allow the government adequate time to investigate and determine whether it will intervene in the action, and defendant health care providers often have no knowledge of such actions until the government has completed its investigation and the seal is lifted.

        To our knowledge, we, and our affiliated physician organizations, are not currently the subject of any investigation or action under the False Claims Act. Any such future investigation or action could result in sanctions and unfavorable publicity that could reduce potential revenues and profitability.

Health Care Reform

        The U.S. health care industry continues to attract much legislative interest and public attention. In recent years, an increasing number of legislative proposals have been introduced or proposed in Congress and in some state legislatures that would effect major changes in the health care system. Proposals that have been considered include changes in Medicare, Medicaid and other programs, cost controls on hospitals and mandatory health insurance coverage for employees. The costs of implementing some of these proposals would be financed, in part, by reduction of payments to health care providers under Medicare, Medicaid, and other government programs. We cannot predict the course of future health care legislation or other changes in the administration or interpretation of governmental health care programs. However, future legislation, interpretations, or other changes to the health care system could reduce our revenues and profitability.

33

Regulatory Compliance Program

        It is our policy to conduct our business with integrity and in compliance with the law. We have a Code of Conduct which applies to all directors, officers, employees and consultants, and a confidential disclosure program to enhance the statement of ethical responsibility expected of our employees and business associates who work in the accounting, financial reporting, and asset management areas of our Company.

        Our hospital subsidiary has in place and continues to enhance a company-wide compliance program which focuses on all areas of regulatory compliance including billing, reimbursement and cost reporting practices. This regulatory compliance program is intended to help ensure that high standards of conduct are maintained in the operation of our business and that policies and procedures are implemented so that employees act in full compliance with all applicable laws, regulations and company policies. Specific written policies, procedures, training and educational materials and programs, as well as auditing and monitoring activities have been prepared and implemented to address the functional and operational aspects of our business. Included within these functional areas are materials and activities for business sub-units, including laboratory, radiology, pharmacy, emergency, surgery, observation, home health, skilled nursing, and clinics. Specific areas identified through regulatory interpretation and enforcement activities have also been addressed in our program. Claims preparation and submission, including coding, billing, and cost reports, comprise the bulk of these areas. Financial arrangements with physicians and other referral sources, including compliance with anti-kickback and Stark laws, emergency department treatment and transfer requirements, and other patient disposition issues are also the focus of policy and training, standardized documentation requirements, and review and audit. Another focus of the program is the interpretation and implementation of the HIPAA standards for privacy and security.

        Under the regulatory compliance program, every employee, certain contractors involved in patient care, and coding and billing, receive initial and periodic legal compliance and ethics training. In addition, we regularly monitor our ongoing compliance efforts and develop and implement policies and procedures designed to foster compliance with the law. The compliance program also includes a mechanism for employees to report, without fear of retaliation, any suspected legal or ethical violations to their supervisors, designated compliance officers in our hospitals, our compliance hotline or directly to our corporate compliance office.

Insurance

        We maintain general liability, property, crime, fiduciary, corporate counsel, automobile and workers' compensation insurance, directors and officers insurance, which includes employee practices liability insurance, and management consultants errors and omissions. Our annual policy limits are $2,000,000 per occurrence and $2,000,000 in the aggregate for general liability coverage, $8,245,000 for property coverage, $2,000,000 for crime coverage, $2,000,000 for fiduciary coverage, $2,000,000 for corporate counsel coverage, $1,000,000 for automobile coverage, the amounts required by state law for workers' compensation, $5,000,000 for employment practices liability and $8,000,000 in the aggregate (primary and excess) for directors and officers liability.

        Our affiliated physician organizations, Prospect Professional Care Medical Group, Inc., AMVI/Prospect Health Network, Antelope Valley Medical Associates, Nuestra Familia Medical Group, Inc., APAC Medical Group, Inc., Prospect Health Source Medical Group, Inc., Prospect NWOC Medical Group, Inc., Santa Ana-Tustin Physicians Group, Inc, StarCare Medical Group, Inc., Pegasus Medical Group, Inc. Sierra Primary Medical Group, Inc., Genesis HealthCare of Southern California, Prospect Medical Group, Inc., Pomona Valley Medical Group and Upland Medical Group maintain managed care errors and omissions insurance (professional liability) in a minimum coverage amount of $2,000,000 per claim and $5,000,000 in the aggregate. We also require the physicians that our affiliated

34

physician organizations contract with as independent contractors to maintain malpractice insurance with minimum policy limits of $1,000,000 per claim and $3,000,000 in the aggregate. The employed physicians at Sierra Medical Group and Pegasus Medical Group are currently insured under policies with annual policy limits of $1,000,000 per claim and $3,000,000 in the aggregate, that cover malpractice on a "claims made" basis, which includes vicarious coverage for each entity (covers the corporate entity as well as the physician).

        Our affiliated hospitals, Alta Hospitals System, LLC, maintain professional liability, general liability, property, automobile and workers' compensation insurance. The policy limits are $10,000,000 per occurrence and in the aggregate for the professional and general liability, $46,118,000 for property coverage, $1,000,000 for automobile coverage, and the amount required by law for workers' compensation.

        Our insurance, and the insurance of our affiliated physician organizations, contain customary exclusions and exceptions from coverage. Additionally, we are at risk for our self-insured retention ("deductible") on certain policies such as $1,000 for our property policy and $75,000 for the managed care errors and omissions insurance. Directors & Officers Liability and Employment Practices Liability policies have a $150,000 self-insured retention and the hospital's professional/general liability policy has a $1,000,000 self-insured retention.

        We believe that the lines and amounts of insurance coverage that we and our affiliated physician organizations maintain, and that we require our contracted physician providers to maintain, are customary in our industry and adequate for the risks insured. We cannot assure, however, that we will not become subject to claims not covered or that exceed our insurance coverage amounts.

Item 1A.    Risk Factors

        Our business is subject to a number of risks, including those described below.

Decreases in the number of HMO enrollees using our provider networks reduce our profitability and inhibit future growth.

        During recent periods, the number of HMO enrollees using our provider networks has declined (not taking into account our recent acquisitions), and management currently anticipates that this trend will continue. The profitability and growth of our business depends largely on the number of HMO members who use our provider networks. We seek to maintain and increase the number of HMO enrollees using our provider networks by monitoring enrollment of the HMOs with which our affiliated physician organizations have contracts, affiliating with additional IPAs and acquiring other management companies. If we are not successful, we may not be able to maintain or achieve profitability or grow our business in the future. For the years ended September 30, 2003, 2004, 2005, 2006 and 2007 the decrease in the number of HMO enrollees using our existing provider networks was 1,400, 20,700, 26,500, 16,400 and 12,200, respectively. Estimated revenue reductions associated with the enrollment decreases for those periods were approximately $400,000, $8,200,000, $11,100,000, $4,300,000 and $5,700,000, respectively. These estimates assume that enrollment decreased ratably during the indicated periods and, as such, represent approximately 50% of the lost revenue that will be experienced in subsequent periods, when the enrollment decline is in effect for the whole period.

Our working capital deficit could adversely affect our ability to satisfy our obligations as they come due.

        We have historically been in a negative working capital position. Having a working capital deficit may signal an impaired ability to pay debts as they come due.

35

        We had positive working capital of $2,248,634 as of September 30, 2007 and negative working capital of $681,960 and $123,898 as of September 30, 2005 and 2006, respectively. This represents the difference between our current assets and our current liabilities. The negative working capital in 2006 and 2005 is the result of a reduction in cash and cash equivalents that have been used to reduce our bank debt and current liabilities incurred in acquisitions and operations, primarily related to medical claims expense.

        As of the fiscal years ended 2005, 2006 and 2007, our indebtedness for capital leases and notes to our bank totaled $8,166,667, $12,000,000 and $147,750,024. We have historically used cash reserves and cash flow from operations and equity offerings to reduce our indebtedness and fund acquisitions. This, and our recording of reserves for incurred but not reported healthcare expense claims, have been the primary reasons for our negative working capital position at September 30, 2005, 2006 and 2007.

When our remaining goodwill and intangible assets with indefinite useful lives becomes impaired, the impaired portion has to be written off, which materially reduces the value of our assets and reduces our net income for the year in which the write-off occurs.

        As of September 30, 2007, we concluded that the goodwill and other intangible assets related to its pre-2006 acquisitions (i.e., excluding ProMed and Alta) was impaired, and recorded a write-off of $38,776,421.

        Following the 2007 acquisitions of ProMed and Alta, our intangible assets represent a substantial portion of our assets. As of September 30, 2007, goodwill totaled $129,121,934 and other intangible assets totaled $51,989,017 for a combined total of $181,110,951 and represented approximately 61% of our total assets.

        In June 2001, the Financial Accounting Standards Board ("FASB") issued two standards related to business combinations. The first statement, SFAS No. 141, "Business Combinations," requires all business combinations after June 30, 2001 to be accounted for using the purchase method and prohibits the pooling-of-interest method of accounting. SFAS No. 141 also states that acquired intangible assets should be separately recognized upon meeting certain criteria. Such intangible assets include, but are not limited to, trade and service marks, non-compete agreements, customer lists and licenses.

        The second statement, SFAS No. 142 "Goodwill and Other Intangible Assets," requires that upon adoption, amortization of goodwill and indefinite life intangible assets will cease and instead, the carrying value of goodwill and indefinite life intangible assets will be evaluated for impairment at least on an annual basis, or more frequently if certain indicators are encountered. We have adopted SFAS No. 142. A two-step impairment test is used to identify potential goodwill impairment and to measure the amount of goodwill impairment loss to be recognized (if any). The first step of the goodwill impairment test, which is used to identify potential impairment, compares the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired, making the second step of the impairment test unnecessary.

        A finding that the value of our goodwill and intangible assets has been impaired requires us to write off the impaired portion, which significantly reduces the value of our assets and reduces our net income for the year in which the write-off occurs. Prior to the fiscal 2007 write down, since we adopted SFAS No. 142 for our fiscal year ended September 30, 2002, no impairment had been found and no write-off had been required.

36

We may not be able to make any additional acquisitions without first obtaining additional financing and obtaining the consent of our lenders.

        Although we have no specific agreements for additional acquisitions pending, the implementation of our long-term growth strategy depends on additional acquisitions in the future. These future acquisitions may require additional capital resources. No assurance can be given that needed capital will be available to us.

        To finance our ongoing capital requirements, we may, from time to time, issue additional equity securities or incur additional debt. A greater amount of debt or additional equity financing could be required to the extent that our common stock is suspended from trading, as has been the case since January 16, 2008 and ultimately fails to achieve or to maintain a market value sufficient to warrant its use in future acquisitions, or to the extent that acquisition targets are unwilling to accept common stock in exchange for their businesses. Our ability to issue debt instruments or equity securities in a public or private sale is restricted by the loan agreements with our lenders. The loan agreements place significant restrictions on our ability to use loan proceeds for acquisitions and prohibit us from borrowing outside of the loan agreements, for acquisitions or otherwise, without the prior written consent of the lenders. The loan agreements also prohibit us from using the proceeds of any sale of equity securities except to pay down indebtedness under the loan agreements. Thus, we must obtain the written consent of our lenders before we use any loan proceeds for acquisitions and before we issue any debt or equity securities to raise financing for acquisitions. Our lenders may grant or withhold such consent in the lenders' sole discretion. If our lenders are unwilling to consent to our use of loan proceeds or our issuance of debt or equity securities to finance acquisitions, we would have to abort any growth plan that depends on those financing sources. Even if we were able to obtain required consents from our lenders, we may not be able to obtain additional required capital on acceptable terms, if at all, which would limit our plans for growth. In addition, any capital we may be able to raise could result in increased leverage on our balance sheet, additional interest and financing expense, decreased operating income and/or dilution of existing equity owners. Additionally, as of September 30, 2007, we were not in compliance with certain financial and other covenants under our loan agreements. These covenant violations were waived effective May 15, 2008 by the lenders, but there can be no assurance that the lenders will waive any future covenant violations. If we are not able to comply with the financial covenants and other conditions required by our loan agreements, our lenders could require full repayment of the loans, which would very negatively impact our liquidity, ability to make further acquisitions and our ability to continue as a going concern.

        We are subject to certain financial covenants and other conditions required by our loan agreements, including a maximum senior debt/EBITDA ratio and a minimum fixed charge coverage ratio. We exceeded the maximum senior debt/EBITDA ratio of 3.75 as of September 30, 2007 and failed to meet the minimum fixed charge coverage ratio of 1.25 for the period ended September 30, 2007. We also failed to comply with both ratios at December 31, 2007 and March 31, 2008. In addition, we did not comply with certain administrative covenants. On May 15, 2008, our lenders agreed to waive our covenant violations and to increase the required maximum senior debt/EBITDA ratios to levels ranging from 7.15 to 3.90 for future monthly reporting periods from April 30, 2008 through June 30, 2009 and to levels ranging from 3.75 to 3.30 for the remaining quarterly reporting periods through maturity of the term loan and to reduce the minimum fixed charge coverage ratios to levels ranging from 0.475 to 0.925 for future monthly reporting periods from April 30, 2008 through June 30, 2009 and to levels ranging from 0.85 to 0.90 for the remaining quarterly reporting periods through maturity of the term loan. In addition, we are required to, among other conditions, file our Form 10-K for the year ended December 31, 2007 and the Form 10-Q for the quarters ended December 31, 2007 and March 31, 2008 by June 16, 2008. Failure to perform any obligations under the waiver and the amended credit facility agreement constitutes additional events of default. There can be no assurance that we will be able to meet all of the financial covenants and other conditions required by our loan

37

agreements. Our lenders may not grant waivers of future covenant violations and could also require full repayment of the loan, which would negatively impact our liquidity, ability to operate and ability to make further acquisitions.

Substantially all of our IPA revenues are generated from contracts with a limited number of HMOs, and if our affiliated physician organizations were to lose HMO contracts or to renew HMO contracts on less favorable terms, our revenues and profitability could be significantly reduced.

        With the consolidation of HMOs, there are a limited number of HMOs doing business in California, which magnifies the risk of loss of any one HMO contract. The potential for risk is also magnified because HMO contracts generally have only a one-year term, may be terminated earlier without cause upon notice, and, upon renewal, are subject to annual negotiation of capitation rates, covered benefits and other terms and conditions.

        We are particularly at risk with respect to the potential loss or renewal on less favorable terms of contracts that we have with five of these HMOs—PacifiCare of California, Blue Cross of California, Health Net of California, Blue Shield of California and, effective with the June 1, 2007 acquisition of ProMed, InterValley Health Plan.

        For the fiscal year ended September 30, 2007, contracts with our four largest HMO clients accounted for approximately 74% of our enrollment, of which our contract with PacifiCare of California, Health Net of California, Blue Cross of California and Blue Shield of California accounted for approximately 21%, 20%, 19% and 14%, respectively, of our enrollment. During the fiscal year ended September 30, 2007, our contract with PacifiCare of California accounted for $41,698,230 in revenue, or 26% of our total capitation revenue, our contract with Health Net of California accounted for $34,153,902 in revenue, or 21% of our total capitation revenue, our contract with Blue Cross accounted for $24,436,362 in revenue, or 15% of our total capitation revenue and our contract with Blue Shield of California accounted for $18,268,356 in revenue, or 11% of our total capitation revenue. For the fiscal year ended September 30, 2007, PacifiCare, Blue Cross, Health Net and Blue Shield accounted for combined revenue of $118,556,850, or approximately 73% of our total capitation revenue.

        For the fiscal year ended September 30, 2006, contracts with our four largest HMO clients accounted for approximately 79% of our enrollment, of which our contract with PacifiCare of California, Health Net of California, Blue Cross of California and Blue Shield of California accounted for approximately 22%, 23%, 20% and 14% respectively of our enrollment. During the fiscal year ended September 30, 2006, our contract with PacifiCare of California accounted for $39,337,714 in revenue, or 30% of our capitation revenue, our contract with Health Net of California accounted for $27,113,638 in revenue, or 21% of our total capitation revenue, our contract with Blue Cross of California accounted for $20,948,066 in revenue, or 16% of our total capitation revenue and our contract with Blue Shield of California accounted for $15,954,577 in revenue, or 12% of our total capitation revenue. For the fiscal year ended September 30, 2006, Pacificare, Blue Cross, Health Net and Blue Shield accounted for combined revenue of $103,353,995, or approximately 79% of our total capitation revenue.

        For the fiscal year ended September 30, 2005, contracts with our four largest HMO clients accounted for approximately 75% of our enrollment, of which our contract with PacifiCare of California, Health Net of California, Blue Cross of California and Blue Shield of California accounted for approximately 22%, 18%, 19% and 16%, respectively, of our enrollment. During the fiscal year ended September 30, 2005, our contract with PacifiCare of California accounted for $40,155,679 in revenue, or 31% of our total capitation revenue, our contract with Health Net of California accounted for $25,224,324 in revenue, or 20% of our total capitation revenue, our contract with Blue Cross accounted for $21,365,598 in revenue, or 17% of our total capitation revenue and our contract with

38

Blue Shield of California accounted for $14,802,756 in revenue, or 11% of our total capitation revenue. For the fiscal year ended September 30, 2005, PacifiCare, Blue Cross, Health Net and Blue Shield accounted for combined revenue of $101,548,357, or approximately 79% of our total capitation revenue.

        The loss of contracts with any one of these HMOs could significantly reduce our revenues and profitability.

        We have one-year automatically renewable contracts with most contracted HMOs, including our four largest discussed above, whereby, unless either party provides the other party with 180-days' notice of such party's intent not to renew. Under limited circumstances, the HMOs may immediately terminate the contracts for cause; otherwise, termination for cause requires 90 days' prior written notice with an opportunity to cure. There can be no assurance that we will be able to renew any of these contracts or, if renewed, that they will contain terms favorable to us.

Our profitability may be reduced or eliminated if we are not able to manage health care costs of our affiliated physician organizations effectively.

        Our success depends in large part on our effective management of health care costs, through control over our affiliated physician organizations, controlling utilization of specialty and ancillary care and purchasing services at competitive prices.

        We attempt to control the health care costs of our affiliated physician organizations' HMO enrollees by emphasizing preventive care, monitoring compliance with pharmacy formularies (i.e., a list of approved pharmaceutical drugs that the HMOs will provide an enrollee at a lesser cost than other drugs), entering into risk sharing agreements with hospitals that have favorable rate and utilization structures, and requiring prior authorization for specialist physician referrals. If we cannot maintain or improve our management of health care costs, our business, results of operations, financial condition, and ability to satisfy our obligations could be adversely affected.

        Under all current HMO contracts, our affiliated physician organizations accept the financial risk for the provision of primary care and specialty physician services, and some ancillary health care services. If we are unable to negotiate favorable prices or rates in contracts with providers of these services, or if our affiliated physician organizations are unable to effectively control the utilization of these services, our profitability would be negatively impacted. Our ability to manage health care costs is also diminished to the extent that we are unable to sub-capitate the specialists in our service areas at competitive rates. To the extent that our HMO enrollees require more frequent or extensive care, our operating margins may be reduced and the revenues derived from our capitation contracts may be insufficient to cover the costs of the services provided. If our medical costs exceed our revenues we may be required to seek additional capital to invest in maintaining our provider network and HMO contracts, and there are no assurances that we will be able to obtain such additional capital.

Our revenue and profitability could be significantly reduced and could also fluctuate significantly from period to period under Medicare's new Risk Adjusted payment methodology.

        In calendar 2004, CMS began a four year phase-in of a revised compensation model for Medicare beneficiaries enrolled in Medicare Advantage plans. Previously, monthly capitation revenue was based primarily on age, sex and location.

        CMS revised payment model seeks to compensate Medicare Managed Care organizations based on the health status of each individual enrollee. Health Plans/IPAs with enrollees requiring more care will receive more, and those with enrollees requiring less care will receive less. This is referred to by CMS as "Risk Adjustment."

        Increased numbers of office visits by members, and submission of encounter data is required in order to receive incremental revenue, or not lose revenue for any given member. This requires a great

39

deal of continuous effort on our part, and co-operation on the parts of our contracted physicians and members. We have not always been able to gain this co-operation from the contracted physicians and members, or devote the resources necessary to obtain incremental Risk Adjustment revenue, or avoid having previously received revenue taken back from us.

        Additionally, because of the time required by CMS to process all of the submitted encounter data from all participating entities, we typically do not find out until the latter part of the calendar year what adjustments will be made to our Medicare revenue for the year, at which time those adjustments to revenue, which have historically been significant, are recorded.

        In fiscal 2005, we received approximately $4.0 million in incremental Risk Adjustment revenue for calendar 2005. This was primarily received in our fiscal fourth quarter and was recorded in that quarter. In fiscal 2006, we were required to give back approximately $1.5 million in Risk Adjustment revenue. Again, this adjustment became known, and was recorded, in our fiscal fourth quarter, even though the majority of the adjustment related to earlier periods. In fiscal 2007, we received approximately $1,528,000 in incremental Risk Adjustment revenue, which was recorded in our fiscal fourth quarter.

        Given the deadlines for submitting data to CMS, and CMS's processing time in order to calculate these Risk Adjustment revenue changes, we have no way of reliably estimating the impact of Risk Adjustment until such time as those adjustments are made known by CMS. As such, retroactive Risk Adjustments will be recorded each year in the quarter they become known, notwithstanding that a significant portion of those adjustments will relate to earlier periods. These adjustments will continue to be significant.

Our operating results could be adversely affected if our actual health care claims exceed our reserves.

        Historically, we have sometimes not had adequate cash resources to retire one hundred percent of our incurred but not reported (i.e., accrued or "IBNR") medical claims. As of September 30, 2005, 2006, and 2007, we could retire approximately 147%, 146% and 105%, respectively, of our accrued medical claims and other health care costs payable using all of our cash and cash equivalents.

        Historically, we have been able to satisfy our claims payment obligations each month out of cash flows from operations and existing cash reserves. However, in the event that our revenues are substantially reduced due to a loss of a significant HMO contract or other factors, our cash flow may not be sufficient to pay off claims on a timely basis, or at all. If we are unable to pay claims timely we may be subject to HMO de-delegation wherein the HMO would take away our claims processing functions and perform the functions on our behalf, charging us a fee per enrollee, a requirement by the HMO to comply with a corrective action plan, and/or termination of the HMO contract, which could have a material adverse effect on our operations and results of operations.

        We estimate the amount of our reserves for submitted claims and IBNR claims primarily using standard actuarial methodologies based upon historical data. The estimates for submitted claims and IBNR claims liabilities are made on an accrual basis, are continually reviewed and are adjusted in current operations as required. As of September 30, 2005, 2006, and 2007, we estimated our IBNR at $11,532,328, $11,400,000 and $22,638,960, respectively. Given the uncertainties inherent in such estimates, the reserves could materially understate or overstate our actual liability for claims payable. Any increases to these prior estimates could adversely affect our results of operations in future periods.

We may be exposed to liability or fail to estimate IBNR claims accurately if we cannot process any increased volume of claims accurately and timely.

        We have regulatory risk for the timely processing and payment of claims. If we are unable to handle increased claims volume, or if we are unable to pay claims timely we may become subject to an HMO corrective action plan or de-delegation until the problem is corrected, and/or termination of the

40

HMO agreement, which could have a material adverse effect on our operations and profitability. In addition, if our claims processing system is unable to process claims accurately, the data we use for our IBNR estimates could be incomplete and our ability to accurately estimate claims liabilities and establish adequate reserves could be adversely affected.

Medicare, Medi-Cal and private third-party payer cost containment efforts and reductions in reimbursement rates could reduce our hospital revenue and our cash flow.

        During the portion of fiscal 2007 that Alta was owned by us, our hospitals derived 91.3% of their revenues from the Medicare and Medicaid programs. Changes in recent years in the Medicare and Medicaid programs, including the Medicare Prescription Drug, Improvement and Modernization Act of 2003, have resulted in limitations on reimbursement and, in some cases, reduced levels of reimbursement for health care services. Payments from federal and state government programs are subject to statutory and regulatory changes, administrative rulings, interpretations and determinations, requirements for utilization review, and federal and state funding restrictions, all of which could materially increase or decrease program payments, as well as affect the cost of providing service to patients and the timing of payments to facilities. We are unable to predict the effect of future policy changes on our operations. Future federal and state legislation may further reduce the payments we receive for our services. The State of California has incurred budget deficits and has adopted legislation designed to reduce its Medicaid expenditures and to reduce the number of Medicaid enrollees. We are unable to predict the effect of future state or federal health care funding policy changes on our operations. If the rates paid by governmental payers are reduced, if the scope of services covered by governmental payers 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 health care program, there could be a material adverse effect on our business, financial condition, results of operations and cash flows.

        Employers have also passed more healthcare benefit costs on to employees to reduce the employers' health insurance expense. This trend has caused the self-pay/deductible component of healthcare services to become more common. This payer shifting increases collection costs and reduces overall collections.

        During the past several years, major purchasers of healthcare, 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, purchasers increasingly are demanding discounted fee structures or the assumption by healthcare providers of all or a portion of the financial risk through prepaid capitation arrangements, often in exchange for exclusive or preferred participation in their benefit plans. We expect efforts to impose greater discounts and more stringent cost controls by government and other payers to continue, thereby reducing the payments we receive for our services. In addition, these payers have instituted policies and procedures to substantially reduce or limit the use of inpatient services. The trends may result in a reduction from historical levels in per patient revenue received by our hospitals and affiliated physician organizations.

Risk-sharing arrangements that our affiliated physician organizations have with HMOs and hospitals could result in their costs exceeding the corresponding revenues, which could reduce or eliminate any shared risk profitability.

        Most of our affiliated physician organizations' agreements with HMOs and hospitals contain risk-sharing arrangements under which the affiliated physician organizations can earn additional compensation by coordinating the provision of high quality, cost-effective health care to enrollees, but they may also be required to assume a portion of any loss sustained from these arrangements, thereby reducing our net income. Risk-sharing arrangements are based upon the cost of hospital services or

41

other services for which our physician organizations are not capitated. The terms of the particular risk-sharing arrangement allocate responsibility to the respective parties when the cost of services exceeds the related revenue, which results in a "deficit," and permit the parties to share in any surplus amounts when actual costs are less than the related revenue. The amount of non-capitated and hospital costs in any period could be affected by factors beyond our control, such as changes in treatment protocols, new technologies and inflation. To the extent that such non-capitated and hospital costs are higher than anticipated, revenue may not be sufficient to cover the risk-sharing deficits they are responsible for, which could reduce our revenues and profitability. It is our experience that "deficit" amounts for hospital costs are applied to offset any future "surplus" amount we would otherwise be entitled to receive. We have historically not been required to reimburse the HMOs for any hospital cost deficit amounts. Most of our contracts with HMOs specifically provide that we will not have to reimburse the HMO for hospital cost deficit amounts.

        HMOs often insist on withholding negotiated amounts from professional capitation payments, which the HMOs are permitted to retain, in order to cover our share of any risk-sharing deficits; and hospitals may demand cash settlements of risk sharing deficits as a "quid pro quo" for joining in these arrangements. Net risk-pool surpluses (deficits) were $1,151,373, $3,346,204 and ($469,941) for the fiscal years ended September 30, 2005, 2006 and 2007, respectively.

        In addition to hospital risk-sharing arrangements, many HMOs also provide a risk-sharing arrangement for pharmaceutical costs. Unlike hospital pools where nearly all of the HMO contracts mandate participation by our affiliated physician organizations in the risk sharing for hospital costs, a lesser number of the HMO contracts mandate participation in a pharmacy risk-sharing arrangement, and although (unlike hospital pools) our affiliated physician organizations are generally responsible for their 50% allocation of pharmacy cost deficits, the deficit amounts of pharmacy costs have to date not had a material effect on our revenue.

        To date, we have not suffered significant losses due to hospital risk arrangements other than offsets (for deficit amounts) against any future surpluses we otherwise would have received. To date our aggregate losses in connection with our pharmacy risk sharing arrangements have been insignificant. Whenever possible, we seek to contractually reduce or eliminate our affiliated physician organizations' liability for risk-sharing deficits and, with respect to pharmacy pools, eliminate their participation in such pools. Notwithstanding the foregoing, risk-sharing deficits could have a significant impact on our future profitability.

If we do not successfully integrate the operations of acquired physician organizations, our costs could increase, our business could be disrupted, and we may not be able to realize the desired benefits from those acquisitions.

        Our strategy for growth has historically been to acquire additional IPAs that specialize in managed care and to realize economies of scale from those acquisitions. This will also be a component of our hospital operations strategy. However, even if we are successful in consummating further acquisitions, we may not be successful in integrating their operations into our operating systems. It may be difficult and time consuming to integrate the acquired organizations' management services, information systems, claims administration, and case management, as well as administrative functions, and, while at the same time managing a larger entity with a differing history, business model and culture. Management may be required to develop working relationships with providers with whom they have had no previous business experience. Management also may not be able to obtain the necessary economies of scale. Integration of acquired entities is vital for us to be able to operate effectively and to control medical and administrative costs. If we are not successful in integrating acquired operations on a timely basis, or at all, our business could be disrupted and we may not be able to realize the anticipated benefits of our acquisitions, including cost savings. There may be substantial unanticipated costs associated with

42

acquisition and integration activities, any of which could result in significant one-time or on-going charges to earnings or otherwise adversely affect our operating results.

The acquisition of hospitals and subsequent integration with our core business of managing physician organizations may prove to be difficult and may outweigh the synergistic benefits anticipated in the marketplace.

        Our core business has historically been that of a healthcare management services company that owns and manages independent physician associations, that provide healthcare services to HMO enrollees. Until recently it has experienced profitable growth by acquiring and consolidating IPAs, achieving economies of scale in reducing administrative costs and improving the operating efficiency of acquired entities. In diversifying acquisition targets beyond its core segment, it will be facing operational, financial and regulatory issues that could prove to be disruptive. Gaining familiarity with and responding to a myriad of unique operational and financial issues in a hospital environment could prove to be a drain on existing resources, and be a significant distraction from other initiatives facing the organization. In addition, hospital revenue from Medicare, Medi-Cal and other third parties are tentative in nature and subject to audits by third-party fiscal intermediaries. Finally, changing legislation on the funding and recognition of hospital revenues could negatively impact financial performance and cause earnings decreases. For example, in recent years Congress has enacted legislation on Disproportionate Share Payments ("DSH") revisiting the program's intent and methodologies for calculating payments to hospitals. There have recently been other initiatives proposed to reduce the overall funding of Medicare and Medi-Cal programs, coupled with increased regulation on the disbursement methodology for such funds. Unfavorable outcomes on such legislation could cause a reduction in revenues generated as compared to prior years.

Hospitals with union contracts could experience setbacks from unfavorable negotiations with union members.

        One of our hospitals has a collective bargaining agreement ("CBA") with a union involving a small portion of hospital staff. This agreement specifies employee benefits for those represented by the CBA, including compensation rates, hours of work, overtime, vacation, holiday, sick, and health and retirement benefits. Unsuccessful negotiations between hospital officials and union representatives could have an unfavorable impact on day-to-day operations of that hospital.

Hospital operations are capital intensive and could prove to be a drain on cash.

        Operating a hospital requires a significant continual investment in capital assets, particularly in hospital machinery and equipment. Due to obsolescence and heavy usage, hospital capital assets may require more frequent replacement, and at a higher cost relative to that in an independent physician organization. Additionally, according to the California Hospital Association, 1,022 hospitals statewide would have to be upgraded by the year 2013 to comply with seismic retrofitting guidelines established by legislation enacted in the 1990's. With additional acquisitions of hospitals, the capital investment required to maintain hospital operations at an optimal level could be significant.

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 will be adversely affected.

        Technological advances are continually being made regarding computer-assisted tomography ("CT") scanners, magnetic resonance imaging ("MRI") equipment, positron emission tomography ("PET") scanners and other similar equipment. In order to effectively compete, we must continually assess our equipment needs and upgrade when technological advances occur. If our hospitals do not

43

invest significantly and stay abreast of the technological advances in the health care industry, patients may seek treatment from other providers and physicians may refer their patients to alternate sources.

The continued growth of uninsured and underinsured patients or further deterioration in the collectability of the accounts of such patients could harm our results of operations.

        Like others in the hospital industry, we have experienced large provisions for bad debts, as a percentage of net operating revenue, due to a growth in self-pay volume and revenue. Although we continue to seek ways of improving collection efforts and implementing appropriate payment plans for our services, if we experience growth in self-pay volume and revenue, our results of operations could be adversely affected. Further, our ability to improve collections for self-pay and other patients may be limited by statutory, regulatory and investigatory initiatives, including private lawsuits directed at hospital charges and collection practices for uninsured and underinsured patients. The principal collection risks for our accounts receivable include uninsured patient accounts and to patient accounts for which the primary insurance carrier has paid the amounts covered by the applicable agreement but patient responsibility amounts (e.g., deductibles, co-payments and other amounts not covered by insurance) remain outstanding. The amount of our provision for doubtful accounts is based upon our assessment of historical cash collections and accounts receivable write-offs, expected net collections, business and economic conditions, trends in federal, state and private employer health care coverage and other collection indicators. If we continue to experience significant levels of uninsured and underinsured patients, and bad debt expenses, our results of operations could be negatively impacted.

Because we are obligated to provide care in certain circumstances regardless of whether we will get paid for providing such care, if the number of uninsured patients treated at our hospitals increases, our results of operations may be harmed.

        In accordance with our Code of Business Conduct and Ethics, as well as EMTALA, we provide a medical screening examination to any individual who comes to one of our hospitals while in active labor and/or seeking medical treatment (whether or not such individual is eligible for insurance benefits and regardless of ability to pay) to determine if such individual has an emergency medical condition. If it is determined that such person has an emergency medical condition, we provide further medical examination and treatment as is required in order to stabilize the patient's medical condition, within the facility's capability, or arrange for transfer of such individual to another medical facility in accordance with applicable law and the treating hospital's written procedures. If the number of indigent and charity care patients with emergency medical conditions we treat increases significantly, our results of operations may be negatively impacted.

Controls designed to reduce inpatient services may reduce our hospital revenue.

        Controls imposed by third party payers that are designed to reduce admissions and the average length of hospital stays, commonly referred to as "utilization management," have affected and are expected to continue to affect results for our hospital facilities. Utilization management reviews entail an evaluation of a patient's admission and course of treatment by healthcare payers. Inpatient utilization, average lengths of stay and occupancy rates continue to be negatively impacted by payer-required pre-admission authorization, utilization reviews and payer pressure to maximize outpatient and alternative health care delivery services for less acutely ill patients. Efforts to impose more stringent cost controls are expected to continue. Although we cannot predict the effect these changes will have on our operations, limitations on the scope of services for which we are reimbursed and/or downward pressure on reimbursement rates and fees as a result of increasing utilization management efforts by payers could have a material adverse effect on our business, financial position and results of operations.

44

Our hospital revenues and volume trends may be adversely affected by certain factors over which we have no control, including weather conditions, severity of annual flu seasons and other factors.

        Our hospital revenues and volume trends are dependent on many factors, including physicians' clinical decisions and availability, payer programs shifting to a more outpatient-based environment, whether or not certain services are offered, seasonal and severe weather conditions, earthquakes, current local economic and demographic changes and the intensity and timing of yearly flu outbreaks. Any of these factors could have a material adverse effect on our revenues and volume trends, and none of these factors will be within the control of our management.

An increasing portion of our IPA revenue is "at risk" and difficult to project, which increases uncertainty regarding future revenues, cash flow projections, and profitability.

        Historically, our revenue has primarily consisted of contractually guaranteed capitation revenue from HMOs based on a fixed per-member-per-month rate. In recent years, new revenue sources including pay for performance, risk sharing and risk adjustment have been added that will represent an increasingly significant portion of our total revenue. The newly introduced revenue sources, and reimbursement methods are more difficult to project and have a much longer collection cycle. Pay for performance revenue is paid on an approximate one-year lag basis, and predicated on health plan funding being available as well as on the ability of the organization and its partner physicians to achieve certain criteria. These performance thresholds are typically in the areas of clinical measures, patient satisfaction, IT investment, encounter data submission and generic drug utilization. The ultimate receipt of pay for performance monies can vary with our relative performance in comparison to that of competitor medical groups and our ability to successfully modify physician behavior in these areas. Similarly, risk sharing and risk adjustment revenues have more variability than capitated arrangements and can require a lengthy reconciliation and reimbursement process. As mentioned previously, incremental revenue generated by both sources involves not only our ability to control medical costs and influence provider and member behavior (i.e., office visits, encounter data submission, etc.), but also is contingent on certain other factors that are beyond our control.

If we are unable to identify suitable acquisition candidates or to negotiate or complete acquisitions on favorable terms, our prospects for growth could be limited.

        Although we are regularly in discussions with potential acquisition candidates, it may be difficult to identify suitable acquisition candidates and to negotiate satisfactory terms with them. If we are unable to identify suitable acquisition candidates at favorable prices, our ability to grow by acquisition could be limited.

Any acquisitions we complete in the future could potentially dilute the equity interests of our current stockholders or could increase our indebtedness and cost of debt service, thereby reducing our profitability.

        If we issue common stock or other equity securities as consideration for future acquisitions, this could have a dilutive effect on the earnings and market price of our common stock. If we borrow to finance future acquisitions, our indebtedness and cost of debt service will increase, which will reduce our profitability.

Our acquisition initiatives may be put on hold until such time that we achieve a lower financial leverage.

        Pursuant to the amended senior credit facility agreement entered into on May 15, 2008, we are subject to certain financial covenants including a maximum senior debt/EBITDA ratio and a minimum fixed charge coverage ratio, including the pre-acquisition results of any acquired entities. Until we

45

achieve a lower financial leverage, such requirements could potentially impede our future acquisition strategy.

We operate in a highly competitive market; increased competition could adversely affect our revenues.

        A number of factors affect our HMO membership levels and patient census and our hospitals. Both the IPA and the hospital industry are highly competitive. In addition to the competition we face for acquisitions and physicians, we must also compete with other hospitals and healthcare providers for patients, which competition has intensified in recent years. Our hospitals face competition from hospitals inside and outside of their primary service areas, including hospitals that provide more complex services. Patients in our primary service areas may travel to these other hospitals for a variety of reasons. These reasons include physician referrals or the need for services we do not offer. Patients who seek services from these other hospitals may subsequently shift their preferences to those hospitals for the services that we provide.

        Some of the hospitals that compete with our hospitals are owned by government agencies or not-for-profit corporations. Tax-exempt competitors may have certain financial advantages not available to our facilities, such as endowments, charitable contributions, tax-exempt financing, and exemptions from sales, property and income taxes. In California some not-for-profit hospitals are permitted by law to directly employ physicians while for-profit hospitals are prohibited from doing so. We also face increasing competition from physician-owned specialty hospitals and freestanding surgery, diagnostic and imaging centers for market share in high margin services and for quality physicians and personnel. If competing health care providers are better able to attract patients, recruit and retain physicians, expand services or obtain favorable managed care and other contracts at their facilities, we may experience a decline in inpatient and outpatient volume levels. Our inability to compete effectively with other hospitals and other healthcare providers could cause local residents to use other hospitals. If our hospitals are not able to effectively attract patients, our business could be harmed.

        In 2005, CMS began making public performance data relating to ten quality measures that hospitals submit in connection with their Medicare reimbursement. If any of our hospitals should achieve poor results (or results that are lower than our competitors) on these ten quality criteria, patient volumes could decline. In the future, other trends toward clinical transparency may have an unanticipated impact on our competitive position and patient volume.

        The managed care industry is highly competitive and is subject to continuing changes in the ways in which services are provided and providers are selected and paid. We are subject to significant competition with respect to physicians affiliating with our affiliated physician organizations. Some of our competitors have substantially greater financial, technical, managerial, marketing and other resources and experience than we do and, as a result, may compete more effectively than we can. Companies in other health care industry segments, some of which have financial and other resources greater than we do, may become competitors in providing similar services. We may not be able to continue to compete effectively in this industry. Additional competitors may enter our markets and this increased competition may have an adverse effect on our business, financial condition and results of operations.

We are subject to extensive government regulation regarding the conduct of our operations. If we fail to comply with any existing or new regulations, we could suffer civil or criminal penalties or be required to make significant changes to our operations.

        Failure to comply with federal and state regulations could result in substantial penalties and changes in business operations. Companies such as ours that provide health care services are required to comply with many highly complex laws and regulations at the federal, state and local levels, including, but not limited to, those relating to the adequacy of medical care, billing for services, patient

46

privacy, equipment, personnel, operating policies and procedures and maintenance of records. We and our affiliated physician organizations are subject to numerous federal and state statutes and regulations that are applicable to health care organizations and businesses generally, including the corporate practice of medicine prohibition, federal and state anti-kickback laws and federal and state laws regarding the use and disclosure of patient health information. If our business operations are found to be in violation of any of the laws and regulations to which we are subject, we may be subject to the applicable penalty associated with the violation, including civil and criminal penalties, damages, fines, and increased legal expenses, we may be required to make costly changes to our business operations, and we may be excluded from government reimbursement programs. The laws and regulations that we and our affiliated physician organizations are subject to are complex and subject to varying interpretations. Any action against us or our affiliated physician organizations for violation of these laws or regulations, even if we successfully defended against it, could cause us to incur significant legal expenses and divert management's attention from the operation of our business. All of these consequences could have the effect of reducing our revenues, increasing our costs, decreasing our profitability and curtailing our growth. For a more detailed discussion of the various federal and state regulations to which we are subject, see Item 1, "Business—Regulation." Although we believe that we are in compliance with all applicable laws and regulations, if we fail to comply with any such laws or regulations, we could suffer civil or criminal penalties, including the loss of licenses to operate our facilities. We could also become unable to participate in Medicare, Medicaid, and other federal and state health care programs that significantly contribute to our revenue.

        Because many of the laws and regulations to which we are subject are relatively new or highly complex, in many cases we do not have the benefit of regulatory or judicial interpretation. In the future, it is possible that different interpretations or enforcement of such laws and regulations could require us to make changes in our facilities, equipment, personnel, services or capital expenditure programs.

Providers in the hospital industry have been the subject of federal and state investigations and we could become subject to such investigations in the future.

        Significant media and public attention has been focused on the hospital industry due to ongoing investigations related to referrals, cost reporting and billing practices, laboratory and home health care services and physician ownership of joint ventures involving hospitals. Both federal and state government agencies have announced heightened and coordinated civil and criminal enforcement efforts and the Office of the Inspector General of the U.S. Department of Health and Human Services and the U.S. Department of Justice have, from time to time, established enforcement initiatives that focus on specific areas of suspected fraud and abuse. Recent initiatives include a focus on hospital billing practices.

        We closely monitor our billing and other hospital practices to maintain compliance with prevailing industry interpretations of applicable laws and regulations and we believe that our practices are consistent with current industry practices. However, government investigations could be initiated that are inconsistent with industry practices and prevailing interpretations of existing laws and regulations. In public statements, governmental authorities have taken positions on issues for which little official interpretation had been previously available. Some of those positions appear to be inconsistent with practices that have been common within the industry and, in some cases, they have not yet been challenged. Moreover, some government investigations that were previously conducted under the civil provisions of federal law are now being conducted as criminal investigations under fraud and abuse laws.

        We cannot predict whether we will be the subject of future governmental investigations or inquiries. Any determination that we have violated applicable laws or regulations or even a public announcement that we are being investigated for possible violations could harm our business.

47

The health care industry is subject to many laws and regulations designed to deter and prevent practices deemed by the government to be fraudulent or abusive.

        Unless an exception applies, the portion of the Social Security Act commonly known as the "Stark law" prohibits physicians from referring Medicare or Medicaid patients to providers of enumerated "designated health services" with whom the physician or a member of the physician's immediate family has an ownership interest or compensation arrangement. Such referrals are deemed to be "self referrals" due to the physician's financial relationship with the entity providing the designated health services. Moreover, many states have adopted or are considering similar legislative proposals, some of which extend beyond the scope of the Stark law to prohibit the payment or receipt of remuneration for the prohibited referral of patients for designated health care services and physician self-referrals, regardless of the source of the payment for the patient's care.

        Companies in the hospital industry are subject to Medicare and Medicaid anti-fraud and abuse provisions, known as the "anti-kickback statute." As a company in the hospital industry, we are subject to the anti-kickback statute, which prohibits some business practices and relationships related to items or services reimbursable under Medicare, Medicaid and other federal healthcare programs. For example, the anti-kickback statute prohibits hospitals from paying or receiving remuneration to induce or arrange for the referral of patients or purchase of items or services covered by a federal or state healthcare program. If regulatory authorities determine that any of our hospitals' arrangements violate the anti-kickback statute, we could be subject to liabilities under the Social Security Act, including:

•

criminal penalties;



•

civil monetary penalties; and/or



•

exclusion from participation in Medicare, Medicaid or other federal healthcare programs, any of which could impair our ability to operate one or more of our hospitals profitably.

        We systematically review all of our operations on an ongoing basis and believe that we are in compliance with the Stark law and similar state statutes. When evaluating strategic joint ventures or other collaborative relationships with physicians, we consider the scope and effect of these statutes and seek to structure the relationships in full compliance with their provisions. We also maintain a company-wide compliance program in order to monitor and promote our continued compliance with these and other statutory prohibitions and requirements. Nevertheless, if it is determined that certain of our practices or operations violate the Stark law or similar statutes, we could become subject to civil and criminal penalties, including exclusion from the Medicare or Medicaid programs. The imposition of any such penalties could harm our business.

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.

        Whistleblower provisions allow private individuals to bring actions on behalf of the government alleging that the defendant has defrauded the federal government. Defendants found to be liable under the 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. Liability often arises when an entity knowingly submits a false claim for reimbursement to the federal government. The False Claims Act defines the term "knowingly" broadly. Although simple negligence will not give rise to liability under the False Claims Act, submitting a claim with reckless disregard for its truth or falsity constitutes a "knowing" submission under the False Claims Act and, therefore, will give rise to liability. In some cases, whistleblowers or the federal government have taken the position that providers who

48

allegedly have violated other statutes, such as the anti-kickback statute and the Stark Law, have thereby submitted false claims under the False Claims Act. In addition, a number of states have adopted their own false claims provisions as well as their own whistleblower provisions whereby a private party may file a civil lawsuit in state court.

        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.

Future reforms in health care legislation and regulation could reduce our revenues and profitability.

        An increasing number of legislative initiatives have been introduced or proposed in recent years that would result in major changes in the health care delivery system on a national or a state level. Among the proposals that have been introduced are California health care coverage for the uninsured, price controls on hospitals, insurance market reforms to increase the availability of group health insurance to individuals and small businesses, requirements that all businesses offer health insurance coverage to their employees and the creation of government health insurance plans that would cover all citizens and increase payments by beneficiaries. We cannot predict whether any of the above proposals or other proposals will be adopted and, if adopted, no assurances can be given that their implementation will not have a material adverse effect on our business, financial condition or results of operations. The costs of implementing some of these proposals could be financed, in part, by reduction of payments to health care providers under Medicare, Medicaid, and other government programs. Future legislation, regulations, interpretations, or other changes to the health care system could reduce our revenues and profitability.

        The California Department of Managed Health Care ("DMHC") has instituted financial solvency regulations. The regulations are intended to provide a formal mechanism for monitoring the financial solvency of capitated physician groups. Management believes that our affiliated physician organizations that are subject to these regulations will be able to comply with them. However, these regulations could limit the company's ability to use its cash resources to make future acquisitions.

        Under the regulations, our affiliated physician organizations are required to comply with specific criteria, including:

•

Maintain, at all times, a minimum "cash-to-claims ratio" (where "cash-to-claims ratio" means the organization's cash, marketable securities and certain qualified receivables, divided by the organization's total unpaid claims liability.) The regulations require a cash-to-claims ratio of 0.75 beginning January 1, 2007.



•

Submit periodic reports to the DMHC containing various data and attestations regarding performance and financial solvency, including IBNR (incurred but not reported) calculations and documentation, and attestations as to whether or not the organization was in compliance with Knox-Keene Act requirements related to claims payment timeliness, had maintained positive tangible net equity, and had maintained positive working capital.

In a case where an organization is not in compliance with any of the above criteria, the organization would be required to describe in the report submitted to the DMHC the reasons for non-compliance and actions to be taken to bring the organization into compliance. Further, under these regulations, the DMHC will make public some of the information contained in the reports, including, but not limited to, whether or not a particular physician organization met each of the criteria. In the event we are not able to meet certain of the financial solvency requirements, and fail to meet subsequent corrective

49

action plans, we could be subject to sanction, or limitations on, or removal of, our ability to do business in California. Our cash-to-claims ratio at September 30, 2007, was 1.0.

Whenever we seek to acquire an IPA, an HMO that has a contract with that IPA could potentially refuse to consent to the transfer of its contract, and this could effectively stop the acquisition or potentially deprive us of the enrollees and revenues associated with that HMO contract if we chose to complete the acquisition without the HMO's consent.

        IPA contracts with HMOs typically include provisions requiring the physician group to obtain the HMO's consent to the transfer of their contract with the IPA before effecting any change in control of the IPA. As a result, whenever we seek to acquire an IPA, the acquisition may be conditioned upon the IPA's ability to obtain such consent from the HMOs with which it has contracted. Therefore, an acquisition could be delayed while an HMO seeks to determine whether it will consent to the transfer of the IPA. While in our experience the HMOs limit their review to satisfying their regulatory responsibility to ensure that, following the acquisition, the IPA post-acquisition will meet certain financial and operational thresholds, the language in many of the HMO agreements give the HMO the ability to decline to give their consent if they simply do not want to do business with the acquiring entity. If an HMO is unwilling for any reason to give its consent, this could deter us from completing the acquisition, or, if we complete an acquisition without obtaining an HMO's consent, we could lose the benefit of the enrollees and revenues associated with that HMO's contract.

Our profitability could be adversely affected by any changes that would reduce payments to HMOs under government-sponsored health care programs.

        Although our affiliated physician organizations do not directly contract with the Centers for Medicare & Medicaid Services, or "CMS" (a federal agency within the U.S. Department of Health and Human Services), during the fiscal years ended September 30, 2005, 2006 and 2007, our affiliated physician organizations received $46,791,854, $45,397,090 and $57,114,405 or approximately 37%, 35% and 35%, respectively, of capitation revenues from HMOs related to contracts with Medicare, Medicaid and other government-sponsored health care programs. Consequently, any change in the regulations, policies, practices, interpretations or statutes adversely affecting payments made to HMOs under these government-sponsored health care programs could reduce our profitability. A decline in enrollees in Medicare Advantage could also have a material adverse effect on our profitability.

If any of our hospitals lose their accreditation, such hospitals could become ineligible to receive reimbursement under Medicare or Medicaid.

        Our hospitals are accredited, meaning that they are properly licensed under appropriate state laws and regulations, certified under the Medicare program and accredited by The Joint Commission. The effect of maintaining accredited facilities is to allow such facilities to participate in the Medicare and Medicaid programs. We believe that all of our health care facilities are in material compliance with applicable federal, state, local and independent review body regulations and standards. However, should any of our health care facilities lose their accredited status and thereby lose certification under the Medicare or Medicaid programs, such facilities would be unable to receive reimbursement from either of those programs and our business could be harmed. Because the requirements for accreditation are subject to modification, it may be necessary for us to effect changes in our facilities, equipment, personnel and services in order to maintain accreditation. Such changes could be expensive and could harm our results of operations.

50

Our revenues and profits could be diminished if we lose the services of key physicians in our affiliated physician organizations.

        Substantially all of our affiliated physician organization revenues are derived from management agreements with our affiliated physician organizations. Key physicians in an affiliated physician organization could retire, become disabled, terminate their employment agreements or provider contracts, or otherwise become unable or unwilling to continue generating revenues at the current level, or practicing medicine within the physician organization. Enrollees who have been served by such physicians could choose to enroll with competitors' physician organizations, reducing our revenues and profits. Moreover, we may not be able to attract other physicians into our affiliated physician organizations to replace the services of such physicians

        Physicians make hospital admitting decisions and decisions regarding the appropriate course of patient treatment, which, in turn, affect hospital revenue. Therefore, 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 our maintenance of good relations with those physicians. In many instances, physicians are not employees of our hospitals and, in a number of the markets that we serve, physicians have admitting privileges at other hospitals in addition to our hospitals. If we are unable to provide adequate support personnel or technologically advanced equipment and facilities that meet the needs of those physicians, they may be discouraged from referring patients to our facilities and our results of operations could be harmed.

Our hospitals face competition for medical support staff, including nurses, pharmacists, medical technicians and other personnel, which may increase our labor costs and harm our results of operations.

        We are highly dependent on the efforts, abilities and experience of our medical support personnel, including our nurses, pharmacists and lab technicians. We compete with other health care providers in recruiting and retaining qualified hospital management, nurses and other medical personnel. Hospitals are experiencing a severe ongoing shortage of nursing professionals, a trend which we expect to continue for some time. If the supply of qualified nurses declines in the markets in which our hospitals operate, it may require us to enhance wages and benefits to recruit and retain nurses and other medical support personnel or require us to hire expensive temporary personnel, and may result in increased labor expenses and lower operating margins at those hospitals. California has regulatory requirements to maintain specified nurse-staffing levels. To the extent we cannot meet those levels, the healthcare services that we provide in these markets may be reduced. In addition, to the extent that a significant portion of our employee base unionizes, or attempts to unionize, our labor costs could increase. We cannot predict the degree to which we will be affected by union activity or the future availability or cost of attracting and retaining talented medical support staff. If our general labor and related expenses increase, we may not be able to raise our rates correspondingly. Our failure to either recruit and retain qualified hospital management, nurses and other medical support personnel or control our labor costs could harm the results of our operations.

If we were to lose the services of Sam Lee or other key members of management, we might not be able to replace them in a timely manner with qualified personnel, which could disrupt our business and reduce our profitability and revenue growth.

        Our success depends, in large part, on the skills, experience and efforts of our senior management team and on the efforts, ability and experience of key members of our local hospital management staffs, including our Chairman and Chief Executive Officer, Sam Lee, who is also Chief Executive Officer of Alta Hospitals System, our IPA President and Chief Operating Officer, Catherine Dickson, our Chief Financial Officer, Mike Heather, our President of Alta Hospitals Subsidiary, David Topper and Jeereddi Prasad, M.D., CEO of our ProMed Entities. In addition to these individuals, there are a

51

number of other critical members of management whose loss would very negatively impact our operations. If for any reason we were to lose the services of any key member of management, we would need to find and recruit a qualified replacement quickly to avoid disrupting our business and reducing our profitability and revenue growth. We compete with other companies for executive talent, and it may not be possible for us to recruit a qualified candidate on a timely basis, or at all. Currently, we do not maintain any life insurance on our key management personnel, and not all members of our management team have employment agreements including Ms. Dickson, though our Board of Directors has approved the payment to her of six months' salary as a severance package in the event we terminate her employment. The loss of the services of one or more members of our senior management team or of a significant portion of our local hospital management staffs could significantly weaken our management expertise and our ability to efficiently deliver health care services, which could harm our business.

Because our business is currently limited to the Southern California area, any reduction in our revenues and profitability from a local economic downturn would not be offset by operations in other geographic areas.

        To date, we have developed our business within only one geographic area to take advantage of economies of scale and the mature managed care market of Southern California. Due to this concentration of business in a single geographic area, we are exposed to potential losses resulting from the risk of an economic downturn in Southern California. If economic conditions deteriorate in Southern California, our enrollment and our revenues may decline, which could significantly reduce our profitability.

We are required to upgrade and modify our management information systems to accommodate growth in our business and changes in technology and to satisfy new government regulations. As we seek to implement these changes, we may experience complications, delays and increasing costs, which could disrupt our business and reduce our profitability.

        We have developed sophisticated management information systems that process and monitor patient case management and utilization of physician, hospital and ancillary services, claims receipt and claims payments, patient eligibility and other operational data required by management. These systems require ongoing modifications, improvements or replacements as we expand and as new technologies become available. We may also be required to modify our management information systems in order to comply with new government regulations. For example, regulations adopted under the federal Health Insurance Portability and Accountability Act of 1996 beginning in August 2000 have required us to begin complying with new electronic health care transactions and conduct standards, new uniform standards for data reporting, formatting and coding, and new standards for ensuring the privacy of individually identifiable health information. This required us to make significant changes to our management information systems, at substantial cost. Similar modifications, improvements and replacements may be required in the future at additional substantial cost and could disrupt our operations during periods of implementation. Moreover, implementation of such systems is subject to the availability of information technology and skilled personnel to assist us in creating and implementing the systems. The complications, delays and cost of implementing these changes could disrupt our business and reduce our profitability.

Our ability to control labor and employee benefit costs could be hindered by continued acquisition activity.

        As additional acquisitions are completed and our work force continues to grow, maintaining competitive salaries and employee benefits could prove to be cost prohibitive. The impact of inflation and the challenge of blending different benefit programs into our existing structure could lead to either a significant increase in compensation expense and reduced profitability, or a reduction in benefits with the potential outcomes of increased turnover and a reduced ability to attract quality employees.

52

We and our hospitals and affiliated physician organizations may become subject to claims of medical malpractice or HMO bad-faith liability claims for which our insurance coverage may not be adequate. Such claims could materially increase our costs and reduce our profitability.

        In the ordinary course of business, we may be subject to medical malpractice lawsuits and other legal actions arising out of the operations of our owned and leased hospitals. 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. To mitigate a portion of this risk, we maintain professional malpractice liability and general liability insurance coverage for these potential claims in amounts above our self-insured retention level that we believe to be appropriate for our operations. However, some of these claims could exceed the scope of the coverage in effect, or coverage of particular claims could be denied. It is possible that successful claims against us that are within the self-insured retention level amounts, when considered in the aggregate, could have an adverse effect on our results of operations, cash flows, financial condition or liquidity. Furthermore, insurance coverage in the future may not continue to be available at a cost allowing us to maintain adequate levels of insurance with acceptable self-insured retention level amounts. Also, one or more of our insurance carriers may become insolvent and unable to fulfill its obligation to defend, pay or reimburse us when that obligation becomes due. In addition, physicians using our hospitals may be unable to obtain insurance on acceptable terms. Our subsidiary hospitals are subject to medical malpractice lawsuits, general liability lawsuits and other legal actions. We believe that, based on our past experience and actuarial estimates, our insurance coverage is sufficient to cover claims arising from the operations of our subsidiary hospitals. However, if payments for claims and related expenses exceed our estimates or if payments are required to be made by us that are not covered by insurance, our business could be harmed.

        Each of our affiliated physician organizations is involved in the delivery of health care services to the public and, therefore, is exposed to the risk of professional liability claims. The HMOs require our affiliated physician organizations to indemnify the HMOs for losses resulting from the negligence of physicians who were employed by or contracted with the physician organization. Claims of this nature, if successful, could result in substantial damage awards to the claimants, which may exceed the limits of any applicable insurance coverage. Insurance against losses related to claims of this type can be expensive. Moreover, in recent years, physicians, hospitals and other participants in the health care industry have become subject to an increasing number of lawsuits alleging medical malpractice, HMO bad-faith liability and related types of claims based on the withholding of approval for or reimbursement of necessary medical services. Many of these lawsuits involve large claims and substantial defense costs. Although we do not engage in the practice of medicine or the provision of medical services, we may also become subject to legal claims alleging that we have committed medical malpractice or we may become a defendant in an HMO bad-faith liability claim.

        Our employed physicians at Sierra Medical Group and Pegasus Medical Group are currently insured under policies that cover malpractice on a "claims made" basis, which includes vicarious coverage for each entity. We also carry a policy of managed care errors and omissions insurance, in amounts management deems appropriate, based upon historical claims and the nature and risk of our business. In addition, each of the independent physicians that contract with our affiliated physician organizations is required to maintain professional liability insurance coverage of the physician and of each employee, servant and agent of the physician. Nevertheless, there are exclusions and exceptions to coverage under each insurance policy that may make coverage for any claim unavailable, future claims could exceed the limits of available insurance coverage, existing insurers could become insolvent and fail to meet their obligations to provide coverage for such claims, and such coverage may not always be available or available with sufficient limits and at reasonable cost to adequately and economically insure us and our affiliated physician organizations' operations in the future. A malpractice or an errors and

53

omissions judgment against us or any of our affiliated physician organizations could materially increase our costs and reduce our profitability.

Fluctuations in our quarterly operating results may make it difficult to predict our future results of operations, which could decrease the market value of our common stock.

        Our results of operations for any quarter are not necessarily indicative of results of operations for any future period or full year. Our quarterly results of operations may fluctuate for a number of reasons. Our annual and interim financial statements contain accruals that are calculated quarterly for estimates of incentive payments to be made by the HMOs to our affiliated physician organizations based upon hospital utilization or other factors. Quarterly results have in the past, and may in the future, be affected by adjustments to such estimates. We are subject to quarterly variations in our medical expenses due to fluctuations in patient utilization, legislative and regulatory developments, general economic conditions, CMS risk adjustment calculations, and the capitated nature of our revenues. Historically, the affiliated physician organizations and HMOs generally reconcile differences between actual and estimated amounts relating to HMO incentive payment arrangements by the third quarter of each calendar year. In the event that the affiliated physician organizations and HMOs are unable to reconcile such differences, extensive negotiation, arbitration or litigation relating to the final settlement of these amounts may occur. Any delay in the settlement of these amounts may result in our being unable to record anticipated income. As our network expands to include additional IPAs, the timing of these reconciliations may vary; this variation in timing may cause our results not to be directly comparable to corresponding quarters in other years. Our financial statements also include estimates of costs for covered medical benefits incurred by enrollees, which costs have not yet been reported by the providers (incurred but not reported claims). While these estimates are based on information available to us at the time of calculation, actual costs may differ from our estimates of such amounts. If the actual costs differ significantly from the amounts we have estimated, adjustments will be required and quarterly results may be affected. Quarterly results may also be affected by movements of HMO members from one HMO to another, particularly during periods of open enrollment for HMOs, which occur primarily in September, October and January of each year. Additionally, the completion of acquisitions causes fluctuations in our quarterly results, as results of the acquired entities are consolidated with our results for periods following the acquisitions. These factors can make our quarterly results not directly comparable to the results in corresponding quarters of other years, making it difficult to predict our future results of operations. As a result, our results of operations may fluctuate significantly from period to period, which could decrease the value of our common stock.

The NASD has conducted an informal inquiry regarding trading in our common stock.

        On February 3, 2004, we received a notice of inquiry from the National Association of Securities Dealers, Inc., concerning trading in our common stock that took place around the time that we announced the first closing of a private placement of our Series A Preferred Stock. We responded to an NASD request for documents on February 12, 2004 and have received no further contacts from the NASD since that date. However, it is possible that the NASD could continue its inquiry or open a formal investigation the NASD, or other government agencies, could initiate enforcement proceedings if the NASD concluded that improprieties occurred in connection with the trading.

Trading in our common stock was suspended effective January 16, 2008. If we are not able to develop or sustain an active trading market for our common stock, it may be difficult for stockholders to dispose of their common stock.

        Following non-timely filing of our Form 10-K for the fiscal year ended September 30, 2007, the American Stock Exchange suspended the trading in our common stock, effective January 16, 2008, and the Exchange will not resume trading in our common stock until we have filed our Form 10-K and the

54

late Form 10-Q reports for our quarters ended December 31, 2007 and March 31, 2008 and we have met other requirements of the Exchange. Additionally, our common stock has never experienced significant trading volume and was the subject of limited and sporadic trading on the OTC Bulletin Board from 1996 to 1999. No liquid trading market has existed for our common stock since 1999. Trading of our common stock on the American Stock Exchange began on May 11, 2005. It is uncertain whether we will be able to continue to meet the requirements for listing on the American Stock Exchange, or an alternative exchange or market, or that an active trading market for our common stock will develop. If we do not maintain our American Stock Exchange listing or listing on another exchange or market and an active market in our common stock does not develop, it may be more difficult for stockholders to dispose of their common stock and could diminish significantly the market value of our common stock.

Even if an active market develops for our common stock, the market price of our stock is likely to be volatile.

        Historically, the market prices for shares of health care companies, and smaller capitalization companies generally, have tended to be volatile. It is likely that the market price for our common shares will also be volatile. The price for our common stock may be influenced by many factors, including announcements of legislation or regulation affecting the health care industry in general and reimbursement for health care services in particular, the depth and liquidity of the market for our common stock, investor perception and fluctuations in our operating results and market conditions. If our common stock becomes subject to the SEC's penny stock rules, our stockholders may find it difficult to sell their stock.

        If we do not maintain the American Stock Exchange listing for our common stock or a listing of our common stock on another national securities exchange or on NASDAQ, and if the trading price of our common stock is less than $5.00 per share, our common stock will become subject to the SEC's penny stock rules. Before a broker-dealer can sell a penny stock, the penny stock rules require the firm to first approve the customer for the transaction and receive from the customer a written agreement to the transaction. The firm must furnish the customer a document describing the risks of investing in penny stocks. The broker-dealer must tell the customer the current market quotation, if any, for the penny stock and the compensation the firm and its broker will receive for the trade. Finally, the firm must send monthly account statements showing the market value of each penny stock held in the customer's account. These disclosure requirements tend to make it more difficult for a broker-dealer to make a market in penny stocks, and could, therefore, reduce the level of trading activity in a stock that is subject to the penny stock rules. Consequently, if our common stock becomes subject to the penny stock rules, our stockholders may find it difficult to sell their shares.

Item 1B.    Unresolved Staff Comments.

        Not applicable.

55

Item 2.    Properties.

Properties

        We own through our subsidiary, Alta Hospitals System, LLC, the following real property:

Name of Real Estate	Location	Description
Hollywood Community Hospital	6245 De Longpre Ave. Los Angeles, CA 90028	Hospital with 100 licensed beds with 49,152 square feet of improvements situated on 1.88 acres of land.
Los Angeles Community Hospital	4081 East Olympic Blvd Los Angeles, CA 90023	Hospital with 130 licensed beds with 64,024 square feet of improvements situated on 2.01 acres of land.
Norwalk Community Hospital	13222 Bloomfield Ave. Norwalk, CA 90650	Hospital with 50 licensed beds with 23,530 square feet of improvements situated on 1.88 acres of land.
Van Nuys Community Hospital	14433 Emelita St Van Nuys, CA 91401	Psychiatric hospital with 59 licensed beds with 34,192 square feet of improvements situated on 1.86 acres of land.

        In addition, we, or our affiliated physician organizations, currently lease space for administrative and medical offices, some of which is shared space, as follows:

Medical or Independent Practice Association Offices

			Lease Term; Renewal	Current Monthly Rent
Prospect Medical Group(1)	Santa Ana, CA	Shares space with Prospect Medical Systems	5 years; 2010	$	44,491
Sierra Primary Care Medical Group(3)	Lancaster, CA	Shares space with Antelope Valley Medical Associates and Sierra Medical Management	6.5 years; 2012	$	15,549
Sierra Primary Care Medical Group(3)	Palmdale, CA	Medical Clinic	month-to-month	$	13,906
Pegasus Medical Group(3)	Palmdale, CA	Medical Clinic	5 years; 2012	$	8,046

Administrative Offices

			Lease Term; Renewal	Current Monthly Rent
Prospect Medical Holdings(4)	Culver City, CA	Corporate headquarters	7 years; 2012	$	5,484
Prospect Medical Holdings	Santa Ana, CA	Warehouse/ Storage Space	5 years; 2009	$	17,762
Prospect Medical Systems(2)	Santa Ana, CA	Shares space with Prospect Medical Group	5 years; 2010	$	44,491
Prospect Medical Systems(2)	Santa Ana, CA	Shares space with Prospect Medical Group	5 years; 2011	$	21,000

56

Sierra Medical Management(3)	Lancaster, CA	Shares space with Sierra Primary Care Medical Group and Antelope Valley Medical Associates	6.5 years; 2012	$	15,549
Sierra Medical Management(3)	Lancaster, CA	Shares space with Sierra Primary Care Medical Group	Month-to-month	$	1,800
Sierra Medical Management(3)	Lancaster, CA	Shares space with Sierra Primary Care	3 year; 2009	$	1,350
ProMed Health Care Administrators, Inc.	Ontario, CA	Office space, shared with Pomona Valley Medical Group and Upland Medical Group	10 years; 2014	$	37,976
ProMed Health Care Administrators, Inc.	Ontario, CA	Storage Space	Month-to-month	$	851
Alta Hospitals System, LLC(5)	Los Angeles, CA	Office space	5 years; 2010	$	9,179
Alta Hospitals System, LLC(6)	Los Angeles, CA	Shares space with Prospect Medical Holdings	7 years; 2015	$	25,039
Alta Hospitals System, LLC	Bellflower, CA	Office space	6 years; 2011	$	13,352
Norwalk Community Hospital	Norwalk, CA	Medical office space	3 years; 2009	$	848

(1)

Prospect Medical Group includes all affiliated physician organizations that are wholly-owned subsidiaries of Prospect Medical Group.

(2)

On January 27, 2004, Prospect Medical Systems executed a 6^th Addendum to its office lease that provided for an increase in space of 5,298 square feet effective November 1, 2004, at which date, the base rent increased to $41,464.

We leased additional space in July, 2006 adjacent to the Santa Ana facilities for approximately 12,015 square feet. The lease agreement term is for a 60 months, through 2011, with starting monthly lease payments of approximately $20,400 .

(3)

Sierra Primary Care Medical Group, Antelope Valley Medical Associates and Pegasus Medical Group have their own facilities through Sierra Medical Management but they each share certain services provided by Prospect Medical Systems.

(4)

We have closed this office, and now share space with Alta Hospitals System, LLC.

(5)

Alta Hospitals System, LLC is in the process of negotiating a sub-lease for the remainder of the original lease.

(6)

On May 7, 2008, Alta Hospitals System, LLC executed a new lease because we had outgrown our previous space.

        We believe that this office space is sufficient for our operational needs for the foreseeable future, although we may need to acquire additional space to accommodate our plans for future growth, if successful.

57

Employees

        At September 30, 2007, we and our affiliated physician organizations had a total of 453 employees within our IPA operation. The employees are not subject to any collective bargaining agreements. We believe that employee relations are good.

        At September 30, 2007, our Hospital Services operation had a total of approximately 1,400 employees. The largest concentration of our employees, 952, are under our consolidated group, Alta Hospitals System, LLC. Of that amount, less than 3% of the total employee headcount are subject to any collective bargaining agreements. Hollywood Community Hospital, which is one of the hospitals under the consolidated group of Alta Hospitals System, LLC, has a collective bargaining agreement with the Service Employees International Union through May 23, 2008, covering a small group of Hollywood Community Hospital's employees. We are in the process of negotiating with this union regarding a successor collective bargaining agreement. We do not anticipate the new agreement will have a material adverse effect on the results of our operations.

Item 3.    Legal Proceedings.

        We and our affiliated physician organizations are parties to legal actions arising in the ordinary course of business. We believe that liability, if any, under these claims will not have a material adverse effect on our consolidated financial position or results of operations.

Item 4.    Submission of Matters to a Vote of Security Holders.

        We filed proxy materials with the SEC on September 28, 2007 for an annual meeting of stockholders that was scheduled to be held on November 14, 2007 but was postponed, with no vote having been taken. Otherwise, no matter was submitted to a vote of stockholders through the solicitation of proxies or otherwise during the fourth quarter of our fiscal year ended September 30, 2007.

58

PART II

Item 5.    Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

        Our common stock began trading on the American Stock Exchange under the symbol "PZZ" on May 11, 2005.

        Following non-timely filing of our Form 10-K for the fiscal year ended September 30, 2007, the American Stock Exchange suspended trading in our common stock, effective January 16, 2008. The Exchange will not resume trading in our common stock until we have filed our Form 10-K and the late Form 10-Q reports for our quarters ended December 31, 2007 and March 31, 2008 and we have met other requirements of the Exchange.

        The following table sets forth the quarterly high and low sales prices for our common stock for the last two completed fiscal years.

Date Range	High Sales Price		Low Sales Price
2006
First Quarter	$	6.00	$	4.26
Second Quarter	$	7.25	$	4.80
Third Quarter	$	6.31	$	5.15
Fourth Quarter	$	6.15	$	5.50
2007
First Quarter	$	6.20	$	5.50
Second Quarter	$	6.25	$	4.45
Third Quarter	$	5.75	$	3.95
Fourth Quarter	$	6.05	$	4.70

        As of May 23, 2008, we had approximately 396 record owners and approximately 543 beneficial owners of our common stock.

        We have not paid any cash dividends in the past and do not plan to do so in the near future. Under our credit facilities, we are prohibited from declaring or paying any dividends or distributions of earnings to our stockholders.

        The following table provides information as of the fiscal year ended September 30, 2007 with respect to compensation plans and individual compensation arrangements under which equity securities of the company are authorized for issuance:

	(a)	(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted- average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	1,039,906	$	5.29	55,496
Equity compensation plans not approved by security holders	2,226,536	$	3.51	0
Total	3,266,442	$	3.95	55,496

59

        Included in equity compensation plans approved by securities holders is our 1998 Stock Option Plan ("1998 Plan"). Included in equity compensation plans not approved by security holders are employee stock options and warrants issued outside of our 1998 Plan.

        The 1998 Plan, as amended, provides for a continuous pool of 2,040,000 shares of our Common Stock for allocation to previously issued and outstanding or exercised stock option awards under the Plan and future stock option grants under the Plan. Options which have terminated without being exercised, whether by forfeiture or otherwise, no longer have shares allocated to them and therefore do not count against the 2,040,000 pool amount. All but a nominal amount of the 2,040,000 shares of Common Stock that were reserved for issuance under the 1998 Plan have already been allocated to previously issued options, leaving virtually no shares available for future awards. In addition, the 1998 Plan will terminate ten years after it became effective, after which no further options may be issued under that plan; hence the need for a new equity plan such as the 2007 Omnibus Equity Incentive Plan that has been proposed for stockholder approval in Proposal 2 of our 2007 Proxy Statement.

        Options granted under the 1998 Plan may be qualified incentive stock options or non-qualified stock options and each grant is evidenced by a written stock option agreement. The exercise price to be paid for shares upon exercise of each option granted under the 1998 Plan is determined by our Board of Directors at the time the option is granted, but may not be less than the fair market value of the stock, as determined on the date of grant. The maximum term of each option is ten years. The aggregate fair market value of shares of Common Stock with respect to which qualified incentive stock options are exercisable for the first time by any single optionee in any calendar year is limited to $100,000. Qualified options have a term of five years, with vesting schedules determined by the Compensation Committee.

        An option under the 1998 Plan terminates 90 days after the holder ceases to be employed by us, except in the case of death or disability. In the case of death or disability, the option may be exercised within twelve months by the holder or the holder's legal representative, executor, administrator, legatee or heirs, as the case may be.

        The terms of the options granted outside of the 1998 Plan are substantially similar to the terms of the non-qualified options issued under the 1998 Plan, except that 300,000 options granted to Mike Heather provide that if Mr. Heather leaves the employ of the company, he will be able to exercise the options for up to three years after his separation from the company.

        Warrants issued outside of the 1998 Plan at an exercise price of $1.00 per share have a ten year term ending in 2010. Warrants issued outside of the 1998 Plan at an exercise price of $5.50 per share have a ten year term ending in 2014.

60

Item 6.    Selected Financial Data.

Selected Financial Data

        Set forth below is our selected consolidated financial data for the five fiscal years ended September 30, 2007 derived from our audited consolidated financial statements. You should read the selected consolidated financial data in conjunction with our consolidated financial statements and related notes included herein and with "Management's Discussion and Analysis of Financial Condition and Results of Operations." Amounts are in thousands except for per share and enrollment data:

		Year Ended September 30
		2003(1)			2004(2)			2005			2006(3)			2007(6)(7)
Statement of Operations Data
Managed care revenues		$	66,542		$	129,516		$	133,518		$	135,796		$	165,070
Net patient revenues			—			—			—			—			15,583
Total revenues			66,542			129,516			133,518			135,796			180,653
Operating expenses:
	Managed care cost of revenues		46,740			95,975			96,371			97,184			131,045
	Hospital operating expenses		—			—			—			—			10,699
	General and administrative		18,200			24,335			27,229			30,205			37,777
	Depreciation and amortization		540			733			948			1,513			3,107
	Impairment of goodwill and identifiable intangibles		—			—			—			—			38,776
Total operating expenses			65,480			121,043			124,548			128,902			221,404
Operating income from unconsolidated joint venture			728			207			88			1,400			2,664
	Operating income (loss)		1,790			8,680			9,058			8,294			(38,087	)
Other income (expense):
Investment income			59			76			400			913			1,097
Interest expense and amortization of deferred financing costs			(195	)		(91	)		(958	)		(1,107	)		(5,258	)
Loss on interest rate swaps			—			—			—			—			(868	)
Total expense, net			(136	)		(15	)		(558	)		(194	)		(5,029	)
Equity in losses, and write down, of unconsolidated investment			—			—			(1,000	)		—			—
Income (loss) before income taxes			1,654			8,665			7,500			8,100			(43,116	)
Income tax provision (benefit)			683			3,525			3,415			3,194			(9,649	)
Net income (loss) before minority interest			971			5,140			4,085			4,906			(33,467	)
Minority interest			(16	)		(13	)		(12	)		(16	)		(10	)
Net income (loss)		$	955		$	5,127		$	4,073		$	4,890		$	(33,477	)
Basic earnings (loss) per share		$	0.23		$	1.19		$	0.83		$	0.71		$	(3.94	)
Diluted earnings (loss) per share		$	0.22		$	0.68		$	0.48		$	0.60		$	(3.94	)

61

		As of September 30
		2003(1)		2004(2)		2005		2006(3)		2007(6)(7)
Balance Sheet Data
Assets:
Cash and cash equivalents		$	6,517	$	20,330	$	16,949	$	16,623	$	21,599
Other current assets			2,151		4,218		5,702		8,145		35,800
Fixed assets			1,022		1,606		1,202		1,286		48,294
Other assets (primarily goodwill)			24,899		34,134		33,878		40,603		189,946
Total assets		$	34,589	$	60,288	$	57,731	$	66,657	$	295,639
Liabilities and shareholders' equity:
Current liabilities		$	25,364	$	27,689	$	23,332	$	24,892	$	55,150
Long-term liabilities			2,003		9,648		7,398		7,880		170,874
Minority interest			80		64		65		82		79
Total shareholders' equity			7,142		22,887		26,936		33,803		69,536
Total liabilities and shareholders' equity		$	34,589	$	60,288	$	57,731	$	66,657	$	295,639
HMO Enrollment(4)(5)
Commercial			136,200		168,500		144,900		140,300		184,300
Medicare			11,200		15,500		12,500		14,100		23,700
Medi-Cal			13,700		14,400		14,500		17,000		32,800
Total Enrollment			161,100		198,400		171,900		171,400		240,800
Hospital Utilization
	Average licensed beds										340
	Average available beds										331
	Inpatient admissions										3,325
	Average length of patients' stay (days)										5.0
	Patient days										10,756
	Occupancy rate for licensed beds										60.50	%
	Occupancy rate for available beds										62.10	%

(1)

The balance sheet and operating results of Prospect Professional Care Medical Group have been included in the consolidated balance sheet as of September 30, 2003, the date of acquisition, and in the consolidated statements of income as of and for periods after September 30, 2003.

(2)

The balance sheet and operating results of Prospect NWOC Medical Group, Inc., StarCare Medical Group, Inc., APAC Medical Group, Inc. and Pinnacle Health Resources have been included in the consolidated financial statements for periods since their February 1, 2004 date of acquisition.

(3)

The balance sheet and operating results of Genesis HealthCare of Southern California have been included in the consolidated financial statements since its November 1, 2005 acquisition date.

(4)

Enrollment as of September 30, 2003 includes approximately 45,000 enrollees acquired through the purchase of Prospect Professional Care Medical Group that occurred on that date.

(5)

The Medi-Cal enrollment statistics above include both enrollees that we manage for our own economic benefit, and enrollees that we manage for the economic benefit of our partner in the AMVI/Prospect Health Network joint venture. The number of enrollees included in the above table for which we provide management services to our joint venture partner, but in which we have no beneficial ownership interest, was 7,100, 7,100, 7,300, 7,100 and 7,700 as of September 30, 2003, 2004, 2005, 2006, and 2007 respectively.

(6)

The balance sheet and operating results of the ProMed Entities have been included in the consolidated financial statements since their June 1, 2007 acquisition date.

(7)

The balance sheet and operating results of Alta Hospitals System, LLC have been included in the consolidated financial statements since its August 8, 2007 acquisition date.

62

Item 7.    Management's Discussion and Analysis of Financial Condition and Results of Operations.

        The following discussion of our financial condition and results of operations should be read together with the financial statements and related notes included in this filing. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ significantly from the results discussed in the forward-looking statements. Factors that might cause or contribute to such a difference include, but are not limited to, those discussed under "Risk Factors" and elsewhere in this filing.

Executive Overview

General Operations

        We are a Southern California health care company that has historically provided management and administrative services to affiliated physician organizations that have entered into agreements with HMOs to provide medical care to HMO enrollees (approximately 240,800 as of September 30, 2007) in Orange, Los Angeles and San Bernardino counties.

        In managing the affiliated physician organizations, we remain sensitive to local custom and practice, while centralizing, whenever possible, the management functions in our Santa Ana, California and Ontario, California operations centers.

        Following our August 8, 2007 acquisition of Alta Healthcare System, Inc., we own and operate four community-based acute care hospitals in Southern California. With the acquisition, our operations are now organized into two reportable segments: IPA Management and Hospital Services.

Highlights of Performance (Year ended September 30, 2007 as compared to 2006)

IPA management

•

Exclusive of acquisitions, the core business member months decreased by approximately 3.7% compared to the prior year.



•

Revenue increased by approximately 22% compared to the prior year.



•

The medical cost ratio increased from 72.8% to 80.4% compared to the prior year.



•

General and administrative expenses increased by approximately 20% compared to the prior year.



•

Impairment of goodwill and intangibles of approximately $38.8 million resulted in an operating loss of approximately $40.9 million compared to operating income of $8.3 million in the prior year.

Hospital services

•

Following our acquisition of Alta Healthcare System, Inc., and for the period August 8, 2007 through September 30, 2007, our Hospital services operation reported operating income of $2.8 million on revenue of $15.6 million.

Consolidated

•

Diluted earnings per share was a loss of $3.94 per share compared to income per share of $0.60 in the prior year.



•

Total cash and cash equivalents increased by $4,975,863, or approximately 30% compared to the prior year.

63

•

Total bank debt increased to $146,750,000 compared to $12,000,000 in the prior year.

Highlights of Performance (Year ended September 30, 2006 as compared to 2005)

IPA management

•

The member months decreased by approximately 0.3% compared to the prior year.



•

Revenue increased by approximately 2% compared to the prior year.



•

The medical cost ratio decreased from 73.4% to 72.8% compared to the prior year.



•

General and administrative expenses increased approximately 11% compared to the prior year.



•

Operating income decreased by approximately 8% compared to the prior year.



•

Diluted earnings per share increased by 25% compared to the prior year.



•

Total cash and cash equivalents decreased by $325,898, or approximately 2% compared to the prior year.



•

Total bank debt increased by $3,833,333 or approximately 47% compared to the prior year.

        We consider the following economic or industry-wide factors relevant to our business:

•

The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, which was signed into law on December 8, 2003 and made significant changes to the Medicare program, particularly by increasing drug reimbursement rates, appears to be providing further motivation for HMOs to recruit senior enrollees. Since senior enrollees have traditionally been our most profitable enrollee category, if this trend persists, it would have a positive effect on our revenues and operating profit.



•

HMOs are making attempts to lower medical insurance costs to businesses by introducing a variety of Preferred Provider Organization ("PPO") and PPO-like products. These products, which carry lower premiums, but higher out-of-pocket costs, tend to reduce HMO enrollment and could negatively affect our revenue and operating profit.



•

If unemployment in Southern California went up, or a major employer scaled back local operations, or relocated, the HMOs would have lower enrollment and revenues, which in turn would impact our operations.

        Prior to our acquisition of Alta in 2007, our primary business strategy was focused on the acquisition of IPAs. In that regard, our basic strategy was to target geographical regions with many IPAs and to achieve growth and scale within those regions, primarily through the acquisition of selected IPAs by Prospect Medical Group. Our June 2007 acquisition of ProMed represented our expansion into the targeted geographical region of San Bernardino County. In California there are approximately 150 IPAs (including IPAs that may also operate a medical clinic) that have managed care membership. Identification and successful pursuit of appropriate acquisition candidates presents material opportunities, challenges and risks.

        With our acquisition of Alta, we have augmented our business strategy with the addition of our Hospital Services segment, addressing an increasing need to provide both IPA and hospital services to our HMO customers. Our business strategy, post-Alta, provides for continued growth in both of our business segments, organically and by acquisition.

        In the short term, should we fail to identify suitable acquisition candidates and consummate the acquisitions, this will negatively impact our growth. Over the long term, should we be unable to successfully integrate acquisitions into our business, thereby losing portions of the value anticipated

64

from the acquisitions, or should we consummate acquisitions that turn out to be unsuitable or unprofitable, our earnings and goodwill value would be diminished.

Operating Revenues

IPA Management

        Approximately 97% of our fiscal 2007 IPA Management revenues were from capitation payments made each month by HMOs to our affiliated physician organizations, for HMO enrollees who have chosen or been assigned to one of our affiliated physician organizations, to provide for their professional medical care. The predominant method of receiving our capitation payments is by a ready funds wired into the accounts of our affiliated physician organizations, generally between the 10th and 25th day of each month.

        Because substantially all of our revenue is received under capitated, or fixed rate per-member-per-month contracts, we are exposed to the risk of higher care utilization, and therefore costs, without any ability to seek additional reimbursement from the HMOs, other than during future contract renewal negotiations with the HMOs.

        Additionally, for Medicare enrollees, which accounted for approximately 35%, 37% and 30%, of our fiscal, 2005, 2006 and 2007 revenues, respectively, we are subject to retroactive revenue per member adjustments once CMS has processed health status information for each Medicare enrollee. These retroactive adjustments have historically been significant. Since the adjustments typically occur in the same fiscal year as services are rendered, annual revenue is not significantly impacted by these adjustments. However, the adjustments create volatility in the results from year to year. In fiscal 2005, 2006 and 2007, these retroactive adjustments decreased (increased) fourth quarter capitation revenue by approximately $4.0 million, $(1.5) million and $1.5 million, respectively.

        We receive management fees from Brotman Medical Center (in which we have a minority interest), and from our partner in the AMVI/Prospect joint venture. The fee is either a fixed percentage of revenue or a fixed per-member-per-month payment.

        Our two group medical practices, Sierra Primary Care Medical Group and Pegasus Medical Group also generate fee-for-service billings, which are reimbursed by Medicare, Medicaid (Medi-Cal in California), private indemnity health insurance, and cash payments by patients.

        For the year ended September 30, 2007, as compared to 2006, we experienced a 22% increase in IPA Management revenues, primarily due to the ProMed acquisition in June 2007 and the reassignment of the MediCal and Healthy Family enrollees under the CalOptima contract from the AMVI/Prospect joint venture directly to Prospect Medical Group effective January 1, 2007. This increase was offset by a decline in enrollment and decrease in hospital risk pool revenue.

        For the year ended September 30, 2006, as compared to 2005, we experienced a slight increase in IPA Management revenues, primarily due to the Genesis acquisition in November 2005 and net increases in risk pool revenue. These increases were offset by declines in enrollment.

Hospital Services

        Operating revenue of the Hospital Services segment consists primarily of net patient service revenue. We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others in the period in which services are rendered. We have agreements with third-party payors, including Medicare, Medi-Cal, managed care and other insurance programs, that provide for payments to us at amounts different from our established rates. These payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments. Estimates of contractual allowances are based upon the payment terms

65

specified in the related contractual agreements. We are also reimbursed for various disproportionate share and Medicare bad debt components at tentative rates, with final settlement determined after submission of annual Medicare cost reports and audits thereof by the Medicare fiscal intermediary. We accrue for amounts that we believe may ultimately be due to or from the third party payers. Normal estimation differences between final settlements and amounts accrued in previous years are reported as changes in estimates in the current year. A majority of our patient service revenue are reimbursed by the Medicare and Medi-Cal programs. For the period August 8, 2007 through September 30, 2007, approximately 39.3%, 53.9%, 3.5% and 3.3% of our Hospital services revenue was from Medicare, Medicaid, Self Pay and Private Insurers, respectively.

        Hospital revenues depend upon inpatient occupancy levels, the medical and ancillary services and therapy programs ordered by physicians and provided to patients, the volume of outpatient procedures and the charges or negotiated payment rates for such services. Charges and reimbursement rates for inpatient routine services vary depending on the type of services provided (e.g., medical/surgical or intensive care) and the geographic location of the hospital. Inpatient occupancy levels fluctuate for various reasons, many of which are beyond our control. The percentage of patient service revenue attributable to outpatient services has generally increased in recent years, primarily as a result of advances in medical technology that allow more services to be provided on an outpatient basis, as well as increased pressure from Medicare, Medi-Cal and private insurers to reduce hospital stays and provide services, where possible, on a less expensive outpatient basis. We believe that our experience with respect to our increased outpatient levels mirrors the general trend occurring in the health care industry and we are unable to predict the rate of growth and resulting impact on our future revenues.

        Patients are generally not responsible for any difference between customary hospital charges and amounts reimbursed for such services under Medicare, Medicaid, some private insurance plans, and managed care plans, but are responsible for services not covered by such plans, exclusions, deductibles or co-insurance features of their coverage. The amount of such exclusions, deductibles and co-insurance has generally been increasing each year. Indications from recent federal and state legislation are that this trend will continue. Collection of amounts due from individuals is typically more difficult than from governmental or business payers and we continue to experience an increase in uninsured and self-pay patients which unfavorably impacts the collectibility of our patient accounts, thereby, increasing our provision for doubtful accounts and charity care provided.

        For the period August 8, 2007 through September 30, 2007, approximately 91.1%, and 6.8% of our Hospital services revenue was from Inpatient and Outpatient, respectively.

Operating Expenses

IPA Management

        Operating expenses of our IPA Management segment include monthly sub-capitation and fee-for-service payments to primary care and specialist physicians, and ancillary service providers, who have executed contracts with our affiliated physician organizations; fee-for-service payments to physicians who provide care for our patients and do not have a contract with our affiliated physician organizations; and salaries, benefits and other compensation paid to physicians that are employees of our affiliated physician organizations (Sierra Primary Care Medical Group and Pegasus Medical Group). Our medical expenses also include an estimate of claims that have been incurred but not reported ("IBNR") to us.

        While substantially all of our revenue is received under capitated, or fixed rate per member per month contracts, where we have virtually no ability to earn additional compensation for higher care utilization, only a portion of the related medical expenses are provided under capitated, or fixed rate per member per month contracts with our providers. Where our providers are reimbursed on a fee-for-service basis, we have no ability to share the risk of adverse utilization with others. During fiscal

66

2005, 2006 and 2007, approximately 47.7%, 45.8% and 43.2%, of our medical expenses were incurred under capitated or fixed rate contracts, respectively.

        We have established systems to monitor the availability, appropriateness and effectiveness of the patient care provided through our affiliated physician organizations. We collect utilization data for each of our affiliated physician organizations that we use to analyze over-utilization or under- utilization of services and assist our contracted and employed physicians in providing appropriate care for their patients, and improving patient outcomes in a cost-efficient manner.

Hospital Services

        Operating expenses of our Hospital Services segment include salaries, benefits and other compensation paid to physicians and health care professionals that are employees of our hospitals; medical supplies; consultant and professional services; and provision for doubtful accounts.

General and Administrative

IPA Management

        General and administrative expenses of our IPA Management segment consist of costs of managing our physician organizations which include salaries, benefits and other compensation for our employees, insurance, rent, operating supplies, legal and accounting, and marketing.

Hospital Services

        General and administrative expenses of our Hospital Services segment consist of salaries, benefits and other compensation for our Hospital administrative employees, insurance, rent, operating supplies, legal, accounting and marketing.

Cash Flow

        Prior to the August 8, 2007, acquisition of Alta, our primary source of cash was derived from HMO capitation payments to our affiliated physician organizations. While substantially all of our revenue in fiscal 2007 is received under capitated contracts, only a portion of the related medical expenses are provided under capitated contracts. This leaves us in the position that, if medical care utilization and costs run higher than expected, we do not have any ability to earn additional revenue, and our net income, cash flows and financial position would be negatively impacted. Because our capitation payments are received between the 10th and the 25th day of each month, and a substantial portion of our expenses are paid in arrears, we tend to accumulate cash. Our primary use of cash is to pay medical expenses and fund acquisitions.

        In contrast, our Hospital Services segment provides medical care and receives payments generally between 30 and 90 days, although some billings may not be ultimately resolved for several months and in some cases one year or more. We also receive a portion of our payments from Medicare through a retrospective audit and settlement process which can take two to three years. In addition, we receive approximately $11 million to $12 million annually in additional payments under the Medi-Cal disproportionate share program in the form of lump sum payments. These payments are made periodically throughout the year with the last payments received early in the following year. While the Alta acquisition will enhance our overall profitability and liquidity, the timing between cash inflows and expenditures will narrow in the future.

        In order to complete acquisitions and fund our growth, we have, from time to time, borrowed money from commercial banks and other sources, and sold shares in our company.

67

        We finance our acquisitions primarily through borrowings. In June 2007, we entered into a new 3-year senior secured credit facility with Bank of America, in connection with the purchase of the ProMed Entities. The Bank of America facility totaled $53,000,000, and comprised a $48,000,000 variable rate term loan, and a $5,000,000 revolver. In August 2007, all amounts outstanding under the $53,000,000 Bank of America credit facility ($48,000,000) were repaid with proceeds from a $155,000,000 syndicated senior secured credit facility agented by Bank of America in connection with the acquisition of Alta Healthcare System, Inc. See "Liquidity and Capital Resources—Credit Facilities" below.

        We have also financed our growth through equity offerings. On March 31, 2004, we completed a private offering of our Series A Convertible Preferred Stock ("Series A Preferred Stock") at $5.50 per share, raising total gross proceeds of $12,458,802 ($10,019,741, net of offering costs) from accredited investors. Each share of Series A Preferred Stock sold in the offering automatically converted into common stock on July 27, 2005 when the common stock underlying the Series A Preferred Stock became registered for resale under the Securities Act of 1933.

Critical Accounting Policies

        The accounting policies described below are considered critical in preparing our consolidated financial statements. Critical accounting policies require difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The judgments and uncertainties affecting the application of these policies include significant estimates and assumptions made by us using information available at the time the estimates are made. Actual results could differ materially from those estimates.

Consolidation of Financial Statements

        As discussed further in Note 1 to our consolidated financial statements, under applicable financial reporting requirements, the financial statements of the affiliated physician organizations with which we have management services agreements are consolidated with our own financial statements. This consolidation is required under EITF Issue No. 97-2, "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Arrangements" issued by the Emerging Issues Task Force of the Financial Accounting Standards Board because we are deemed to hold a controlling financial interest in such organizations through a nominee shareholder. We can, through an assignable option agreement, change the nominee shareholder at will on an unlimited basis and for nominal cost. There is no limitation on our designation of a nominee shareholder except that any nominee shareholder must be a licensed physician or otherwise permitted by law to hold shares in a professional medical corporation. We have also concluded that under Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51" (FIN 46) we are required to consolidate our affiliated physician organizations. The operations of our affiliated physician organizations have a significant impact on our financial statements. All inter-company accounts and balances have been eliminated in consolidation.

Revenue Recognition

IPA Management

        Operating revenue of our IPA management segment consists primarily of capitation payments for medical services provided by our affiliated physician organizations under contracts with HMOs, or under fee-for-service arrangements. Capitation revenue under HMO contracts is prepaid monthly to the affiliated physician organizations based on the number and type of enrollees assigned to physicians in our affiliated physician organizations.

68

        Capitation revenue paid by HMOs is recognized in the month in which the affiliated physician organization is obligated to provide services. Capitation revenue may be subsequently adjusted to reflect changes in enrollment as a result of retroactive terminations or additions. Such retroactive terminations or additions have not had a material effect on capitation revenue.

        Variability in capitation revenue increased beginning in calendar 2004, when Medicare began a four-year phase-in of a revised capitation model referred to as "Risk Adjustment." Under the new model, capitation with respect to Medicare enrollees is subject to subsequent adjustment by CMS based on the acuity of the enrollees to whom services were provided. Capitation for the current year is paid based on data submitted for each enrollee for previous periods. Capitation is paid at interim rates during the year and is adjusted in subsequent periods (generally in our fourth fiscal quarter) after the final data has been processed by CMS. Positive or negative capitation adjustments are made for seniors with conditions requiring more or less healthcare services than assumed in the interim payments. Since we do not currently have the ability to reliably predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized when those changes are communicated from the health plans, generally in the fourth quarter of the fiscal year to which the adjustments relate. We recorded a $1.5 million increase in capitation revenue in the fourth quarter of fiscal 2007, a $1.5 million reduction in the comparable 2006 period and a $4 million increase in the comparable 2005 period for risk adjustment factors.

        Fee-for-service revenues are recognized when the services have been performed, net of allowances to reduce billed charges to estimated contractually entitled amounts. The effect of changes in estimates for contractual allowances has not had a material effect on fee-for-service revenues. All receivables are recorded net of an allowance for bad debts. Uncollectible amounts are reported as bad debt expense and included in general and administrative expenses.

        We also earn additional incentive revenue or incur penalties under HMO contracts by sharing in the risk for hospitalization based upon inpatient services utilized. Except for two contracts where we are contractually obligated for down-side risk, shared risk deficits are not payable unless and until we generate future risk sharing surpluses. Risk pools are generally settled in the third or fourth quarter of the following year. Due to the lack of access to timely inpatient utilization information and the difficulty in estimating the related costs, shared-risk amounts receivable from the HMOs are recorded when such amounts are known. We also receive incentives under "pay-for-performance" programs for quality medical care based on various criteria. Pay-for-performance payments are generally recorded in the third and fourth quarters of our fiscal year when such amounts are known since we do not have the ability to reliably estimate these amounts. Risk pool and pay-for-performance incentives are affected by many factors, some of which are beyond our control, and may vary significantly from year to year.

        Management fee revenue is earned in the month the services have been delivered.

Hospital Services

        Operating revenue of the Hospital Services segment consists primarily of net patient service revenue. We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others in the period in which services are rendered. A summary of the payment arrangements with major third-party payers follows:

        Medicare: Medicare is a federal program that provides certain hospital and medical insurance benefits to persons aged 65 and over, some disabled persons and persons with end-stage renal disease. Inpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge, according to a patient classification system based on clinical, diagnostic, and other factors. Outpatient services are paid based on a blend of prospectively determined rates and cost-reimbursed methodologies. We are also reimbursed for various disproportionate share and Medicare bad debt components at tentative rates, with final settlement

69

determined after submission of annual Medicare cost reports and audits thereof by the Medicare fiscal intermediary. Normal estimation differences between final settlements and amounts accrued in previous years are reflected in net patient service revenue in the year of final settlement.

        Medi-Cal: Medi-Cal is a joint federal-state funded health care benefit program that is administered by the state of California to provide benefits to qualifying individuals who are unable to afford care. Inpatient services rendered to Medi-Cal program beneficiaries are paid at contracted per diem rates. The per diem rates are not subject to retrospective adjustment. Outpatient services are paid based on prospectively determined rates per procedure provided.

        Managed Care: We also receive payment from certain commercial insurance carriers, health maintenance organizations (HMOs), and preferred provider organizations (PPOs), though generally do not enter into contracts with these entities. The basis for payment under these agreements includes our standard charges for services.

        Self Pay: Our hospitals provide services to individuals that do not have any form of health care coverage. Such patients are evaluated, at the time of service or shortly thereafter, for their ability to pay based upon federal and state poverty guidelines, qualifications for Medi-Cal, as well as our local hospital's indigent and charity care policy.

        Timely billing and collection of receivables from third-party payors and patients is critical to our operating performance. We closely monitor our historical collection rates as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions for contractual allowances are made using the most accurate information available. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient's responsibility, primarily co-payments and deductibles. Payments for services may also be denied due to issues over patient eligibility for medical coverage, our ability to demonstrate medical necessity for services rendered and payor authorization for hospitalization. We estimate provisions for doubtful accounts based on general factors such as payor mix, the age of the receivables and historical collection experience. We routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectibility of the patient accounts and make adjustments to allowances for contractual discounts and bad debts as warranted.

Accrued Medical Claims

        Our affiliated physician organizations are responsible for the medical services their contracted or employed physicians provide to an assigned HMO enrollee. The cost of health care services is recognized in the period in which it is provided and includes an estimate of the cost of services which have been incurred but not reported. The determination of our claims liability and other healthcare costs payable is particularly important to the determination of our financial position and results of operations and requires the application of significant judgment by our management, and as a result, is subject to an inherent degree of uncertainty.

        Our medical care costs include actual historical claims experience and estimates for medical care costs incurred but not reported to us ("IBNR"). We, together with our independent actuaries, estimate medical claims liabilities using actuarial methods based upon historical data adjusted for payment patterns, cost trends, product mix, utilization of health care services and other relevant factors. The estimation methods and the resulting reserves are frequently reviewed and updated, and adjustments, if necessary, are reflected in the period known. While we believe our estimates are adequate, it is possible that future events could require us to make significant adjustments or revisions to these estimates. In assessing the adequacy of accruals for medical claims liabilities, we consider our historical experience, the terms of existing contracts, our knowledge of trends in the industry, information provided by our customers and information available from other sources as appropriate.

70

        The most significant estimates involved in determining our claims liability for IBNR concern the determination of claims payment completion factors and trended per member per month cost estimates.

        We consider historical activity for the current month, plus the prior 24 months, in our IBNR calculation. For the months of service five months prior to the reporting date and earlier, we estimate our outstanding claims liability based upon actual claims paid, adjusted for estimated completion factors. Completion factors seek to measure the cumulative percentage of claims expense that will have been paid for a given month of service as of a date subsequent to that month of service. Completion factors are based upon historical payment patterns. For the four months of service immediately prior to the reporting date, actual claims paid are not a reliable measure of our ultimate liability, given the delay inherent between the patient/physician encounter and the actual submission of a claim for payment. For these months of service, we estimate our claims liability based upon trended per-member-per-month ("PMPM") cost estimates. These estimates reflect recent trends in payments and expense, utilization patterns, authorized services and other relevant factors.

        The following table presents the components of the change in accrued medical claims for the three years ended September 30, 2007:

		Year Ended September 30
		2005			2006			2007
IBNR at Beginning of Year		$	13,323,622		$	11,532,328		$	11,400,000
IBNR Acquired in Business Combinations			—			866,395			6,537,525
Health Care Claims Expense Incurred During the Year:
	Related to Current Year		46,030,847			50,587,185			70,193,936
	Related to Prior Year		(855,164	)		(854,595	)		(301,257	)
	Total Incurred		45,175,683			49,732,590			69,892,679
Health Care Claims Paid During the Year
	Related to Current Year		(35,266,828	)		(39,488,526	)		(54,240,165	)
	Related to Prior Year		(11,700,149	)		(11,242,787	)		(10,951,079	)
	Total Paid		(46,966,977	)		(50,731,313	)		(65,191,244	)
IBNR at End of Year		$	11,532,328		$	11,400,000		$	22,638,960

        Acquisition balances represent medical claims liabilities of acquired entities as of the applicable purchase date. Our strategy of growth by acquisition increases the complexity and variability already inherent in our claims estimation process. Our business in general, and this area of our business in particular, is subject to uncertainty as to the outcome and estimation of medical claims, which uncertainty is additionally impacted by our acquiring and integrating businesses previously not operated by us. Following an acquisition, we ensure that the IBNR methodology and calculations for the acquired business are consistent with our own methodology and calculations. Our IBNR models consider claims payment data for the current month and the prior 24 months. During the 25-month period following our acquisition, and to the extent that the prior owners' experience and management of medical expenses was different from ours, actual experience under our management and contracting will be reflected in the IBNR calculations. We attempt to be consistently conservative in reserving for known and anticipated medical claims liabilities. This requires additional emphasis for recently acquired businesses.

        Bracketed amounts reported in the table above for the incurred related to prior years result from claims being ultimately settled for amounts less than originally estimated (a favorable development). A

71

positive amount reported for incurred related to prior years would result from claims ultimately being settled for amounts greater than originally estimated (an unfavorable development). In each of the years ended September 30, 2005, 2006 and 2007, we experienced favorable change in estimates related to prior years' claims. The favorable changes reflect provisions for adverse deviation, which is consistently maintained.

        We believe that the amount of our accrued medical claims is adequate to cover our ultimate liability for incurred claims as of September 30, 2007; however, actual claims payments may differ from our estimate. Assuming a hypothetic 1% variance in our estimate of accrued medical claims, our pre-tax profit or loss for the years ended September 30, 2005, 2006 and 2007, would increase or decrease by approximately $115,323, $114,000 and $226,000, respectively.

        Through September 30, 2007, the $301,257 changes in estimate related to IBNR as of September 30, 2006 represented approximately 2.6% of the IBNR balance as of September 30, 2006, approximately 0.4% of claims expense and, after consideration of tax effect, approximately 0.9% of net loss for the year then ended. Through September 30, 2006, the $854,595 changes in estimate related to IBNR as of September 30, 2005 represented approximately 7.4% of the IBNR balance as of September 30, 2005, approximately 1.7% of claims expense and, after consideration of tax effect, approximately 10.5% of net income for the year then ended.

        Past fluctuations in the IBNR estimates might also be a useful indicator of the potential magnitude of future changes in these estimates. Annual IBNR estimates include provisions for adverse development based on historical volatility. We maintain similar provisions at fiscal year end.

        The following tables reflect (i) the change in estimated claims liability as of September 30, 2007 that would have resulted had we changed our completion factors for all applicable months of service included in our IBNR calculation (i.e., for the preceding 5^th through 25^th months) by the percentages indicated; and (ii) the change in estimated claims liability as of September 30, 2007 that would have resulted had we changed our trended PMPM factors for all applicable months of service included in our IBNR calculation (i.e., for the preceding 1st through 4th months) by the percentages indicated. Changes in estimate of the magnitude indicated in the ranges presented are considered reasonably likely.

Increase (Decrease) in Estimated Completion Factors	Increase (Decrease) in Accrued Medical Claims Payable
(3)%	$	5,300,000
(2)%	$	3,500,000
(1)%	$	1,700,000
1%	$	(1,700,000	)
2%	$	(3,500,000	)
3%	$	(5,300,000	)

Increase (Decrease) in Trended PMPM Factors	Increase (Decrease) in Accrued Medical Claims Payable
(3)%	$	(1,000,000	)
(2)%	$	(700,000	)
(1)%	$	(300,000	)
1%	$	300,000
2%	$	700,000
3%	$	1,000,000

72

        In addition to contractual reimbursements to providers, we also make discretionary incentive payments to physicians, which are in large part based on the pay-for-performance and shared risk revenues and favorable senior capitation risk adjustment payments. Since we record these revenues generally in the third or fourth quarter of each fiscal year when the incentives and capitation adjustments due from the health plans are known, we also record the discretionary physician bonuses in the same period. In fiscal 2005, 2006 and 2007, we recorded discretionary incentive payments to providers totaling $2,579,000,$0 and $421,000, respectively. Since incentives and risk adjustment revenues form the basis for these discretionary bonuses, variability in earnings due to fluctuations in revenues are mitigated by reductions in bonuses awarded.

        We also regularly evaluate the need to establish premium deficiency reserves for the probability that anticipated future health care costs could exceed future capitation payments from the HMOs. To date, we have determined that no premium deficiency reserves have been necessary.

Goodwill and Intangible Assets

        Statement of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations," requires all business combinations after June 30, 2001 to be accounted for using the purchase method and prohibits the pooling-of-interest method of accounting. SFAS No. 141 also states that acquired intangible assets should be separately recognized upon meeting certain criteria. Such intangible assets include, but are not limited to, trade and service marks, non-compete agreements, customer lists and licenses.

        SFAS No. 142, "Goodwill and Other Intangible Assets," requires that goodwill and indefinite life intangible assets not be subject to amortization but be evaluated for impairment on at least an annual basis, or more frequently if certain indicators are present. Such indicators include adverse changes in market value and/or stock price, laws and regulations, profitability, cash flows, our ability to maintain enrollment and renew payer contracts on favorable terms. A two-step impairment test is used to identify potential goodwill impairment and to measure the amount of goodwill impairment loss to be recognized (if any). The first step consists of estimating the fair value of the reporting unit based on recognized valuation techniques, which include a weighted combination of (i) the guideline company method that utilizes revenue or earnings multiples for comparable publicly-traded companies, and (ii) a discounted cash flow model that utilizes future cash flows, the timing of those cash flows, and a discount rate (or weighted average cost of capital which considers the cost of equity and cost of debt financing expected by a representative market participant) representing the time value of money and the inherent risk and uncertainty of the future cash flows. If the estimated fair value of the reporting unit is less than its carrying value, a second step is performed to compute the amount of the impairment by determining the "implied fair value" of the goodwill, which is compared to its corresponding carrying value.

        Long-lived assets, including property, improvement and equipment and amortizable intangibles, are evaluated for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. We consider assets to be impaired and write them down to fair value if estimated undiscounted cash flows associated with those assets are less than their carrying amounts.

        In accordance with SFAS No. 142, we performed our annual goodwill impairment analysis for each reporting unit that constitutes a business for which discrete financial information is produced and reviewed by operating segment management and provides services that are distinct from the other reporting units. For the IPA Management reporting segment, we have determined that ProMed individually and Prospect (which includes all the other affiliated physician organizations) each represent a reporting unit, based on operational characteristics. The ProMed entities are geographically and

73

managerially their own reporting unit. For the Hospital Services segment, the reporting unit for the annual goodwill impairment analysis was determined to be at the segment level.

        During the fourth quarter of fiscal 2007, we identified triggering events which caused us to reassess goodwill and identifiable intangibles for impairment in the Prospect reporting unit within the IPA Management segment. During the fourth quarter of fiscal 2007, we experienced a significant decline in enrollment representing approximately 50% of the total enrollment decline for the entire fiscal year 2007. This membership decline was attributed to increased competitive pressures that materialized into an accelerated decline in enrollment versus prior periods. In addition, we experienced a significant increase in medical expenses (primarily claims) and outside professional fees. As a result of these analyses, the goodwill and identifiable intangibles in the Prospect reporting unit were determined to be impaired, as the fair value of the reporting unit was less than the carrying value of the reporting unit including goodwill and identifiable intangibles. The impairment was also indicated by the reporting unit's negative operating cash flow expectations for fiscal 2008 and 2009. As a result, we recorded a non-cash, pre-tax goodwill impairment charge of $38.0 million and a non-cash, pre-tax intangibles impairment charge of $776,000 in the fourth quarter of fiscal 2007, related to the IPA Management segment. We are currently evaluating selling non-performing IPAs and, recovery, if any, will be recorded when realized.

        The assessment of impairment indicators, measurement of impairment loss, selection of appropriate valuation methodology, assumptions and discount factors, involve significant judgment and requires management to project future results which are inherently uncertain.

Legal and Other Loss Contingencies

        We are subject to contingencies, such as legal proceedings and claims arising out of our business. In accordance with SFAS No. 5, "Accounting for Contingencies," we record accruals for such contingencies when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. A significant amount of management estimation is required in determining when, or if, an accrual should be recorded for a contingent matter and the amount of such accrual, if any.

Acquisitions

        During the three years ended September 30, 2007, we completed several business combinations. These business combinations are all accounted for using the purchase method of accounting, and accordingly, the operating results of each acquisition have been included in our consolidated financial statements since their effective date of acquisition. The purchase price for each business combination was allocated to the assets, including the identifiable intangible assets, and liabilities, based on estimated fair values determined using independent appraisals where appropriate. The excess of purchase price over the net tangible assets acquired was allocated to goodwill and other intangible assets.

        We have historically funded our acquisition program with debt, the sale of our common stock, and cash flow from operations. The assets that we and our affiliated physician organizations have acquired have been largely goodwill and intangible assets. The acquisition of physician organizations consists primarily of HMO contracts, primary care and specialist physician contracts and the right to manage each physician organization through a management services agreement. The physician organizations we acquire generally do not have significant tangible net equity; therefore, our acquired assets are predominantly goodwill. The acquisition of hospital operations consists primarily of trade names and covenants-not-to-compete and property, improvements and equipment.

74

        The following table summarizes all business combinations for the five years ended September 30, 2007.

Business Combinations	Effective Date	Purchase Price		Location
Prospect Professional Care Medical Group, Inc.	September 30, 2003	$	7,050,000	Orange County and East Los Angeles
Prospect NWOC Medical Group, Inc.	February 1, 2004	$	2,000,000	North Orange County
StarCare Medical Group, Inc. APAC Medical Group, Inc. Pinnacle Health Resources	February 1, 2004	$	8,500,000	North Orange County
Genesis HealthCare of Southern California	November 1, 2005	$	8,000,000	Central Orange County
ProMed Health Services Company	June 1, 2007	$	48,372,000	San Bernardino County
Alta Healthcare System, Inc,.	August 8, 2007	$	154,895,000	Los Angeles County

        The intangible assets we acquire in our acquisitions include cash, HMO and provider contracts, trade names, covenants not-to-compete and customer relationships. We require that our acquisition targets have cash or a combination of cash and current assets equal to current liabilities, and positive tangible net worth. As discussed above, in fiscal 2007, all goodwill and intangible assets were written off except those related to the ProMed Entities and Alta.

Enrollment

        The following table presents our enrollment, inclusive of Medi-Cal lives we manage for the AMVI/Prospect Health Network joint venture, as of September 30, 2006 and 2007, and the percentage change in enrollment between these dates:

	2006	2007	% Change
Commercial	140,300	184,300	31	%
Medicare	14,100	23,700	68	%
Medi-Cal	17,000	32,800	93	%
Total	171,400	240,800	40	%

        The following table presents our enrollment, inclusive of Medi-Cal lives we manage for the AMVI/Prospect Health Network joint venture, as of September 30, 2005 and 2006, and the percentage change in enrollment between these dates:

	2005	2006	% Change
Commercial	144,900	140,300	(3	)%
Medicare	12,500	14,100	13	%
Medi-Cal	14,500	17,000	17	%
Total	171,900	171,400	(0.3	)%

        The increase in enrollment as of September 30, 2007 compared to September 30, 2006 is attributable primarily to increase in enrollment through the acquisition of the ProMed Entities, offset in part by decreased membership associated with physicians contracted to our other IPAs.

75

        The decrease in enrollment as of September 30, 2006 compared to September 30, 2005 is attributable primarily to decreased membership associated with physicians contracted to our IPAs, with the largest decreases being in the recently acquired IPAs where assimilation and integration into the Prospect operating platform continued in fiscal 2006. Offsetting this decrease was an enrollment increase associated with the acquisition of Genesis Healthcare of Southern California.

Results of Operations

IPA Management segment

        The following table summarizes the results of operations for our IPA Management segment and is used in the discussions below for the years ended September 30, 2005, 2006 and 2007.

		Year Ended September 30
		2005			2006			Increase (Decrease)			%
Revenues:
	Capitation revenue	$	129,143,656		$	131,436,858		$	2,293,202		2	%
	Fee for service revenue		2,232,059			2,074,104			(157,955	)	(7	)%
	Management fees		806,788			1,233,027			426,239		53	%
	Other operating revenue		1,335,876			1,052,288			(283,588	)	(21	)%
Total Revenues			133,518,379			135,796,277			2,277,898		2	%
Operating Expenses:
	Managed care cost of revenues		96,371,197			97,184,202			813,005		1	%
	General and administrative		27,228,736			30,205,352			2,976,616		11	%
	Depreciation and amortization		948,017			1,513,170			565,153		60	%
Total Operating Expenses			124,547,950			128,902,724			4,354,774		3	%
Operating Income from Unconsolidated Joint Venture			87,516			1,400,492			1,312,976		1,500	%
			9,057,945		$	8,294,045		$	(763,900	)	(8	)%
Equity in Losses, and Write Down of Unconsolidated Investment		$	(1,000,000	)	$	—		$	1,000,000		(100	)%
Operating Income		$	8,057,945		$	8,294,045		$	236,100		3	%
Medical Cost Ratio			73.4	%		72.8	%

76

		Year Ended September 30
		2006			2007			Increase (Decrease)			%
Revenues:
	Capitation revenue	$	131,436,858		$	160,905,654		$	29,468,796		22	%
	Fee for service revenue		2,074,104			2,001,205			(72,899	)	(4	)%
	Management fees		1,233,027			697,101			(535,926	)	(43	)%
	Other operating revenue		1,052,288			1,466,119			413,831		39	%
Total Revenues			135,796,277			165,070,079			29,273,802		22	%
Operating Expenses:
	Managed care cost of revenues		97,184,202			131,044,814			33,860,612		35	%
	General and administrative		30,205,352			36,208,106			6,002,754		20	%
	Depreciation and amortization		1,513,170			2,622,494			1,109,324		73	%
	Impairment of goodwill and intangibles		—			38,776,421			38,776,421		100	%
Total Operating Expenses			128,902,724			208,651,835			79,749,111		62	%
Operating Income from Unconsolidated Joint Venture			1,400,492			2,663,544			1,263,052		90	%
Operating Income (loss)		$	8,294,045		$	(40,918,212	)	$	(49,212,257	)	(593	)%
Medical Cost Ratio			72.8	%		80.4	%

Fiscal Year Ended September 30, 2007 Compared with Fiscal Year Ended September 30, 2006

        Our total IPA management revenues for 2007, the largest portion of which is capitation revenue, increased to $165,070,079 compared to $135,796,277 for 2006, or an increase of $29,273,802 or 22%. Effective January 1, 2007, the MediCal and Healthy Family enrollees under the CalOptima contract were reassigned from the AMVI/Prospect Joint Venture directly to Prospect Medical Group. As a result, revenues and service costs related to these enrollees, which were previously included in income from unconsolidated joint venture (see below), are reported as capitation revenue and managed care cost of revenue, respectively beginning January 1, 2007. This change in reporting accounted for $3,411,854 of the increase in revenues in 2007 as compared to 2006. The acquisition of ProMed on June 1, 2007 also increased 2007 total revenue by $30,475,712.

        Exclusive of the reassignment of the MediCal and Healthy Family enrollees under the CalOptima contract and ProMed, total revenues decreased from the prior year as a result of two main factors: (i) decrease in hospital risk pool revenue of $3,816,144 and (ii) decrease in enrollment, partially offset by overall increase in capitation rates.

        We received and recorded as a positive adjustment to revenue of approximately $1.5 million in the fourth quarter of fiscal 2007 from HMOs for risk adjustment factors, compared to negative capitation revenue adjustments of $1.5 million in the fourth quarter of fiscal 2006. Since this revenue could not previously be estimated by us, we recorded it upon receipt from the HMOs. During the year ended September 30, 2007, exclusive of the ProMed acquisition, the number of enrollees decreased by approximately 12,200 resulting in an estimated revenue decrease of $5,700,000 during the year.

        Management fees, which represent approximately 0.4% of total IPA management revenues for 2007 as compared to approximately 1.0% for 2006, decreased by approximately 43%, primarily as a result of the termination of a portion of our joint venture management contract related to CalOptima MediCal and Healthy Family enrollees and an amendment to the Brotman Medical Center advisory contract which reduced our management involvement and related fee.

        Other operating revenue was $1,466,119 during 2007, compared to $1,052,288 for 2006. Amounts represent incentive payments from HMOs under "pay-for-performance" programs for quality medical

77

care based on various criteria. The increase in other operating revenue was primarily the result of the timing of the incentives received from our contracted health plans.

        The IPA Management managed care cost of revenue for 2007 increased to $131,044,814 compared to $97,184,202 for 2006, or an increase of $33,860,612. The overall increase in managed care cost of revenue was the result of the ProMed acquisition, which we operated for four months in fiscal 2007 ($25,246,261), and increases in per member per month medical costs of $12,199,865 offset by enrollment declines in our core business ($3,585,514). Our medical cost ratio (computed as medical costs to total capitation and fee-for-service revenue) for the 2007 period was approximately 80.4% compared to approximately 72.8% for the 2006 period. The primary components of the difference were the result of the following factors. Approximately 7.8% of the net increase in medical cost ratio resulted from higher non-capitated medical costs of approximately $8,924,000, due to higher claims cost per member due to increases in fee-for-service contract rates, a proportionately higher percentage of fee-for-service contracts in the Genesis acquisition and conversion of some provider contracts from capitation to fee-for-service. Approximately 0.7% of the net increase was the result of the ProMed acquisition. The increase in medical cost ratio is partially offset by the decrease in the capitation expense by $1,289,978 or 1.1% of medical cost ratio. We also recorded higher physician salaries and bonus expense, offset by higher health plan payments/recoveries for stop-loss insurance and professional liability insurance and lower capitation expense incurred on our specialist providers because the Genesis acquisition had proportionately less capitated specialist contracts.

        Our IPA Management general and administrative expenses for 2007 increased to $36,208,106 from $30,205,352 in 2006, or an increase of 20%. While the overall increase in general and administrative expenses was due partly to the ProMed acquisition, which we operated for four months in fiscal 2007 ($1,930,450), the increase was primarily the result of increases in staffing and fringe benefit costs, related primarily to staffing increases to integrate prior acquisitions and prepare for future acquisitions, increased costs for outside services related to Sarbanes-Oxley Act compliance, information technology consulting and a special investigation conducted in connection with Alta's internal control and financial reporting matters (see Note 11 to the Consolidated Financial Statements). Exclusive of the ProMed acquisition, as a percentage of revenue, our general and administrative expenses increased to approximately 25.5% for 2007, compared to approximately 22.2% for 2006.

        Our IPA Management depreciation and amortization expense for 2007 was $2,622,494 compared to $1,513,170 for 2006, or an increase of 73%, primarily as a result of increased amortization of intangible assets acquired in connection with the ProMed acquisition completed on June 1, 2007. The increase was also due to depreciation expenses associated with increased capital expenditures.

        During the fourth quarter of fiscal 2007, we identified triggering events which caused us to reassess goodwill and identifiable intangibles for impairment in the Prospect reporting unit within the IPA Management segment. During the fourth quarter of fiscal 2007, we experienced a significant decline in enrollment representing approximately 50% of the total enrollment decline for the entire fiscal year 2007. This membership decline was attributed to increased competitive pressures that materialized into an accelerated decline in enrollment versus prior periods. We also experienced a significant increase in medical expenses (primarily claims) and outside professional fees. In addition, we projected negative cash flows for the reporting unit in 2008 and 2009. As a result of these analyses, goodwill and identifiable intangibles in the Prospect reporting unit were determined to be impaired and written off in a $38.8 million non-cash impairment charge.

        Income from unconsolidated joint venture increased to $2,663,544 in fiscal 2007 from $1,400,492 in fiscal 2006, as a result of increased profitability from the participation in the CalOptima OneCare program for Medicare/MediCal eligible beneficiaries effective January 1, 2006. Effective January 1, 2007, OneCare removed certain minimum healthcare spending requirements, improving the profitability of the program. Also, on January 1, 2007, the MediCal and Health Family members that we have with

78

CalOptima were reassigned directly to Prospect Medical Group instead of the joint venture, leaving only OneCare program in AMVI/Prospect. As a result, revenues and service costs related to the reassigned members are included in consolidated capitation revenue and managed care cost of revenue beginning January 1, 2007, rather than as income from the joint venture.

        Our IPA Management segment recorded an operating loss of $40,918,212 for 2007, as compared to operating income of $8,294,045 for 2006, primarily as the result of the non-cash impairment charge for goodwill and intangibles, a decline in members, higher claims per member rates and an increase in general and administrative costs.

Fiscal Year Ended September 30, 2006 Compared with Fiscal Year Ended September 30, 2005

        Our total IPA Management revenues for 2006, the largest portion of which is capitation revenue, increased to $135,796,277 compared to $133,518,379 for 2005, or an increase of 2%, primarily as a result of (i) the Genesis HealthCare of Southern California acquisition completed November 1, 2005, which increased revenue in 2006 by $10,459,374, and (ii) higher capitation rates in fiscal 2006 on our core businesses (exclusive of acquisitions), which contributed $6,313,472 in increased capitation, offset by decreases in capitation rates for senior enrollees arising from Medicare's moving to paying capitation on a risk adjusted basis. We received and recorded as a reduction to revenue approximately $1.5 million in the fourth quarter of fiscal 2006 from HMOs for risk adjustment factors, compared to positive capitation revenue adjustments of $4 million in the fourth quarter of fiscal 2005. Since this revenue could not previously be estimated by us, we recorded it upon receipt from the HMOs. Rate increases were partially offset by a decline in revenue associated with decreased enrollment in our core operations in the 2006 period. During the year ended September 30, 2006, the number of enrollees decreased by approximately 16,400, resulting in an estimated revenue decrease of $4,300,000 during the year.

        Management fees, which represent approximately 1% of total revenues for both 2006 and 2005, increased by approximately 53% primarily as a result of a new MSO agreement with Brotman Hospital and the OneCare product line.

        Other IPA Management operating revenue was $1,052,288 during 2006, compared to $1,335,876 for 2005, which decrease primarily results from decreased-pay-for performance monies received from our contracted HMOs for providing, then demonstrating, higher levels of care to their enrollees. These incentives are generally received in the third and fourth quarters of our fiscal year and are recorded when such amounts are known.

        The IPA Management managed care cost of revenue for 2006 increased to $97,184,202 compared to $96,371,197 for 2005, or an increase of $813,005. The overall increase in managed care cost of revenue is the result of the Genesis HealthCare of Southern California acquisition which we operated for eleven months in fiscal 2006 ($8,682,912), increases in per-member-per-month medical costs of $7,042,966 offset by enrollment declines in our core business ($12,333,874) and a decrease in discretionary physician bonuses of $2,579,000. Our medical cost ratio (computed as medical costs to total capitation and fee-for-service revenue) for the 2006 period was approximately 72.8% and the medical cost ratio for the 2005 period was approximately 73.4%. The primary components of the difference were the result of the following factors. Approximately 1% of the net decrease resulted from approximately $1,200,000 decrease in capitation expense incurred on our specialist providers primarily because the Genesis acquisition had proportionately less capitated specialist contracts. Approximately 2% of the net decrease in medical cost ratio resulted from approximately $2,600,000 lower physician bonus expense reflecting lower pay-for-performance and risk pool incentives and negative capitation risk adjustments in fiscal 2006. We also recorded higher health plan payments/recoveries for stop-loss insurance in 2006 along with a decrease in the level of certain pharmacy and injectible costs. Our non-capitated medical costs increased by approximately $4,600,000 in relation to revenues and

79

increased the medical cost ratio by approximately 3% compared to the prior period due to higher claims per member rates due to increases in fee-for-service contract rates, a proportionately higher percentage of fee-for-service contracts in the Genesis acquisition and conversion of some provider contracts from capitation to fee-for-service.

        General and administrative expenses for 2006 increased to $30,205,352 from $27,228,736 in 2005, or an increase of 11%. As a percentage of our total revenues, our general and administrative expense was 22% for 2006 compared to 20% for 2005. The increase in general and administrative expenses was primarily the result of increases in staffing and fringe benefit costs, related primarily to staffing increases to integrate prior acquisitions and prepare for future acquisitions. We also had increased costs for outside services related to Sarbanes-Oxley Act compliance, information technology consulting, and increased management fees related to Genesis.

        Our IPA Management depreciation and amortization expense for 2006 was $1,513,170 compared to $948,017 for 2005, or an increase of 60%, as a result of increased amortization of certain assets acquired in connection with the Genesis acquisition completed in 2006. The increase was also due to accelerating, effective April 1, 2005, the rate of amortization of identifiable intangibles acquired in certain prior year acquisitions, as well as depreciation expenses associated with increased capital expenditures.

        Income from unconsolidated joint venture increased to $1,400,492 in fiscal 2006 from $87,516 in fiscal 2005, as a result of increased profitability from the participation in the CalOptima OneCare program for Medicare/Medi-Cal eligible beneficiaries effective January 1, 2006.

        Our IPA Management operating income decreased to $8,294,046, or a decrease of approximately 8%, for 2006, as compared to $9,057,945 for 2005, primarily as the result of a decline in members and the increase in general and administrative costs.

Hospital Services segment

        For the period August 8, 2007 through September 30, 2007, our Hospital Services revenue was $15,583,040, the largest portion of which are revenues received from the Medicare and Medicaid programs of $5,998,079 (39.3%) and $8,226,765 (53.9%), respectively. Based on cost of revenue of $10,699,194 and general administrative expenses of $1,569,086, and depreciation and amortization of $483,837, our Hospital Services segment reported operating income of $2,830,923. The pre-tax profit from the Hospital Services segment does not reflect the results that would otherwise occur under push-down accounting and does not include any corporate expense allocations.

Consolidated

Interest expense and amortization of debt discounts and fees, net

        Interest expense and amortization of debt discounts and fees (net of investment income) for 2007 increased to $4,160,302 compared to $194,013 for 2006, primarily as a result of additional interest incurred on the $155 million syndicated senior secured credit facility agented by Bank of America to finance the June 1, 2007 ProMed acquisition and the August 8, 2007 Alta acquisition.

        Interest expense (net of investment income) for 2006 decreased to $194,013 compared to $558,278 for 2005, as a result of the higher yields on our investments, partially offset by additional interest on a $4 million credit facility to finance the November 2005 Genesis acquisition.

Loss on interest rate swaps

        Loss on interest rate swaps of $868,480 represented the ineffective portions of the losses on all cash flow swaps that were charged to earnings in the period commencing from the dates that the swaps

80

were entered into through September 30, 2007 with respect to the $48,000,000 swap, and through September 6, 2007 with respect to the $97,750,000 swap (see Note 9 to the Consolidated Financial Statements).

Income Taxes

        Our income tax benefit for 2007 was $9,649,359 compared to income tax expense of $3,193,522 for 2006. Our effective tax rate was 22% in 2007 compared to 39% in 2006. The difference is primarily related to a portion of the $38.8 million impairment charge in 2007 for intangible assets that is not tax deductible.

        Our income tax expense for 2006 of $3,193,522 decreased $221,656 from $3,415,178 for 2005, or a decrease of approximately 6%. Our effective tax rate was 39% in 2006 and 46% in 2005. Our 2005 effective tax rate was higher primarily due to a valuation allowance we established in 2005 on the capital loss we sustained from our unconsolidated equity investment in Brotman Medical Center.

Net income

        Our net loss for 2007 was $33,476,751 or ($3.94) per diluted share, as compared to net income $4,890,035, or $0.60 per diluted share, for 2006, which decrease is the result of the changes discussed above.

        Our net income for 2006 was $4,890,035 or $.60 per diluted share, as compared to $4,072,559, or $0.48 per diluted share, for 2005, which decrease is the result of the changes discussed above.

Liquidity and Capital Resources

General

        We require capital primarily to facilitate our acquisition strategy and to develop the infrastructure necessary to effectively manage our affiliated physician organizations and our hospital operations.

        Our primary sources of cash have been funds provided by borrowings under our credit facilities, by the issuance of equity securities, and by cash flow from operations. Prior to the August 8, 2007 acquisition of Alta, our primary sources of cash from operations are healthcare capitation revenues, fee-for-service revenues, risk pool payments and pay-for-performance incentives earned by our affiliated physician organizations and management services revenues earned by our management subsidiaries. With the acquisition of Alta, our sources of cash from operations now include payments for hospital services rendered under reimbursement arrangements with third-party payers. which include the federal government under the Medicare program, the state government under the Medi-Cal program, private insurers, health maintenance organizations (HMOs) and preferred provider organizations (PPOs), and self-pay patients.

        Our primary uses of cash include healthcare capitation and claims payments by our affiliated physician organizations, administrative expenses, debt service, acquisitions, costs associated with the integration of acquired businesses, information systems development costs, and with the acquisition of Alta, operating and administrative expenses related to our hospital operations. Our affiliated physician organizations generally receive capitation revenue in advance of having to make capitation and claims payments to their providers. However, our hospitals receive payments for services rendered generally 30 to 90 days after the medical care is rendered. For some accounts and payer programs, the time lag between service and reimbursement can exceed one year.

        Our investment strategies are designed to provide safety and preservation of capital, sufficient liquidity to meet cash flow needs, the integration of investment strategy with our business operations and objectives, and attainment of a competitive after-tax total return. At September 30, 2007, we

81

invested a substantial portion of our cash in U.S. bank certificates of deposits with an average maturity of approximately 115 days, and overnight and high yield money market funds. All of these amounts are classified as current assets and included in cash and cash equivalents in the accompanying balance sheets.

        A substantial portion of our recurring cash requirements is funded by advances from our management subsidiaries, affiliated physician organizations and hospital operations. Our affiliated IPAs are subject to financial stability, tangible net worth and other requirements of the HMOs with which we do business. As of September 30, 2007, our subsidiaries were in compliance with these financial requirements. We are required by some of our HMO contracts to set aside certain amounts in restricted certificates of deposit to secure our ability to pay medical claims. These restricted certificates of deposit, with an average maturity of approximately 115 days as of September 30, 2007, are included in short-term investments in the accompanying financial statements since these funds are available to pay medical claims on a current basis.

        The affiliated physician organizations must also comply with a minimum working capital, tangible net equity (TNE), cash to claims ratio and claims payment requirements prescribed by the California Department of Managed Health Care. TNE is defined as net assets less intangibles and amounts due from affiliates, plus subordinated obligations. At September 30, 2007, while we have not filed the fiscal 2007 financial statements of PMG, we believe that the affiliated physician organizations were in compliance with these financial regulatory requirements. Barring any change in regulatory requirements, we believe that we will continue to be in compliance with these requirements at least through the end of fiscal 2008. We also believe that our cash resources and internally generated funds will be sufficient to support our operations, regulatory requirements and capital expenditures for at least the next 12 months. Certain details of cash flows from operating activities, investing activities and financing activities for the fiscal years ended September 30, 2007 and 2006 are described below.

        In the future, we expect some level of increasing cash flow from operations due to the inclusion of earnings from the June 1, 2007 acquisition of ProMed Health Services Company and the August 8, 2007 acquisition of Alta Healthcare System, Inc., some additional savings derived from the elimination of duplicate functions and related costs, and some amount of revenue enhancements as a result of increased rates from HMO contract renewals. These expected positive impacts on operating cash flows derived from acquisitions will be partially offset by ongoing loss of member enrollment from our core operations. Also, if our profitably increases, we will incur, and have to fund, an increased tax burden. With each new acquisition, we also acquire new operating and other obligations, which have to be funded. Since we target profitable companies, we currently expect that the additional obligations resulting from our recent acquisitions will be serviceable through cash flow generated by those acquired entities.

        Additional liquidity and capital resource considerations in the future include the anticipation that we will be investing significantly more in personnel, property, improvements and equipment related to recent acquisitions. These additional investments in personnel, technology and automation will be funded from existing cash reserves and cash generated from operations. Because any future acquisitions will be funded through some combination of cash, borrowings and our stock, we continue to evaluate a variety of equity and borrowing sources. Additionally, we may seek to increase our liquidity through the potential sale of certain of our assets or through other means.

        We are also periodically required to provide letters of credit in favor of the HMOs with which we do business. Letters of credit totaling approximately $605,000 are currently secured by certificates of deposit of approximately the same amount. The HMOs may also seek increased letter of credit levels, which we will have to fund from our cash reserves. Additionally, our former Chief Executive Officer and Chairman has historically provided a personal guarantee in the event of a tangible net equity shortfall at our affiliated physician organization, Prospect Medical Group, in order to meet certain

82

contracting requirements with the HMOs. This personal guarantee arrangement was terminated effective January 19, 2005, following our assessment that it was no longer needed in order for us to meet our tangible net equity requirements.

Recent Operating Results and Credit Facilities

        On September 27, 2004, we entered into a senior secured credit facility with Residential Funding Corporation (RFC, a subsidiary of General Motors Acceptance Corporation) that consisted of a $10,000,000 term loan and a $5,000,000 revolving credit facility. In November 2005, in connection with the acquisition of Genesis, RFC provided us with an additional $4 million term loan on terms similar to the existing term loan.

        All amounts owing to RFC ($7,842,000, plus $209,000 of prepayment penalties) were repaid on June 1, 2007, from proceeds of a new 3-year senior secured credit facility entered into with Bank of America, in connection with the purchase of the ProMed Entities. The Bank of America facility totaled $53,000,000, and comprised a $48,000,000 variable rate term loan, and a $5,000,000 revolver.

        All amounts outstanding under the $53,000,000 Bank of America credit facility ($48,000,000) were repaid on August 8, 2007, with proceeds from a $155,000,000 syndicated senior secured credit facility agented by Bank of America in connection with the acquisition of Alta Healthcare System, Inc., comprising a $95,000,000, seven year first-lien term loan at LIBOR plus 400 basis points, with quarterly payments of $1,250,000 and an annual principal payment of 50% of excess cash flow, as defined in the loan agreement; a $50,000,000 seven and one-half year second-lien term loan at LIBOR plus 825 basis points, with all principal due at maturity and a revolving credit facility of $10,000,000, which expires on August 8, 2012.

        We are subject to certain financial and administrative covenants, cross default provisions and other conditions required by the loan agreements with the lenders, including a maximum senior debt/EBITDA ratio and a minimum fixed charge coverage ratio, each computed quarterly based on consolidated trailing twelve-month operating results, including the pre-acquisition operating results of any acquired entities. The administrative covenants and other restrictions with which we must comply include, among others, restrictions on additional indebtedness, incurrence of liens, engaging in business other than our primary business, paying certain dividends, acquisitions and asset sales. The credit facility provides that an event of default will occur if there is a change in control. The payment of principal and interest under the credit facility is fully and unconditionally guaranteed, jointly and severally by PMG, PMH and most of its existing wholly-owned subsidiaries. Substantially, all of our assets are pledged to secure the credit facility. We exceeded the maximum senior debt/EBITDA ratio of 3.75 as of September 30, 2007. We also exceeded the maximum senior debt/EBITDA ratio of 3.75 and failed to meet the minimum fixed charge coverage ratio of 1.25 as of and for the twelve-month periods ended December 31, 2007 and March 31, 2008. In addition, we did not comply with certain administrative covenants including timely filing of our Form 10-K for the year ended September 30, 2007 and other periodic reports.

        On February 13, 2008, April 10, 2008 and May 14, 2008, we and our lenders entered into forbearance agreements, whereby the lenders agreed not to exercise their rights under the credit facility through May 15, 2008, subject to satisfaction of specified conditions. For the period January 28, 2008 through April 10, 2008, interest was assessed at default rates of 11.4% with respect to the first lien term loan and 15.4% with respect to the second lien term loan. Under the April 2008 forbearance agreements, the applicable margin on the first and second lien term loans were permanently increased to 750 and 1,175 basis points, respectively, and the range of applicable margins on the revolving line of credit was increased to 500 to 750 basis points effective April 10, 2008. During the forbearance periods, we had limited or no access to the line of credit. We also agreed to pay certain fees and expenses to the lenders and their advisors as described below.

83

        On May 15, 2008, we and our lenders entered into an agreement to waive past covenant violations and amended the financial covenant provisions prospectively starting April 2008 to modify the required ratios and to increase the frequency of compliance reporting from quarterly to monthly for a specified period. Effective May 15, 2008, the maximum senior debt/EBITDA ratios were increased to levels ranging from 3.90 to 7.15 for future monthly reporting periods from April 30, 2008 through June 30, 2009 and were increased to levels ranging from 3.30 to 3.75 beginning with the September 30, 2009 quarterly reporting period through maturity of the term loan. The minimum fixed charge coverage ratios were reduced to levels ranging from 0.475 to 0.925 for monthly reporting periods from April 30, 2008 through June 30, 2009 and were reduced to levels ranging from 0.85 to 0.90 beginning with the September 30, 2009 quarterly reporting period through maturity of the term loan. The company is also required to meet a new minimum EBITDA requirement for future monthly reporting periods from April 30, 2008 through June 30, 2009 and the remaining quarterly periods through maturity of the term loan. In addition, we are required to, among other conditions, file our Form 10-K for the year ended September 30, 2007 and the Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008 by June 16, 2008. Failure to perform any obligations under the wavier and the amended credit facility agreement constitutes additional events of default. We have met all debt service requirements on a timely basis.

        We believe that we will be able to comply with the adjusted financial ratios through September 30, 2008. As such, scheduled payments due after twelve months have been classified as non-current at September 30, 2007. However, there can be no assurance that we will be able to meet all of the financial covenants and other conditions required by the loan agreements for periods beyond September 30, 2008. The lenders may not provide forbearance or grant waivers of future covenant violations and could require full repayment of the loans, which would negatively impact our liquidity, ability to operate and our ability to continue as a going concern.

        In connection with obtaining the waivers and amendments, we were required to pay $675,000 in fees to Bank of America, $2,274,000 in forbearance fees to the lenders, $400,000 in legal and consulting fees to the lenders' advisors and add 1% to the principal balance of the first and second lien debt of $1,415,000. In addition, we will incur an additional 4% "payment-in-kind" interest expense on the second lien debt, which accrues and is added to the principal balance. The 4% may be reduced on a quarterly basis by 0.50% for each 0.25% reduction in our consolidated leverage ratio.

        We recorded a 2007 non-cash impairment charge of approximately $38.8 million to write off goodwill and intangibles within the IPA Management segment, which resulted in losses in our core operations during 2007, although operating activities have generated positive cash flows from 2005 to 2007. The improvement of our core operations and the successful integration of our newly acquired subsidiaries has required and will continue to require significant investment and management attention. We are undertaking a review of our operations to improve profitability and efficiency and to reduce costs, which may include the divestiture of non-strategic assets.

        We have implemented a turnaround plan to improve the operating results of the IPA Management segment, including measures to retain and increase enrollment, increase health plan reimbursements and reduce medical costs. We also plan to divest non-strategic assets to reduce debt service. We believe that we will be able to comply with all covenants, as modified, at least through September 30, 2008 and have included scheduled payments due after twelve months from the balance sheet date as non-current liabilities at September 30, 2007.

        However, there can be no assurance that the turnaround plan will have a successful outcome and that we will be able to meet all of the financial covenants and other conditions required by the loan agreements for future periods. The lenders may not provide forbearance or grant waivers of future covenant violations and could require full and immediate repayment of the loans, which would negatively impact our liquidity, ability to operate and ability to continue as a going concern.

84

Fiscal Year Ended September 30, 2007 Compared with Fiscal Year Ended September 30, 2006

        As of September 30, 2007, cash and cash equivalents were $21,599,270 an increase of $4,975,863 from September 30, 2006. The more significant components of this net increase in cash are discussed below.

        Net cash provided by operating activities was $6,329,420 for the year ended September 30, 2007, compared with $787,012 for the year ended September 30, 2006. While earnings (excluding non-cash charges and other reconciling items) was lower than the prior year, the reduction was offset by favorable changes in working capital, including a decrease in risk pool receivables of $1,835,332 and an increase in accrued medical claims of $4,701,435. These increases were partially offset by an increase in recoverable income taxes of $935,293 (resulting mainly from an overpayment of quarterly tax deposits) and reduction in accounts payable and other accrued liabilities of $2,301,339.

        Net cash used in investing activities totaled $130,224,727 for the year ended September 30, 2007, compared with $6,891,948 for the year ended September 30, 2006. Net cash used in investing activities for the year ended September 30, 2007 was comprised primarily of cash paid for the acquisitions of ProMed and Alta (net of cash received) of $128,077,057, transaction costs of $1,492,779 and purchases of property, improvements and equipment of $922,658.

        Net cash provided by financing activities totaled $128,871,170 for the year ended September 30, 2007, compared with net cash provided by financing activities of $5,779,039 for the year ended September 30, 2006. Net cash provided by financing activities for the year ended September 30, 2007 was comprised primarily of the ProMed acquisition debt of $48,000,000 and the Alta acquisition debt totaling $148,000,000, and net proceeds of $2,202,801 from option exercises, less aggregate debt repayments totaling $61,406,207 and payment for deferred financing costs of $7,809,728.

Fiscal Year Ended September 30, 2006 Compared with Fiscal Year Ended September 30, 2005

        As of September 30, 2006, cash and cash equivalents were $16,623,407, a decrease of $325,897 from September 30, 2005. The more significant components of this net decrease in cash are discussed below.

        Net cash provided by operating activities was $787,012 for the year ended September 30, 2006, compared with $5,073,634 for the year ended September 30, 2005. Net cash provided by operating activities for the year ended September 30, 2006 was comprised primarily of net income of $4,890,035, depreciation and amortization of $1,513,170 and an increase in deferred income taxes of $1,346,336. These increases were partially offset by an increase in recoverable income taxes of $3,141,804, resulting mainly from an overpayment of quarterly tax deposits, excess tax benefits from options exercised of $605,868, a decrease in accrued medical claims of $998,723 resulting mainly from resolution of prior claims and lower enrollment, increases in risk pool receivables of $1,286,821 and decreases in accounts payable and other liabilities of $966,931.

        Net cash used in investing activities totaled $6,891,948 for the year ended September 30, 2006, compared with $1,356,463 for the year ended September 30, 2005. Net cash used in investing activities for the year ended September 30, 2006 was comprised primarily of purchases of property, improvements and equipment of $640,915; cash paid for the acquisition of Genesis HealthCare of Southern California (net of cash received) of $6,560,892; partially offset by a decrease in restricted certificates of deposits required by the health plans of $293,273.

        Net cash provided by financing activities totaled $5,779,039 for the year ended September 30, 2006, compared with net cash used by financing activities of $7,098,621 for the year ended September 30, 2005. Net cash provided by financing activities for the year ended September 30, 2006 was comprised primarily of borrowings under the GMAC credit facility, totaling $4,000,000 in a long term note,

85

$2,500,000 in a line of credit (net of repayments), and net proceeds of $1,339,838 from option exercises, plus associated tax benefits of $605,868, less debt repayment totaling $2,666,667.

Working Capital

        We had positive working capital of $2,248,634 at September 30, 2007 and negative working capital of $681,960 and $123,898, at September 30, 2005 and 2006, respectively. We had cash and cash equivalents of $16,949,304, $16,623,407 and $21,599,270, at September 30, 2005, 2006 and 2007, respectively. Our working capital ratio (current assets divided by current liabilities) was .97, .99 and 1.04, at September 30, 2005, 2006 and 2007, respectively.

        As of the fiscal years ended 2005, 2006 and 2007 amounts due to our lenders totaled $8,166,667, $12,000,000 and $146,750,000, respectively. We have historically used cash reserves and cash flow from operations and equity offerings to reduce our indebtedness and fund acquisitions.

Interest Rate Swaps

        As required by the $53 million credit facility, on May 16, 2007, we entered into a $48 million interest rate swap, which effectively converts the variable interest rate (the LIBOR component) under the credit facility to a fixed rate of 5.3%, plus the applicable margin per year throughout the term of the loan. This interest rate swap remains in effect even though the related term loan was repaid in August 2007.

        In addition to the pre-existing $48,000,000 interest rate swap described above, on September 5, 2007, we entered into a separate interest rate swap agreement for the incremental debt, initially totaling $97,750,000 which effectively converts the variable interest rate (the LIBOR component) under the incremental portion of the $155 million credit facility to a fixed rate of 5.05%, plus the applicable margin, per year, throughout the term of the loan. The notional amounts of these interest rate swaps are scheduled to decline as the principal balances owing under the term loans declines. Under these swaps, we are required to make quarterly fixed rate payments to the counterparties calculated on the notional amount of the swap and the interest rate for the particular swap, while the counterparties are obligated to make certain monthly floating rate payments to us referencing the same notional amount. These interest rate swaps effectively fix the weighted average annual interest rate payable on the term loans to 5.13%, plus the applicable margin. Notwithstanding the terms of the interest rate swap transactions, we are ultimately obligated for all amounts due and payable under its existing credit facility.

        The interest rate swap agreements are designated as cash flow hedges of expected interest payments of long-term debt with the effective date of the $48,000,000 swap to be in the second quarter of fiscal 2008 and the effective date of the $97,750,000 swap to be September 6, 2007. Prior to becoming effective, all mark-to-market adjustments in the value of the swaps are charged to other expense. Total ineffective portions of the gains or losses on all cash flow swaps that were charged to earnings through September 30, 2007 were approximately $868,480. The effective portions of the fair value gains or losses on these cash flow hedges are initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The amount of the loss recorded in other comprehensive income at September 30, 2007 that is expected to be reclassified to interest expense in the future is approximately $255,000, after tax. There were no components of cash flow hedges that were excluded from the assessment of effectiveness.

        As of April 30, 2008, the mark-to-market adjustments in the value of the swaps increased to $2,156,668 from $844,183 as of September 30, 2007, with respect to the May 2007 swap and to $5,649,635 from $1,089,833 as of September 30, 2007, with respect to the September 2007 swap.

86

Additional Financing

        To the extent we continue to pursue our acquisition strategy, additional financing will be required and we will need to seek additional or expanded credit facilities from banks or other sources of debt.

        We anticipate financing future acquisitions and potential business expansion with a combination of debt, issuance of common stock and cash flow from operations. Additionally, we may seek to reduce our total extent and/or raise financing through the sale of certain of our assets to the extent they are deemed not to fit with our long-term strategic objectives.

        In order to meet our long-term liquidity needs, we may incur, from time to time, additional bank indebtedness. Banks and traditional commercial lenders do not generally make loans to companies without substantial tangible net worth. Since, by the very nature of our business, we accumulate substantial goodwill and intangibles on our balance sheet, it may be difficult for us to obtain this type of financing in the future. We may issue additional equity and debt securities, the availability and terms of which will depend upon market and other conditions. The corporate lending and equity markets have been disrupted by the current credit market conditions, resulting in both a reduction in the number of transactions as well as amount of funds raised. Transactions that have been consummated are completed at lower valuations in the case of equity offerings and at higher interest costs in case of debt offerings. Our ability to issue any debt or equity instruments in a public or private sale is also restricted under certain circumstances pursuant to contractual restrictions in agreements with our lenders. There can be no assurance that additional financing will be available upon terms acceptable to us, if at all. The failure to raise the funds necessary to finance our future cash requirements could adversely affect our ability to pursue our strategy and could adversely affect our future results of operations.

Off-Balance Sheet Arrangements

        None.

Contractual Obligations

        In the table below, we set forth our contractual obligations, including long term debt and other obligations and commitments, as of September 30, 2007, which are payable in our fiscal years ending September 30:

	Total		2008		2009		2010		2011		2012		2013 and Thereafter
	(000's eliminated)
Line of credit(1)	$	3,000	$	3,000	$	—	$	—	$	—	$	—	$	—
Long term debt(1)		143,750		5,000		5,000		5,000		5,000		5,000		118,750
Capital lease commitments(2)		1,240		472		383		325		60		—		—
Operating lease commitments(2)		11,047		2,598		2,587		2,305		1,374		947		1,236
Interest(3)		148,273		19,277		21,913		21,281		20,648		19,961		45,194
		307,310		30,347		29,883		28,911		27,082		25,908		165,180

(1)

The line of credit and long term debt due to our lenders mature on various dates with the last amount maturing on August 8, 2015. See Note 9 to the consolidated financial statements for a description of our long term debt. The scheduled maturities in the table above do not reflect mandatory repayments based on 50% of excess cash flows (as defined) and the net proceeds from the planned sale of SMM, SPCMG, AVM and PEG (see Note 17 to the Consolidated Financial Statements), since such amounts cannot be determined in advance.

(2)

See Note 11 to the September 30, 2007 consolidated financial statements for a description of our minimum lease commitments under non-cancelable capital and operating leases.

87

(3)

Interest is based on interest rates as revised pursuant to the April 2008 forbearance agreements and May 2008 amendments to the $155 million credit facility. Interest also assumes that the 4% "paid-in-kind" interest on the second lien debt will remain in effect until maturity. However, the 4% may be reduced on a quarterly basis by 0.50% for each 0.25% reduction in the Company's consolidated leverage ratio. We also have two interest rate swap agreements to hedge changes in variable interest rates on our variable rate long-term debt. Future settlement payments under those agreements cannot be estimated and are not included in the table above.

        At September 30, 2007, we have $1,664,564 in risk pool deficits that are not payable until and unless we generate future risk sharing surpluses. When the HMO contracts terminate, any remaining risk pool deficits will be waived.

Item 7A.    Quantitative and Qualitative Disclosures Regarding Market Risk.

        As of September 30, 2007, we had cash and cash equivalents of $21,599,270. Cash equivalents consist of highly liquid securities with original maturities of up to three months. We invest a substantial portion of our cash equivalents in U.S. bank certificate of deposits and overnight, high yield money market funds. As of September 30, 2007, we had $636,592 of investments, primarily consisting of restricted, interest-bearing certificates of deposit required by various HMOs with whom we do business. These investments are subject to interest rate risk and will decrease in value if the market rates increase. All non-restricted investments are maintained at fair market value on the balance sheet. Money market funds are not typically subject to material market risk. In addition, we have the ability to hold these investments until maturity, and as a result, we would not expect the value of these investments to decline significantly as a result of a sudden change in market interest rates. Declines in interest rates over time will reduce our investment income. Assuming a hypothetical 10% change in interest rates, there would be no material impact on our future earnings and cash flows related to these instruments, or their fair value.

        We financed our acquisitions through variable-rate debt. In the normal course of business, we have exposures to interest rate risk from our long-term debt. To manage these risks, we have entered into derivative instruments such as interest rate swaps. We do not hold or issue financial instruments for trading purposes. In fiscal 2007, our derivative instruments consisted of two interest rate swaps designated, or in the process of being designated, as cash flow hedges.

        At September 30, 2007, we had $146.7 million of borrowings under variable interest rate facilities. Under the interest rate swap agreements entered into in May 2007 in connection with the ProMed acquisition and in September 2007 in connection with the Alta acquisition, the notional amounts of these swaps are scheduled to decline in order to reflect certain scheduled and anticipated principal payments under the term loan facilities. Under these swaps, we are required to make quarterly fixed rate payments to the counterparties calculated on the notional amount of the swap and the interest rate for the particular swap, while the counterparties are obligated to make certain quarterly floating rate payments to us referencing the same notional amount. Based on the current applicable margin. Our interest rate swaps effectively convert these amounts of variable-rate debt to fixed-rate debt at a blended average LIBOR rate of 5.13% through their maturities. A 100 basis point adverse movement (increase) in interest rates would have decreased our net income for fiscal year 2005, 2006 and 2007 by approximately $186,000, $105,000 and $384,000, respectively. The effect on net income in fiscal 2007 did not include the impact of future settlement payments under the swap agreements as such amounts cannot not be estimated in advance. For terms relating to our long-term debt, see Note 9 of the Notes to Consolidated Financial Statements.

88

Item 8.    Financial Statements and Supplementary Data.

        The following financial statements and financial statement schedule are included in this report beginning on page F-1:

	Page
Index to Financial Statements and Financial Statement Schedule	F-1
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of September 30, 2006 and 2007	F-3
Consolidated Statements of Operations for the Years Ended September 30, 2005, 2006 and 2007	F-4
Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2005, 2006 and 2007	F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 2005, 2006 and 2007	F-6
Notes to Consolidated Financial Statements	F-7
Report of Independent Registered Public Accounting Firm	F-51
Schedule II—Valuation and Qualifying Accounts	F-52

        Selected quarterly financial data required by this item is included in Note 16 to the consolidated financial statements.

        All other schedules are omitted because they are not required, or the information is included elsewhere in the consolidated financial statements.

Item 9.    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

        None.

Item 9A.    Controls and Procedures.

        Disclosure Controls and Procedures:    Our management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance to our management and board of directors regarding the preparation and fair presentation of published financial statements. We maintain controls and procedures designed to ensure that we are able to collect the information we are required to disclose in the reports we file with the Securities and Exchange Commission, and to process, summarize and disclose this information within the time periods specified in the rules of the Securities and Exchange Commission.

        Evaluation of Disclosure Controls and Procedures:    Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of our disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act") which are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is appropriately recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. This evaluation was conducted as of September 30, 2007. Based on this evaluation, in light of the material weaknesses in internal control over financial reporting as of September 30, 2007, which are discussed below, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of September, 30, 2007.

        Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

89

        Changes in Internal Controls:    The principal executive officer and principal financial officer have concluded that, other than the specific changes identified in this Item 9A, there have been no changes in our internal control over financial reporting during the quarter ended September 30, 2007 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

        Summary of Material Weaknesses in Internal Control Over Financial Reporting:    Shortly after our August 8, 2007 acquisition of Alta Hospitals System, LLC ("Alta"), we determined that there were certain material errors in Alta's previously issued financial statements for its fiscal year ended December 31, 2006, and that material adjustments needed to be made to Alta's interim financial statements as of and for the six months ended June 30, 2007. The material weaknesses noted were in the areas of recording reimbursements due from third-party payors related to open cost report years; accounting for receivables from government disproportionate share programs; and valuation of general hospital accounts receivable balances.

        These areas involve complex accounting considerations and require significant knowledge and experience in hospital financial reporting and reimbursement. Alta did not have the necessary finance personnel with specific expertise in these complex areas to evaluate all appropriate data and accounting considerations related to these areas, and knowledgeable personnel capable of overseeing and evaluating work performed by outside consultants working on Alta's behalf. These deficiencies resulted in errors in the preparation and review of Alta's financial statements and related disclosures and resulted in the restatements to Alta's financial statements for the year ended December 31, 2006 and in adjustments to Alta's interim financial statements as of and for the six months ended June 30, 2007.

        During our review of these material weaknesses in Alta's internal control over financial reporting, we have identified the reasons for the material weaknesses and have taken, and intend to continue taking, steps to strengthen Alta's internal control over financial reporting, as described in more detail below. Although these material weaknesses relate only to Alta, and this report includes only 54 days of Alta's operations and earnings, these material weaknesses had not been fully remediated as of September 30, 2007. Therefore, we have concluded that material weaknesses existed in our internal control over financial reporting as of September 30, 2007.

        Our Audit Committee engaged independent counsel, who, together with various advisers, assisted the Audit Committee in conducting an extensive investigation into the events that gave rise to the misstatements in the Alta financial statements for the year ended December 31, 2006. The Audit Committee concluded the investigation in March 2007 and did not find any intentional wrongdoing in the preparation of the Alta financial statements, but confirmed the need for improvements in internal control and control over financial reporting, as more fully discussed below.

        As a result of the significant acquisitions we completed in 2007, we have also undergone significant changes in our corporate and financial reporting structure. We now have a multi-location, multi-tier reporting and consolidation process with decentralized accounting functions at each of our reporting units. As a result of these changes, along with the deficiencies relating to Alta as discussed above, we did not make timely filings of our Form 10-K for the year ended September 30, 2007 and Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008. Following the 2007 acquisitions, we have expended significant efforts on financial reporting activities and integration of operations, expansion of our disclosure controls and procedures and internal control systems to address, among other things, operations at multiple sites.

        Remediation Steps to Address Material Weaknesses:    Based on findings of material weaknesses in our internal control over financial reporting as of September 30, 2007 as described above, we have taken steps to strengthen our internal controls over the more complex accounting areas, namely, recording of reimbursements due from third-party payors, accounting for receivables from government disproportionate share programs, and valuation of general hospital accounts receivable balances. We

90

have significantly added to the expertise and depth of personnel within the Alta finance department, including the appointment of a highly qualified Chief Financial Officer, with specific and significant expertise in the critical areas identified above. We also intend to expand our financial accounting and reporting team at our corporate location, including the establishment of an internal audit function, to strengthen the overall financial statement close process and to provide additional oversight on financial accounting and reporting matters throughout our organization. However, not all of these remediation steps were in place as of September 30, 2007 and, as such, the conclusion of management is that material weaknesses existed as of that date. We intend to address the remaining actions required to remediate our existing weaknesses as part of our ongoing efforts to improve our control environment. As discussed, we have been and continue to be engaged in efforts to improve our internal control over financial reporting. These measures include, but are not limited to, the following:

•

The hiring of highly qualified financial personnel, including the appointment of an appropriately qualified Alta Chief Financial Officer, with specific expertise in the areas where material weaknesses were noted;



•

The development of a financial reporting responsibility matrix, whereby all general ledger accounts and financial statement line items are specifically assigned to a specific member of the finance department to perform monthly quarterly and year-end analysis, with an assigned, appropriately qualified, reviewer formally signing off on the analysis at each close;



•

The creation of a formal monthly, quarterly, and annual reporting package, including specific reporting and information for identified key risk areas, with formal sign off by the financial executive with specific oversight of each area;



•

The development of formal written accounting policies and procedures in all key areas, with special emphasis on those areas where material weaknesses have been identified; and with regular compliance reviews of key risk areas to evaluate the design and effectiveness of controls; and



•

Co-ordination of similar considerations and efforts being undertaken by our Sarbanes-Oxley implementation team regarding risk assessment, design of controls, remediation of deficiencies, and testing the operating effectiveness of those controls.

        Sarbanes-Oxley 404 Compliance:    We have begun a detailed assessment of our internal controls as called for by the Sarbanes-Oxley Act of 2002. We are still in the evaluation of design phase. We have supplemented our internal project team with the services of an outside specialist. Although we have made this project a priority for the company, there can be no assurances that all material weaknesses that may be identified and validated will be remediated before the required due date for management to report on internal controls of September 30, 2008.

Item 9B.    Other Information.

        Not applicable.

91

PART III

Item 10.    Directors, Executive Officers and Corporate Governance.

        The following sets forth information regarding each of our directors and executive officers. Other than as described below, no director or executive officer has a family relationship with any of our other directors or executive officers.

        Samuel S. Lee.    Mr. Lee, 41, was appointed our Chief Executive Officer on March 19, 2008 and as Chairman of our Board of Directors on May 14, 2008. Mr. Lee was previously appointed as a member of our Board of Directors and as Chief Executive Officer of our subsidiary, Alta Hospitals System, LLC on August 8, 2007. He served previously as the President of Alta from January 2002 until we acquired Alta on August 8, 2007. Mr. Lee's background involves healthcare and technology related private equity investment management, operational leadership, entrepreneurship, mergers and acquisition, and leveraged financing for various corporations. Prior to Alta, Mr. Lee was a General Partner with Kline Hawkes & Co., a $500 million private equity firm located in Brentwood, California, that focuses on healthcare, technology, and business services. Mr. Lee has been the lead/principal investor and director of several private and public companies. Additionally, Mr. Lee worked in healthcare reimbursement, business office, and operations for SFS, Inc., and in consulting and systems engineering for Andersen Consulting and Verizon. Mr. Lee received his bachelor's degree in Industrial and Systems Engineering from Georgia Tech and master's degree in business administration from Harvard Business School. Mr. Lee is an active member of the Young President's Organization of Los Angeles, and also involved with several civic and community organizations.

        Catherine S. Dickson.    Catherine S. Dickson, 38, serves as our President and Chief Operating Officer, positions she has held since July 2003. In February 2004, Ms. Dickson was elected as a member of our Board of Directors. Ms. Dickson is also the President and Chief Executive Officer of Prospect Medical Systems. Prior to Ms. Dickson's appointment as our President and Chief Operating Officer, Ms. Dickson served as Vice President of Contracting and Credentialing for Prospect Medical Systems since February 2000. Ms. Dickson has been with Prospect Medical Systems since January 1998. Ms. Dickson has significant experience across a broad range of managed care divisions, including contract negotiation and implementation, claims adjudication, eligibility, utilization management and credentialing. Before joining Prospect Medical Systems, Ms. Dickson served as an Associate Contract Administrator for Orange Coast Managed Care Services, Inc., the health care management company for the Sisters of St. Joseph Health Organization Independent Physician Association.

        Mike Heather.    Mike Heather, 49, was appointed Chief Financial Officer of the company and each of our management subsidiaries in April 2004. Mr. Heather also serves as Chief Financial Officer of each of our affiliated physician organizations except for AMVI/Prospect Health Network, which is a joint venture partner where Mr. Heather is Chief Financial Officer of one of the two general partners. Most recently, Mr. Heather served as Co-Chief Executive Officer of WebVision, Inc. from March 2001 to June 2002, and Chief Financial Officer from June 2000 through June 2002. Prior to joining WebVision, Mr. Heather was a Partner at Deloitte & Touche which he joined in 1980, and was the founder and Partner-in-Charge of the HealthCare Services Practice of Deloitte & Touche in Orange County from June 1992 to June 2000.

        Linda Hodges.    Linda Hodges, 63, has served as our Executive Vice President of Compliance since August 1, 2003. Previously, Ms. Hodges served as President and Chief Operations Officer of Prospect Medical Systems from November 1998 to July 2003, and she has performed a number of other senior management functions for Prospect Medical Systems since 1996. Ms. Hodges has over 20 years of health care related experience in management and operations. Ms. Hodges has also served in positions such as Interim Chief Executive Officer of VivaHealth Plan, Executive Director of Foundation

92

Health Corporation (Southern California Region), and President of Loma Linda Health Plan, a wholly owned subsidiary of Century MediCorp, Inc.

        Donna Vigil.    Donna Vigil, 59, has served as our Vice President of Finance since April 2004, prior to which she served as our Chief Financial Officer commencing July 1998. Ms. Vigil served as Chief Financial Officer of NetSoft, a privately held, $20 million software development company with five European subsidiaries, from October 1989 to September 1997. Ms. Vigil was Acting Chief Financial Officer/Consultant of Strategic HR Services, for the staffing division of a large real estate developer in Southern California, from October 1997 to May 1998.

        Michael A. Terner.    Michael A. Terner, 46, has served as our Executive Vice President since July 30, 2007, prior to which he served as our Vice President of HMO Contracting and Health Plan Relations since October 1, 2003 and served as our Secretary from July 30, 2007 to April 7, 2008. From 1998 to 2003, Mr. Terner was a portfolio manager for Ocean Park Capital Management, LLC, a private investment company. From 1994 through 1998, Mr. Terner was an independent financial consultant for various entities including Prospect Medical Holdings and the Columbia Charitable Foundation. From 1991 to 1993, he was the Business Development Executive with Century Medicorp, and from 1990 to 1991, Mr. Terner was involved in the health care consulting practice of KPMG Peat Marwick. From 1983 to 1988, Mr. Terner was a risk arbitrage trader with LF Rothschild, Unterberg and Laterman Co. Mr. Terner received his MBA from the Anderson Graduate School of Management at UCLA in 1990, and his BA Degree from Harvard College in 1983. Mr. Terner is the son of Jacob Y. Terner, our Chief Executive Officer.

        David Levinsohn.    David Levinsohn, 73, has served as a member of our Board of Directors since July 1996. Mr. Levinsohn was the President and Chief Executive Officer of Sherman Oaks Health Systems, Inc. d/b/a Sherman Oaks Hospital and Medical Center from March 1995 until December 2007. Prior to being named to those positions, Mr. Levinsohn served as the Chief Operating Officer of Sherman Oaks Health Systems since May 1994. From November 1993 to May 1994, Mr. Levinsohn was the Vice President of Encino Tarzana Medical Center. From 1989 until November 1993, Mr. Levinsohn was Executive Director of Sherman Oaks Hospital.

        Kenneth Schwartz, CPA.    Kenneth Schwartz, 72, has served as a member of our Board of Directors since June 1998. Mr. Schwartz served as a Director of Deloitte & Touche LLP from December 1990 to June 1998. Mr. Schwartz previously served as a member of the National Management Committee and Managing Partner of the Los Angeles office of Spicer & Oppenheimer.

        Joel S. Kanter.    Mr. Kanter, 51, was elected as a member of our Board of Directors in February 2004. Mr. Kanter has been the President of Windy City, Inc., a privately held investment company, since 1986. From 1993 to 1999, Mr. Kanter was the President or Chief Executive Officer of Walnut Financial Services, Inc., a publicly traded company (NMS:WNUT). Mr. Kanter's past experience includes serving as a Legislative Assistant to former Congressman Abner J. Mikva (D-Illinois), Special Assistant to the National Association of Attorneys General, Staff Director of the House Rules Committee's Subcommittee on Legislative Process and Managing Director of The Investors' Washington Service. Mr. Kanter serves on the Board of Directors of Pet DRx Corporation (NASDAQ: VETS), I-Flow Corporation (NASDAQ: IFLO), Aquamatrix, Inc. (OTC Bulletin Board: AQMX.OB), Magna-Lab, Inc. (OTC Bulletin Board: MAGLA.OB), WaferGen Bio-systems, Inc. (OTC Bulletin Board: WGBS.OB), and Medgenics, Inc. (London AIM: MEDG). Mr. Kanter is also a Trustee at the Georgetown Day School (Washington, D.C.), The Langley School (McLean, Virginia), and the Union Institute & University (Cincinnati, Ohio).

        Gene E. Burleson.    Mr. Burleson, 67, has served as a member of our Board of Directors since July 2004. Mr. Burleson served as Chairman of the Board of Directors of Mariner Post-Acute Network Inc., an operator of long-term care facilities from January 2000 to June 2002. Mr. Burleson

93

also served as Chairman of the Board of Directors of Alterra Healthcare Inc., a developer and operator of assisted living facilities and is currently on the Board of Deckers Outdoor Corporation, Inc. (NASDAQ: DECK), Pet DRx Corporation (NASDAQ: VETS), and SunLink Health Systems, Inc. (AMEX: SSY). In addition he is involved with several private health care companies as an investor and director. Mr. Burleson served as Chairman of the Board of GranCare Inc. from October 1989 to November 1997. Additionally, Mr. Burleson served as President and Chief Executive Officer of GranCare Inc. from December 1990 to February 1997. Upon completion of the merger of GranCare's pharmacy operations with Vitalink Pharmacy Services Inc. in February 1997, he became Chief Executive Officer and a Director of Vitalink Pharmacy Services Inc. Mr. Burleson resigned as Chief Executive Officer and a director of Vitalink Pharmacy Services in August 1997. From June 1986 to March 1989 Mr. Burleson served as President, Chief Operating Officer and a director of American Medical International Inc. ("AMI"), an owner and operator of acute care hospitals. Based in London from May 1981 to June 1986, Mr. Burleson served as Managing Director of AMI's international operations.

        Jeereddi Prasad, M.D.    Jeereddi Prasad, M.D., 60, was appointed as a member of our Board of Directors effective June 1, 2007 in connection with our acquisition of the ProMed group of companies, which include a management services organization, or MSO, and two independent physician associations, or IPAs, based in Southern California. Dr. Prasad served as the President of each of the ProMed group entities from 1994 (2002 in the case of Upland Medical Group) until their acquisition by the company, and he has continued to serve as the President of Upland Medical Group following the ProMed acquisition. Since 1991, Dr. Prasad has also served as the President and Medical Director of Chaparral Medical Group, Inc., a fifty physician multi-specialty group that he founded in Southern California, within which he created a strong Endocrinology Department that is an ADA Certified Center of Excellence for Diabetic Education. Dr. Prasad completed his Endocrinology Fellowship at Bellevue/ NYU Medical Center in 1978. He is board certified in Endocrinology and Internal Medicine and is a Fellow of both the American College of Endocrinologists and American College of Physicians.

        Glenn R. Robson.    Mr. Robson, 46, was appointed a member of our Board of Directors on August 8, 2007 in connection with our acquisition of Alta. Mr. Robson has served as Senior Vice President and Chief Strategy Officer of AECOM Technology Corporation since December 2006. Mr. Robson joined AECOM in May 2002 as Senior Vice President and Chief Financial Officer. AECOM Technology Corporation provides professional technical services, including consulting, planning, architecture, engineering, construction management, project management and environmental services, as well as management support services to government and commercial clients worldwide. Prior to joining AECOM, Mr. Robson worked at Morgan Stanley & Co. for twelve years, where he served most recently as a Managing Director in the investment banking division, and previously as a Principal and Vice President in the corporate finance department. Earlier in his career, Mr. Robson was a Business Analyst with McKinsey & Company. Mr. Robson received his bachelor's degree in economics from the Wharton School of the University of Pennsylvania, and a master's degree in business administration from Harvard Business School.

Appointment of Two Directors by Holders of Series B Preferred Stock

        Mr. Lee and Mr. Robson were appointed as members of our Board of Directors in connection with the acquisition of our Alta hospital subsidiary. Under the terms of our Series B Preferred Stock, which was issued to the former shareholders of Alta in the acquisition, the holders of the Series B Preferred Stock are entitled to elect two directors at any election of directors until the next election of directors, for so long as the Series B Preferred Stock remains outstanding. The terms of the Series B Preferred Stock require that one of the two directors must be an independent director who is approved by a majority of the other members of our Board of Directors. These two directors have been designated for election as directors by a separate vote of the holders of our Series B Preferred Stock, to serve as members of the Board together with the other seven directors named above who have been

94

nominated for election by the holders of our class of Common Stock. Mr. Robson has been designated and approved to serve as an independent director in accordance with the requirements of the Series B Preferred Stock.

Terms of Office

        Directors (other than those appointed by holders of our Series B Preferred Stock, as described above) are elected annually by our stockholders and hold office until the next annual stockholders meeting and until a successor is elected and has qualified, subject to their earlier resignation, removal or death.

        Officers are elected by and serve at the discretion of our Board of Directors. They hold office until their successors are chosen and qualified, or until they resign or have been removed from office. The Board of Directors may appoint, or empower the Chief Executive Officer to appoint or terminate, such other officers and agents as the business of the corporation may require, each of whom shall hold office for such period, and have such authority, and perform such duties as are provided in the Bylaws, or as the Board of Directors may from time to time determine.

Audit Committee

        The Board of Directors has established an audit committee in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934. The Audit Committee makes recommendations to management concerning the engagement of independent public accountants, reviews with the independent public accountants the plans and results of the audit engagement, approves professional services provided by the independent public accountants, reviews independence of the independent public accountants, considers the range of audit and non-audit fees and reviews the adequacy of our internal accounting controls. Mr. Schwartz is the Chairman of the Audit Committee, and Mr. Levinsohn, Mr. Kanter, Mr. Burleson and Mr. Robson serve as members of the Audit Committee.

        Each member of the Audit Committee meets the independence requirements of the American Stock Exchange, the Securities Exchange Act of 1934, as amended, or the Exchange Act, and our corporate governance guidelines. Each member of our Audit Committee is financially literate, knowledgeable and qualified to review financial statements. The "audit committee financial expert" designated by the Board is Mr. Schwartz.

Code of Ethics

        Based upon the advice and recommendation of the Audit Committee, the Board of Directors adopted a financial code of ethics on January 18, 2006 that applies to our senior financial officers, including the principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. The financial code of ethics addresses conflicts of interest, corporate opportunities, confidentiality, protection and proper use of company assets, financial disclosure and reporting, maintenance of books and records and compliance with laws, rules and regulations. The Financial Code of Ethics is available in print to any stockholder that requests it in writing. Requests should be addressed to Investor Relations, c/o Linda Hodges, Prospect Medical Holdings, 10780 Santa Monica Blvd., Suite 400, Los Angeles, CA 90025.

        The Board of Directors has also adopted a Code of Business Conduct and Ethical Business Practice which applies to all officers, employees and directors of the company. A copy of the Code of Business Conduct and Ethical Business Practice was filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended September 30, 2005 and may be viewed on the SEC's website at www.sec.gov.

95

        The Financial Code of Ethics and Code of Business Conduct and Ethical Business Practice contain written standards that are intended to deter wrongdoing and to promote honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the SEC and in other public communications; compliance with applicable governmental laws, rules and regulations; the prompt internal reporting of violations of these standards to the Audit Committee or Corporate Compliance Officer; and accountability for adherence to these standards.

Procedures for Nominating Directors

        There have been no changes to our previously disclosed procedures by which stockholders may recommend nominees to our board of directors.

Section 16(a) Beneficial Ownership Reporting Compliance

        Under the Securities Exchange Act of 1934, as amended, our directors, certain officers, and any persons holding more than 10% of any class of our equity securities are required to report their ownership of our equity securities and any changes in that ownership to the Securities and Exchange Commission and any exchange or quotation system on which our securities are listed or quoted. Specific due dates for these reports have been established and we are required to report any failure to file such reports on a timely basis. Based solely on a review of copies of reports filed with the SEC, we believe that all persons required to file such reports complied with the filing requirements applicable to them for the year ended September 30, 2007, with the exception that reports were filed late for the following persons (each of whom filed one late Form 4 report that related to only one transaction, except as indicated otherwise): Jacob Y. Terner , Catherine S. Dickson (two Form 4 reports and two transactions), Mike Heather, Linda Hodges, Donna Vigil, Michael A. Terner, Stewart Kahn (two Form 4 reports and three transactions), David Levinsohn, Kenneth Schwartz, Joel S. Kanter, Gene E. Burleson, and Jeereddi Prasad (one Form 3 report and no transactions). Most of the late filings related to grants of stock options. We have established procedures to ensure that future grants of stock options will be reported in a timely manner.

Item 11.    Executive Compensation.

Report of the Compensation Committee on Executive Compensation

        The Compensation Committee of the Board of Directors reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with members of senior management and, based on its review, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Form 10-K.

The Compensation Committee:
Gene Burleson, Chair
David Levinsohn
Kenneth Schwartz
Joel S. Kanter

96

Compensation Discussion and Analysis

Compensation Program Objectives

        Our executive compensation program is based on certain guiding principles that are designed to align and maximize long-term shareholder value with the achievement of management's business objectives. These principles are as follows:

•

Attract and retain high-caliber executives with a competitive total compensation package based on current data available regarding enterprises in the managed care markets, and on benchmark data for executives with comparable qualifications and experience.



•

Incentivize executives to achieve optimal performance.



•

Align the financial interest of executives with long-term shareholder value using a pay for performance compensation methodology.



•

Create a compensation program that recognizes and rewards the achievement of individual goals as well as company-wide business objectives.

        Our executive compensation strategy is to structure a plan that includes a component that is variable to short and long-term performance. There is a short-term, annual cash incentive based on company performance that also provides for the recognition of individual performance. Longer-term rewards exist that are tied to growth in the market price of the company's stock. Base salaries are established with the intent of being at a competitive level in relation to those for executives in similarly situated companies. The intent of creating a compensation plan with an appropriate mix of short and long-term incentives is to minimize fixed expenses, while emphasizing cash and equity compensation tied to performance, the achievement of corporate objectives and increased value to shareholders.

Compensation Program Elements

        Our compensation program, as defined by the Compensation Committee, seeks to achieve these objectives through the following compensation elements:

•

Base salaries



•

Performance-Based Bonuses



•

Long-term, Equity-based Compensation Awards

        Although actual compensation can be above or below targets based on individual and company performance, retention considerations and executive experience, we generally target base salaries, cash bonuses and long-term incentives to aggregate to an amount which falls within the median range of market compensation.

Compensation Element Details

        The following is a discussion of each element of compensation, how that element fits into our overall compensation objectives and the rationale as to why each element is paid.

Base Salaries

        We pay base salaries to reward executives for the performance of core job responsibilities of their positions and to provide a level of security for a portion of their annual compensation. It reflects overall job responsibilities, value to the company and individual performance in relation to market competitiveness. Specifically, base salaries are paid based on the following primary factors:

•

the nature, responsibility and criticality of the position held;

97

•

normative salary information for executives with comparable positions, qualifications and responsibilities in comparable companies within the industry, using available benchmark data;



•

the expertise of the individual along with his or her history with and value to the company;



•

market competitiveness for the executive's services;



•

the recommendations of the Chief Executive Officer (other than his own compensation);

        Named executive officer salaries are considered for adjustment annually as part of our annual review process. The base salary of the Chief Executive Officer is recommended by the Compensation Committee and approved by the Board of Directors, who in turn recommends for approval by the Compensation Committee the base salaries of our other senior executive officers. Consistent with our compensation philosophy, adjustments may periodically be made to executives' base salaries (and other elements of compensation) to maintain market competitiveness, or due to other circumstances such as a promotion, exceptional performance or an adjustment to maintain internal equity among executive positions.

Bonuses

        We pay bonuses to our executive officers based primarily upon our performance during the year, the performance of each executive officer and compensation survey information for executives employed within our market segment. In determining the incentive bonus amount paid to each executive officer, the Committee considers several factors, including our growth and the strength of our financial position, and our non-financial performance relating to overall company improvements. The primary objective of the bonus plan is to compensate executives for the achievement of predetermined individual goals that align with the our overall business strategies and objectives, thereby positively impacting shareholder value.

Long-Term, Equity-Based Incentive Awards

        The general purpose of long-term awards, which to date have been primarily in the form of stock options, is to provide each executive officer with a significant incentive to manage the company from the perspective of an owner with an equity stake in the business. Additionally, long-term awards foster the retention of executive officers and provide executive officers with an incentive to achieve superior performance over time. In approving stock option grants, the Committee bases its decision on each individual's performance and potential to improve stockholder value. The Committee has broad discretion to determine the terms and conditions applicable to each option grant, including the vesting schedule and terms upon which the options may be exercised. Since the exercise price of each stock option must be at least equal to the market price of our Common Stock on the date of grant, the options do not become valuable to the holder unless our shares increase in market value above the price of the Common Stock on the date of grant and the executive officer remains with the company through the applicable vesting period.

        The Committee reviews and determines the chief executive officer compensation pursuant to the principles noted above. Specific consideration is given to the Chief Executive Officer's responsibilities and experience in the industry and compensation packages awarded to chief executive officers of other comparable companies. In addition, the Committee reviews and approves the annual compensation of the other executive officers of the company.

Perquisites and other Personal Benefits.

        We do not provide named executive officers with any significant perquisites or other personal benefits other than those described in the Summary Compensation Table (see below).

98

Health and Insurance Benefits.

        With limited exceptions, we support providing benefits to named executive officers that are substantially the same as those offered to salaried employees generally. The named executive officers are eligible to participate in company-sponsored benefit programs on the same terms and conditions as those made available to salaried employees generally. Basic health benefits, life insurance, disability benefits and similar programs are provided to ensure that employees have access to healthcare and income protection for themselves and their family members.

Severance and Change in Control Agreements

        Our compensation arrangements with Dr. Terner, Ms. Dickson, Dr. Prasad and Mr. Lee provide for certain severance provisions and benefits associated with various termination scenarios. The severance provisions are designed to be competitive in the marketplace.

        A summary of the severance provisions applicable to compensation arrangements with our executive officers named in the Summary Compensation Table, along with a quantification of the benefits available to each named officer, can be found in the section of this Form 10-K captioned "Potential Payments upon Termination or Change in Control."

Executive Compensation Determination Process

Role of the Compensation Committee

        The Compensation Committee of the Board of Directors is composed entirely of directors who have never served as officers of the company and who meet the criteria for independence established by applicable law and the American Stock Exchange. The Committee is responsible for developing and adopting our executive compensation policies. In general, the compensation policies adopted by the Committee are designed (1) to attract and retain executives capable of leading the company to meet its business objectives, and (2) to motivate the our executives to enhance long-term stockholder value.

        Our compensation program consists of salary and performance-based bonuses and long-term, equity-based incentive awards. The overall executive compensation philosophy is based upon the premise that compensation should be aligned with and support our business strategy and long-term goals. We believe it is essential to maintain an executive compensation program that provides overall compensation competitive with that paid to executives with comparable qualifications and experience. The Committee develops its executive compensation program with reference to current data available regarding enterprises in the managed care markets. Actual compensation levels may be greater or less than the median levels depending upon annual and long-term performance by the company and the particular individual.

        The CEO's total compensation is recommended by the Compensation Committee and approved by the Board of Directors. The compensation of all other executive officers is recommended by the CEO and approved by the Compensation Committee. See also "Compensation Element Details" above and "Role of Management in the Compensation Determination Process" below.

        In addition to reviewing executive officer compensation, the Compensation Committee performs a formal evaluation of the compensation for the Board of Directors on a periodic basis. To assist in this process, the company engaged an outside consulting firm to assess the current level of director, as well as executive, compensation at the company, and to make recommendations as to the appropriateness of such compensation in relation to similarly situated companies in the industry.

99

Role of Management in the Executive Compensation Determination Process

        Management plays a limited role in the compensation determination process. The CEO prepares annual reviews for top executives and makes compensation recommendations for his direct reports to the Compensation Committee. At the request of the Compensation Committee, management occasionally makes proposals to the Compensation Committee regarding incentive targets, incentive plan structure and other compensation related matters.

Role of the Compensation Consultant in the Compensation Determination Process

        In 2007, the Compensation Committee engaged William N. Brown of WNB Consulting LLC to perform an independent, objective assessment of executive and director compensation levels at the company. As part of this review, a thorough analysis of all aspects of executive compensation was performed by WNB Consulting in relation to our size, public company status, business initiatives and growth objectives. WNB Consulting produced an assessment report of both the executive compensation and director compensation levels. The report reflected the consultant's consideration, in its determination of appropriate compensation levels for our executives, to some of the unique business characteristics of the company including aggressive business line expansion, dynamic business environment and pressure from stockholders for a compensation plan that is linked to continued revenue growth and strong EBITDA margin performance. The report focused on compensation for five executive positions in the areas of base salary, total annual cash compensation, total annual compensation (current base salary and target annual incentive for 2007 performance) and long-term incentive grant values. Key compensation questions addressed in the consultant's analysis were:

•

the appropriateness of the current level of cash and equity compensation for executives in relation to the highly competitive Southern California marketplace;



•

the appropriateness of compensation in relation to performance for stockholders;



•

the appropriate competitive market for the company and where the compensation should be in that market;



•

a determination of whether the company's emphasis for competitiveness should be on annual cash compensation and its short term rewards or, alternatively, be shifted to a longer-term focus.

        In order to gain an understanding of current trends in executive compensation, the consultant's analysis extracted information from survey data using multiple sources including national executive compensation surveys and proxy analysis tools. The surveys contain subsets of information addressing the sub-industries of Health Care, Health Care Services, Integrated Hospitals, and HMOs and PPOs. The proxy analysis used similar information within the appropriate industries. In the detailed analysis performed for each executive position, a "composite average" approach was used to give a reasonable representation of appropriate compensation, plus an additional 10% premium factor given the economics of pay rates in the State of California versus other areas in the United States. As a result of the executive compensation analysis performed by the consultant, a summary was given as to how each of the five executives' compensation levels compared to similar positions for reasonably comparable companies in the competitive market. Included in this analysis were a series of recommendations given to the Compensation Committee for consideration. The recommendations were as follows:

•

Base salary actions for the COO / President, EVP/Secretary and SVP IPA & Network Management on individual performance.



•

Give separate consideration to a salary increase for the CEO based on market competitiveness.



•

For the annual incentive plan, consider a target percentage for each executive officer position and the creation of a maximum percentage of 150% to 200% of the target percentage to allow for significant rewards when company performance is outstanding.

100

•

For equity grants, evaluate the equity grants provided to the executives at ProMed and Alta before determining grants for the Prospect executives.

        These recommendations were considered in making compensation adjustments to the executive officers in fiscal year 2007. See "Fiscal Year 2007 Compensation Decisions" captioned below.

Fiscal Year 2007 Compensation Decisions

        On January 17, 2007, the Compensation Committee of the Board of Directors increased Dr. Jacob Terner's annual base compensation to $300,000. His annual base compensation was further increased to $400,000 on August 8, 2007, concurrent with the closing of the Alta acquisition. On January 17, 2007, the Compensation Committee also increased Mike Heather's annual base compensation to $225,000. His annual base compensation was further increased to $350,000 on July 17, 2007. On January 17, 2007, the Compensation Committee also increased the base compensation of Catherine Dickson to $250,000. These salary actions were commensurate with our significant growth by acquisition, where revenue has more than tripled, and also with its expansion in lines of business and three distinct business operations: ProMed, Alta, and the existing Prospect entities.

        On June 1, 2007, in satisfaction of a condition to the closing of our acquisition of the ProMed group, we entered into an employment agreement with Dr. Jeereddi Prasad, who is a Director of the company, under which he agreed to continue to serve as the President of each of the ProMed entities for a base annual salary of $300,000, an automobile allowance of $1,300 per month, and other perquisites typically awarded to company executives. The employment agreement also provides that Dr. Prasad will receive annual incentive bonuses if certain performance standards are met by the ProMed entities.

        On August 8, 2007, in satisfaction of a condition to the closing of our acquisition of Alta, we entered into an employment agreement with Samuel S. Lee, who is a Director and executive officer and of the Company and beneficial owner of more than 5% of our class of Common Stock. Under the employment agreement, Mr. Lee serves as Chief Executive Officer of our subsidiary Alta Hospitals System, LLC for a base annual salary of $610,000, bonuses of up to $250,000 annually if certain performance standards are met by Alta, and other benefits typically awarded to executives of the company. Mr. Lee was appointed our Chief Executive Officer effective March 19, 2008, and Chairman of our Board effective May 14, 2008.

Tax Considerations

        Section 162(m) of the Internal Revenue Code generally limits the tax deductions a public corporation may take for compensation paid to its executive officers named in its summary compensation table to $1 million per executive per year. This limitation applies only to compensation that is not considered to be performance-based. Based on fiscal year 2007 compensation levels, no such limits on the deductibility of compensation applied to any officer of the company.

Compensation Committee Interlocks and Insider Participation

        No member of the Compensation Committee during fiscal year 2007 served as an officer, former officer or employee of the company or any of its subsidiaries. During fiscal year 2007, no executive officer of the company served as a member of the compensation committee of any other entity, three of whose executive officers served as a member of our Board of Directors , no executive officer of the company served as a member of the board of directors of any other entity, and no executive officer served as a member of our Compensation Committee.

101

Summary Compensation Table

        The following table sets forth certain information regarding compensation paid or earned for all services rendered to the company in all capacities during the fiscal year ended September 30, 2007 by our principal executive officer, our principal financial officer, our three other most highly compensated executive officers who were serving as executive officers as of September 30, 2007, and one additional individual who would have been amongst the three most highly compensated executive officers had he been serving as an executive officer as of September 30, 2007, for services rendered to the company as of September 30, 2007. These executive officers are referred to as the named executive officers in this Form 10-K.

Summary Compensation Table

Name and Principal Position	Year	Salary ($)		Bonus ($)	Option Awards ($)(7)		All Other Compensation ($)(8)		Total ($)
Jacob Y. Terner, M.D. Principal Executive Officer(1)	2007	$	300,137	N/A	$	—	$	21,877	$	322,034
Mike Heather Principal Financial Officer(2)	2007		230,301	N/A	$	11,273		8,710		250,284
Catherine S. Dickson President and COO(3)	2007		235,342	N/A	$	13,647		7,428		256,417
Michael Terner Executive Vice President(4)	2007		165,000	N/A	$	5,933		7,077		178,010
Donna Vigil Vice President of Finance(5)	2007		160,000	N/A	$	11,867		6,806		178,673
R. Stewart Kahn Executive Vice President(6)	2007		180,000	N/A	$	13,053		5,727		198,780

(1)

On January 17, 2007, Dr. Terner's annual base salary was increased from $250,000 to $300,000. Effective August 8, 2007 Dr. Terner's annual base salary was further increased to $400,000. Effective March 19, 2008, Samuel Lee assumed the position of Chief Executive Officer.

(2)

On January 17, 2007, Mr. Heather's annual base salary was increased from $180,000 to $225,000. Effective July 17, 2007 Mr. Heather's annual base salary was further increased to $350,000. On July 17, 2007, the Compensation Committee of the Board of Directors approved a grant of 200,000 shares of restricted stock for issuance to Mr. Heather subject to approval of all the conditions to effectiveness of the 2007 Omnibus Equity Incentive Plan, including approval by our stockholders. Should the stockholders approve the 2007 Omnibus Equity Incentive Plan at our next Annual Meeting, this grant will be effected.

(3)

On January 17, 2007, Ms. Dickson's annual base salary was increased from $200,000 to $250,000.

(4)

Mr. Terner became our Executive Vice President on July 26, 2007. Mr. Terner served as our Vice President of HMO Contracting and Health Plan Relations from October 1, 2003 until July 25, 2007.

(5)

Effective October 1, 2006 Ms. Vigil's annual base salary was increased from $150,000 to $160,000.

(6)

Mr. Kahn's employment ended on July 25, 2007 and re-commenced on April 7, 2008. Prior to the termination of his employment on July 25, 2007, his annual base salary was $180,000. Michael Terner filled Mr. Kahn's position as Executive Vice President effective July 26, 2007.

(7)

The amounts in this column singular represent the proportionate amount of the total fair value of options recognized by us as an expense in 2007 for financial accounting purposes. The fair value of these awards and the amounts expensed in 2007 were determined in accordance with Financial

102

Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (FAS 123R). The assumptions we use in calculating these amounts are discussed in Note 10, "Stock Transactions and Option Plans," to the Consolidated Financial Statements.

(8)

All Other Compensation includes a 401(K) match provided as part of our deferred compensation plan that covers substantially all of our employees and other standard perquisites provided to certain level of company executives, life insurance premium paid by Prospect for all named executives, and with respect to Dr. Terner, expense reimbursement for car allowance totaling $21,837.

Grants of Plan-Based Awards in Fiscal Year Ended September 30, 2007

        The following table provides information with respect to grants of plan-based awards made during the fiscal year ended September 30, 2007 to the named executive officers.

GRANTS OF PLAN-BASED AWARDS

		Estimated Future Payouts Under Non-Equity Executive Plan Awards
					Estimated Future Payouts Under Equity Incentive Plan Awards
								All Other Stock Awards: Number of Shares of Stocks or Units (#)	All Other Option Awards: Number of Shares Underlying Options (#)(2)	Exercise or Base Price of Option Awards ($)(3)		Grant Date Fair Value of Option Awards ($)(1)(4)
Name	Grant Date(1)	Threshold ($)	Target ($)	Maximum ($)	Threshold ($)	Target ($)	Maximum ($)
Jacob Y. Terner, M.D.	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	0	$	5.20	$	—
Mike Heather	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	9,500	$	5.20	$	25,365.00
Catherine S. Dickson	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	11,500	$	5.20	$	30,705.00
Michael Terner	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	5,000	$	5.20	$	13,350.00
Donna Vigil	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	10,000	$	5.20	$	26,700.00
R. Stewart Kahn	5/30/2007	N/A	N/A	N/A	N/A	N/A	N/A	N/A	11,000	$	5.20	$	29,370.00

(1)

Reflects the SFAS 123R date of the grant for all stock options granted in 2007.

(2)

The option grants to these executive officers vest on an annual basis over three years with a five year term, subject to earlier termination upon certain events.

(3)

The exercise price of the option grants listed above is the closing price of the Company's common stock on the date of grant.

(4)

The hypothetical value of the options as of their date of grant is equal to the fair value of the options on the grant date used to determine the compensation expense under SFAS 123(R) associated with the grant in our financial statements and has been calculated using the Black-Scholes valuation model. The Black-Scholes value is $2.67 per option (using a volatility of 53.37%, an interest rate of 4.67% and an expected term of 5 years). It should be noted that this model is only one of the methods available for valuing options, and our use of the model should not be interpreted as a prediction as to the actual value that may be realized on the options. The actual value of the options may be significantly different, and the value actually realized, if any, will depend upon the excess of the market value of the common stock over the option exercise price at the time of exercise.

103

Outstanding Equity Awards as of September 30, 2007

        The following table provides information regarding unexercised stock options or other equity awards for each of the named executive officers outstanding as of September 30, 2007.

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END

			Option Awards							Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable		Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)		Option Expiration Date		Number of Shares of Stock That Have Not Vested (#)	Market Value of Shares of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Pay-out Value of Shares That Have Not Vested (#)
Jacob Y. Terner, M.D.	700,000 13,333 35,000 40,000	(1) (2) (2) (2)	0 0 0 0	0 0 0 0	$ $ $ $	3.00 4.97 5.00 6.45	6/1/2009 9/30/2010 5/7/2009 11/9/2009		N/A	N/A	N/A	N/A
Mike Heather	300,000 3,167	(3) (2)	0 6,333	0 0	$ $	5.00 5.20	(Note 3 5/30/2012	)	N/A	N/A	N/A	N/A
Catherine S. Dickson	11,458 50,000 33,000 3,833 34,375	(2) (4) (2) (2) (2)	0 0 0 7,667 0	0 0 0 0 0	$ $ $ $ $	4.97 5.00 5.00 5.20 6.45	9/30/2010 9/30/2009 5/7/2009 5/30/2012 11/9/2009		N/A	N/A	N/A	N/A
Michael Terner	30,000 8,333 1,667 25,000	(2) (2) (2) (2)	0 0 3,333 0	0 0 0 0	$ $ $ $	3.00 4.97 5.20 6.45	9/1/2008 9/30/2010 5/30/2012 11/9/2009		N/A	N/A	N/A	N/A
Donna Vigil	8,333 24,000 3,333 25,000	(2) (2) (2) (2)	0 0 6,667 0	0 0 0 0	$ $ $ $	4.97 5.00 5.20 6.45	9/30/2010 5/7/2009 5/30/2012 11/9/2009		N/A	N/A	N/A	N/A
R. Stewart Kahn	3,667 25,000	(2) (2)	7,333 0	0 0	$ $	5.20 6.45	5/30/2012 11/9/2009		N/A	N/A	N/A	N/A

(1)

On June 1, 2003, Dr. Terner received non-qualified stock options outside our Stock Option Plan. These options were fully vested on the date of grant and expire on June 1, 2009.

(2)

These options were granted under our Stock Option Plan and vest pro-rata over 3 years, including the date of grant (the requisite service period). Options issued under our Stock Option Plan have a 5-year term.

(3)

On April 8, 2004, Mike Heather received non-qualified stock options outside our Stock Option Plan. These options vested over a three year period and expire three years after the date of his termination/resignation from the company.

(4)

On May 7, 2004, Ms. Dickson received non-qualified stock options outside our Stock Option Plan. These options were fully vested on the date of grant and expire on September 30, 2009.

Option Exercises and Stock Vested During the Fiscal Year Ended September 30, 2007

        The following table sets forth information concerning all stock options exercised during the fiscal year ended September 30, 2007 by the named executive officers.

104

OPTION EXERCISES AND STOCK VESTED

	Option Awards				Stock Awards
Name	Number of Shares Acquired On Exercise (#)	Value Realized Upon Exercise ($)			Number of Shares Acquired On Vesting ($)	Value Realized On Vesting ($)
Jacob Y. Terner, M.D.	70,000 45,000	$ $	210,000 135,000	(1) (2)	N/A	N/A
Mike Heather	0		—		N/A	N/A
Catherine S. Dickson	25,500 1,435 28,565	$ $ $	76,500 4,305 85,695	(3) (4) (5)	N/A	N/A
Michael Terner	0		—		N/A	N/A
Donna Vigil	25,000 35,000	$ $	75,000 105,000	(6) (7)	N/A	N/A
R. Stewart Kahn	27,950 8,333 10,000 11,700 2,300	$ $ $ $ $	83,850 41,415 50,000 58,500 11,500	(8) (9) (10) (11) (12)	N/A	N/A

(1)

On December 29, 2006, Dr. Terner exercised 70,000 options. The exercise price of the options was $3.00 per share compared to an average market value of $6.000.

(2)

On April 30, 2007, Dr. Terner exercised 45,000 options. The exercise price of the options was $3.00 per share compared to an average market value of $4.615

(3)

On December 28, 2006, Ms. Dickson exercised 25,500 options. The exercise price of the options was $3.00 per share compared to an average market value of $6.050.

(4)

On March 15, 2007, Ms. Dickson exercised 1,435 options. The exercise price of the options was $3.00 per share compared to an average market value of $4.940.

(5)

On April 30, 2007, Ms. Dickson exercised 28,565 options. The exercise price of the options was $3.00 per share compared to an average market value of $4.615.

(6)

On December 28, 2006, Ms. Vigil exercised 25,000 options. The exercise price of the options was $3.00 per share compared to an average market value of $6.050.

(7)

On April 20, 2007, Ms. Vigil exercised 35,000 options. The exercise price of the options was $3.00 per share compared to an average market value of $4.645

(8)

On March 5, 2007, Mr. Kahn exercised 27,950 options. The exercise price of the options was $3.00 per share compared to an average market value of $4.800

(9)

On September 19, 2007, Mr. Kahn exercised 8,333 options. The exercise price of the options was $4.97 per share compared to an average market value of $5.225

(10)

On September 17, 2007, Mr. Kahn exercised 10,000 options. The exercise price of the options was $5.00 per share compared to an average market value of $5.325.

(11)

On September 18, 2007, Mr. Kahn exercised 11,700 options. The exercise price of the options was $5.00 per share compared to an average market value of $5.245.

105

(12)

On September 19, 2007, Mr. Kahn exercised 12,300 options. The exercise price of the options was $5.00 per share compared to an average market value of $5.225.

Pension Benefits

        We do not have any qualified or non-qualified defined benefit plans.

Nonqualified Deferred Compensation

        We do not have any non-qualified defined contribution plans or other deferred compensation plans.

Employment Arrangements

        We had an employment agreement with our Chief Executive Officer (through March 19, 2008), Jacob Y. Terner, which was extended for a three-year term ending on August 1, 2008. The employment agreement was amended to provide for annual base salary of $400,000 effective on the August 8, 2007 closing of the Alta transaction. The agreement provided that if we terminated Dr. Terner's employment without cause, we would be required to pay him $12,500 for each month of past service as our Chief Executive Officer, commencing as of July 31, 1996. Effective September 8, 2004, the Company's maximum contingent obligation under this termination provision was frozen at $1,237,500, effective September 8, 2004. Since the Company had not indicated any intention to terminate Dr. Terner, no such potential liability is accrued as of September 30, 2007. In consideration for Dr. Terner's resignation as Executive Chairman on May 12, 2008 and other promises in his resignation agreement, and in satisfaction of our contractual obligations under Dr. Terner's employment agreement, we agreed to pay to his family trust the sum of $19,361.10 each month during the twelve-month period ending on April 30, 2009 and the sum of $42,694.45 each month during the twenty-four month period ending on April 30, 2011, for the total sum of $1,257,000.

        Our other named executive officers are employed at will and currently do not have written employment agreements. However, our Board of Directors approved a payment to Ms. Dickson equal to six months of salary (equal to $125,000 at September 30, 2007) as a severance package in the event of her termination by us.

        On June 1, 2007, in satisfaction of a condition to the closing of our acquisition of the ProMed group, we entered into an employment agreement with Dr. Jeereddi Prasad, who is a Director of the company, under which he agreed to continue to serve as the President of each of the ProMed entities for a base annual salary of $300,000, an automobile allowance of $1,300 per month, participation in any employee fringe benefit plans and programs available to other executives of the company. The employment agreement also provides that Dr. Prasad will receive annual incentive bonuses if certain performance standards are met by the ProMed entities. Dr. Prasad's employment agreement has an initial term of three years, which will renew automatically for successive one-year periods subject to prior written notice of non-renewal from either party at least ninety days prior to the expiration of the initial term or any renewal term. The agreement is subject to termination at any time, but if termination is without cause Dr. Prasad will be entitled to continue receiving compensation as provided for under the agreement for the balance of the term of the agreement or for a period of six months, whichever is greater, as though he were continuing to perform services under the agreement. In connection with the employment agreement, Dr. Prasad also entered into a non-compete agreement with the company and Prospect Medical Group.

        On August 8, 2007, in satisfaction of a condition to the closing of our acquisition of Alta, we entered into an employment agreement with Samuel S. Lee, who is a Director and executive officer of the Company and beneficial owner of more than 5% of our class of Common Stock. Under the employment agreement, Mr. Lee serves as Chief Executive Officer of our subsidiary Alta Hospitals

106

System, LLC for a base annual salary of $610,000, bonuses of up to $250,000 annually if certain performance standards are met by Alta, and is entitled to participate in any employee benefit and fringe benefit plans and programs available to other executives of the company as well as any executive equity incentive plan adopted by the Board of Directors. Under the agreement, Mr. Lee also agreed to serve for no additional compensation as a director and/or officer of each of the Alta entities acquired by the company. Mr. Lee's employment agreement has a term of five years. The agreement is subject to termination at any time, but if termination is without cause Mr. Lee will be entitled to receive an aggregate lump sum payment in an amount equal to the sum of (i) base salary for the balance of the term of the agreement or for a period of three years, whichever is less; (ii) accrued but unused vacation, paid time off or other compensation; (iii) pro-rata bonus payments; and (iv) incurred but unpaid reimbursement for business expenses. The agreement also includes non-compete provisions. Effective March 19, 2008, Mr. Lee was named our Chief Executive Officer, and he was appointed Chairman of our Board of Directors effective May 14, 2008.

Potential Payments Upon Termination of Employment or Change-In-Control

        The following table and summary set forth estimated potential payments we would be required to make to our named executive officers upon termination of employment or change in control of the Company, pursuant to each executive's employment agreement in effect at fiscal year end. The table assumes that the triggering event occurred on September 30, 2007.

Name	Benefit	Termination without Cause ($)		Death or Disability ($)	Termination Following Change of Control ($)
Jacob Y. Terner	Salary Bonus Equity Acceleration Benefits Continuation Total Value	$ $	1,251,917 — — — 1,251,917	— — — — —	— — — — —
Mike Heather	Salary Bonus Equity Acceleration Benefits Continuation Total Value		— — — — —	— — — — —	— — — — —
Catherine S. Dickson	Salary Bonus Equity Acceleration Benefits Continuation Total Value	$ $	125,000 — — — 125,000	— — — — —	— — — — —
Mike Terner	Salary Bonus Equity Acceleration Benefits Continuation Total Value		— — — — —	— — — — —	— — — — —
Donna Vigil	Salary Bonus Equity Acceleration Benefits Continuation Total Value		— — — — —	— — — — —	— — — — —

107

Stewart Kahn
Salary
Bonus
Equity Acceleration
Benefits Continuation
Total Value
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

Termination Without Cause

        If Ms. Dickson is terminated by us without cause, the Company is obligated to pay severance consisting of six months of salary (equal to $125,000 at September 30, 2007).

        In addition, under the terms of the Company's Stock Option Plan and the accompanying Stock Option Agreement with each participant receiving options under the Stock Option Plan, Ms. Dickson, upon any termination of employment for any reason other than death or disability, would be able to exercise any options received under the Stock Option Plan to the extent such options had already vested on the date of termination, for a period ending the earlier of (a) 90 days after the date of termination of employment or (b) the expiration date of the options.

Termination of Employment Due to Death or Disability

        Under the terms of our Stock Option Plan, in the event of a termination of employment due to death or disability, Ms. Dickson would be able to exercise any options received under the Stock Option Plan to the extent such options had already vested on the date of termination, for a period ending the earlier of (a) one year after the date of termination of employment or (b) the expiration date of the options.

Termination Following Change of Control

        Under the terms of our Stock Option Plan, in the event of a change in control, all options granted to all participants under the Plan, including Ms. Dickson, will vest as of the date of the change in control.

108

Director Compensation

        The following table summarizes the compensation earned by each of the non-employee directors for the fiscal year ended September 30, 2007.

DIRECTOR COMPENSATION

Name	Fees Earned or Paid in Cash ($)(1)		Stock Awards ($)	Option Awards ($)(2)		Non-Equity Incentive Plan Compensation ($)	Change in Pension Value and Nonqualified Deferred Compensation Earnings	All Other Compensation ($)	Total ($)
David Levinsohn	$	11,250		$	88,800	N/A	N/A	N/A	$	100,050
Kenneth Schwartz, CPA	$	23,250		$	88,800	N/A	N/A	N/A	$	112,050
Joel S. Kanter	$	10,500		$	88,800	N/A	N/A	N/A	$	99,300
Gene E. Burleson	$	10,875		$	88,800	N/A	N/A	N/A	$	99,675
Glenn R. Robson(3)	$	750		$	—	N/A	N/A	N/A	$	750

(1)

Reflects cash compensation earned for the fiscal year ended September 30, 2007. Non-employee directors are paid $750 for each meeting of the Board of Directors they attend and $375 for each Board committee meeting they attend. For his service as Audit Committee Chairman, Mr. Schwartz is entitled to receive an additional fee of $12,000 per year.

(2)

Represents the proportionate amount of the total fair value of option awards recognized by the Company as an expense for the fiscal year ended September 30, 2007 for financial reporting purposes. The fair value of these awards and the amounts expensed for the fiscal year ended September 30, 2007 were determined in accordance with Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payments (FAS 123R). The awards for which expense is shown in this table include the awards made in the fiscal year ended 2007 as well as awards granted in previous years for which we continued to recognize expense in the fiscal year ended September 30, 2007. The assumptions used in calculating the grant date fair value of the option awards are as follow: volatility: 53.7%; interest rate: 4.67%; expected term: 5 years. The options vest over 3 years, including the date of grant (the requisite service period) and expire after 5 years from the date of grant.

(3)

Mr. Robson was appointed as a member of our Board of Directors upon the August 8, 2007 closing of the Alta acquisition, with service commencing at the first regularly scheduled Board meeting thereafter, being September 19, 2007.

Director Compensation Policy

        Under the Company's compensation structure for the period ended September 30, 2007, independent directors received $750 for each meeting of our Board of Directors that they attend. The members of our Audit Committee and the Compensation Committee received $375 for each committee meeting they attend. Each of the Company's outside directors were awarded stock options to purchase 30,000 shares of our Common Stock from the Company's Stock Option Plan on January 18, 2007. The options had an exercise price equal to the closing price of the Company's common stock on January 18, 2007, vested fully on the date of grant and expire on January 18, 2012.

        In the fiscal year ended September 30, 2007, WNB Consulting, Inc. performed a similar analysis for director compensation as it did with executive compensation for the company. The study was commissioned due to the expansion of business lines and growth of the company, the increased amount of time spent on Board and Committee matters and the need to benchmark an appropriate and

109

competitive level of director compensation. The analysis and resulting recommendations were partially based on the review of information within the competitive marketplace without regard to company size and industry, so as to assess general director compensation trends. The assessment also utilized information more directly related to the industry and size of the company by using information from several nationally ranked surveys conducted by recognized national organizations and from proxy filings. Data from various sources were used in the consultant's analysis of director compensation, including the National Association of Corporate Directors Compensation Report—2006/2007 and SEC proxy filings (20 companies in the healthcare industry with revenue size from $200 million to $500 million and approximately 7 with revenue size from $100 million to $200 million). The National Association of Corporate Directors Compensation Report and SEC proxy filings provided the most relevant information in terms of companies with similar size within the same industry. The remaining sources utilized in the assessment provided more general trend data to consider in making final director compensation recommendations. Based on the consultant's comparative analysis, giving consideration to current director compensation trends as well as the strategic initiatives for the Company, the consultant made several recommendations to our Board of Directors which were considered in determining director compensation at the company.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

Amount and Nature of Shares of Common Stock Beneficially Owned

        The following table shows how much of our Common Stock is beneficially owned by directors, named executive officers (as set forth in the Summary Compensation Table above), directors and executive officers as a group, and beneficial owners of more than 5% of our class of Common Stock as of May 23, 2008.

Name	Number of Shares Owned(1)		Right to Acquire(2)		Total Shares Beneficially Owned(3)	Percent of Class(4)
Jacob Y. Terner, M.D.	1,085,518	(5)	438,333		1,523,851	12.5
Samuel S. Lee	943,568	(6)	—		943,568	8.0
Mike Heather	—		306,333		306,333	2.5
Catherine S. Dickson	23,109		136,499		159,608	1.3
Michael A. Terner	—		66,666		66,666	0.6
Donna Vigil	24,776		63,999		88,775	0.7
R. Stewart Kahn(7)	—		—		—	—
David A. Levinsohn	135,211	(8)	140,000		275,211	2.3
Kenneth Schwartz	52,035		140,000		192,035	1.6
Joel S. Kanter	35,000		90,000		125,000	1.1
Gene E. Burleson	25,000		120,000		145,000	1.2
Jeereddi Prasad, M.D.	395,434		—		395,434	3.4
Glenn R. Robson	—		—		—	—
All Directors and Executive Officers as a Group (14 persons)(9)	2,763,031		1,520,496		4,283,527	32.2
David & Alexa Topper Family Trust, U/D/T September 29, 1997	943,568	(10)	—		943,568	8.0
Kevin Kimberlin(11)	286,302	(12)	440,482	(13)	726,784	5.9
Richard N. Merkin, M.D.(14)	607,400	(15)	—		607,400	5.2

(1)

Except as indicated otherwise, each holder has sole voting and investment power over the shares listed in the table, except to the extent they share that power with their spouse. Except as

110

otherwise stated, the address of each person in the table is c/o 10780 Santa Monica Blvd., Suite 400, Los Angeles, Ca 90025.

(2)

These are shares which the holders have the right to acquire within 60 days through the exercise of outstanding options or warrants. As such, the holders are deemed to beneficially own these shares even though they are not outstanding.

(3)

Total of shares in column one and column two.

(4)

Calculated based on a total of 11,782,567 shares outstanding on May 23, 2008.

(5)

Beneficial ownership of 81,407 shares of Common Stock is shared by Jacob Y. Terner and Sandra W. Terner as co-trustees of the Terner Family Trust.

(6)

Does not include 4,182,200 shares of Common Stock that will become issuable if stockholders approve the convertibility of our Series B Preferred Stock at our next annual meeting of stockholders and the 836,440 shares of Series B Preferred Stock held by Mr. Lee become convertible into Common Stock. In that event, Mr. Lee would beneficially own a total of 5,018,640 shares of Common Stock, or 31.4% of the class (without taking into account the additional 4,182,200 shares of Common Stock that would then also be issuable upon exercise of Series B Preferred Stock held by the Trust, as described in Note (10) below).

(7)

Mr. Kahn's employment with the company ended on July 25, 2007, so he is was not an executive officer of the company at the end of our September 30, 2007 fiscal year (although he is still a "named executive officer" in the Summary Compensation Table for fiscal 2007). Mr. Kahn rejoined the company as Senior Vice President, Finance and Development, on April 7, 2008.

(8)

Beneficial ownership of 30,211 shares of Common Stock is held by David Levinsohn as trustee of the Levinsohn Revocable Family Trust.

(9)

In addition to the directors and executive officers named in this table, two other executive officers are included as members of this group. Such other executive officers hold a total of 43,380 shares of Common Stock and have the right to acquire a total of 82,665 shares of Common Stock through the exercise of outstanding options within the next 60 days.

(10)

Does not include 4,182,200 shares of Common Stock that will become issuable if Proposal 4 is approved by stockholders at the Annual Meeting and the 836,440 shares of Series B Preferred Stock held by the Trust become convertible into Common Stock. In that event, the Trust would beneficially own a total of 5,018,640 shares of Common Stock, or 31.4% of the class (without taking into account the additional 4,182,200 shares of Common Stock that would then also be issuable upon exercise of Series B Preferred Stock held by Mr. Lee, as described in Note (6) above).

(11)

Mr. Kimberlin's address is 535 Madison Avenue, 18th Floor, New York, New York 10022.

(12)

Includes 62,667 shares of Common Stock held by the Kimberlin Family Trust, 81,818 shares of Common Stock held by Spencer Trask Private Equity Fund I LP, 40,909 shares of Common Stock held by Spencer Trask Private Equity Fund II LP, 51,818 shares of Common Stock held by Spencer Trask Private Equity Accredited Fund III LLC, and 49,090 shares of Common Stock held by Spencer Trask Illumination Fund LLC

(13)

Includes 350,563 shares of Common Stock issuable upon exercise of warrants held by the Kimberlin Family 1998 Trust and 89,919 shares of Common Stock issuable upon exercise of warrants held by Spencer Trask & Co.

(14)

Dr. Merkin's address is 3115 Ocean Front Walk, #301, Marina Del Ray, California 90202.

(15)

Based on a Schedule 13G filed by Dr. Merkin with the Commission on May 23, 2007.

111

Amount and Nature of Shares of Series B Preferred Stock Beneficially Owned

        The following table shows the number of shares of our Series B Preferred Stock that are beneficially owned by directors, named executive officers (as set forth in the "Summary Compensation Table" above), directors and executive officers as a group, and beneficial owners of more than 5% of our outstanding Series B Preferred Stock as of May 23, 2008.

Name	Number of Shares Owned(1)	Right to Acquire(2)	Total Shares Beneficially Owned(3)	Percent of Class(4)
Jacob Y. Terner, M.D.	—	—	—	—
Samuel S. Lee	836,440	—	836,440	50.0
Mike Heather	—	—	—	—
Catherine S. Dickson	—	—	—	—
Michael A. Terner	—	—	—	—
Donna Vigil	—	—	—	—
R. Stewart Kahn(5)	—	—	—	—
David A. Levinsohn	—	—	—	—
Kenneth Schwartz	—	—	—	—
Joel S. Kanter	—	—	—	—
Gene E. Burleson	—	—	—	—
Jeereddi Prasad, M.D.	—	—	—	—
Glenn R. Robson	—	—	—	—
All Directors and Executive Officers as a Group (14 persons)	836,440	—	836,440	50.0
David & Alexa Topper Family Trust, U/D/T September 29, 1997	836,440	—	836,440	50.0

(1)

Except as indicated otherwise, each holder has sole voting and investment power over the shares listed in the table, except to the extent they share that power with their spouse. Except as otherwise stated, the address of each person in the table is c/o 10780 Santa Monica Blvd., Suite 400, Los Angeles, Ca 90025.

(2)

These are shares which the holders have the right to acquire within 60 days through the exercise of outstanding options or warrants. As such, the holders are deemed to beneficially own these shares even though they are not outstanding.

(3)

Total of shares in column one and column two.

(4)

Calculated based on a total of 1,672,880 shares outstanding on May 23, 2008.

(5)

Mr. Kahn's employment ended on July 25, 2007, so he was no longer an executive officer of the company at the end of our 2007 fiscal year (although he is still a "named executive officer" in the Summary Compensation Table for fiscal 2007 and is therefore included in this table). Mr. Kahn rejoined the Company as Senior Vice President, Finance and Development on April 7, 2008.

Item 13.    Certain Relationships and Related Transactions, and Director Independence.

        On August 8, 2007, in satisfaction of a condition to the closing of our acquisition of Alta, we entered into an employment agreement with David R. Topper, who beneficially owns more than 5% of our class of Common Stock. Under the employment agreement, Mr. Topper serves as President of our subsidiary Alta Hospitals System, LLC for a base annual salary of $610,000, bonuses of up to $250,000 annually if certain performance standards are met by Alta, and other benefits typically awarded to our officers. Under the agreement, Mr. Topper also agreed to serve for no additional compensation as a

112

director and officer of each of the Alta entities acquired by the Company. Mr. Topper's employment agreement has a term of five years. The agreement is subject to termination at any time, but if termination is without cause Mr. Topper will be entitled to receive an aggregate lump sum payment in an amount equal to the sum of (a) base salary for the balance of the term of the agreement or for a period of three years, whichever is less; (b) accrued but unused vacation, paid time off or other compensation; (c) pro-rata bonus payments; and (d) incurred but unpaid reimbursement for business expenses. The agreement also includes non-compete provisions.

Independent Directors

        A majority of the members of our Board of Directors are independent in accordance with the standards of the American Stock Exchange. The independent members of the Board are Gene Burleson, Joel Kanter, David Levinsohn, Kenneth Schwartz and Glenn Robson.

        The members of the Audit Committee and Compensation Committee of the Board are all independent under the standards established by the American Stock Exchange.

Item 14.    Principal Accounting Fees and Services.

        The following table represents aggregate fees billed to us by Ernst & Young LLP for fiscal years ended September 30, 2006 and 2007, notwithstanding when the fees were billed or when the services were rendered.

Name	2006			2007
Audit fees(1)	$	399,000		$	1,516,930
Audit related fees(2)		46,841	(3)		312,042	(4)
Tax fees		0			110,024
All other fees(2)		1,500	(5)		1,500
Total fees	$	447,341		$	1,940,496

(1)

Includes fees and expenses related to the fiscal year audit of the consolidated financial statements, quarterly reviews and stand-alone audits of subsidiaries.



(2)

These fees were all pre-approved by the Audit Committee pursuant to Rule 2-01(c)(7)(i)(C) of Regulation S-X.



(3)

Includes fees and expenses for services rendered during the fiscal year in connection with financial statement audits of acquisition candidates, preparation of our Form S-3 registration statement filing, Sarbanes-Oxley Act consultation and review of proxy filings.



(4)

Includes fees and expenses for services rendered during the fiscal year in connection with due diligence assistance and related accounting consultation, Form 8-K/A filings related to the acquisitions, and the independent investigation of the restatement of Alta's 2006 financial statements.



(5)

Annual subscription to EY On-Line, an accounting research tool.

        The Audit Committee's charter provides that the committee will pre-approve all audit services and permitted non-audit services to be performed for the company by its independent registered public accounting firm. The Audit Committee may delegate authority to pre-approve audit services, other than the audit of the company's annual financial statements, and permitted non-audit services to one or more committee members, provided that the decisions made pursuant to this delegated authority must be presented to the full committee at its next scheduled meeting. Pursuant to its charter, the committee has adopted procedures for the pre-approval of services by the Company's independent registered public accounting firm. The committee will, on an annual basis, retain the independent registered

113

public accounting firm and pre-approve the scope of all audit services and specified audit-related services. The chair of the committee or the full committee must pre-approve the firm's review of any registration statements containing or incorporating by reference the firm's audit report and the provision of any related consent and the preparation and delivery of any comfort letters. The committee has pre-approved the independent registered public accounting firm's providing advice regarding isolated accounting and tax questions up to $25,000 per calendar quarter. Any other permitted non-audit services must be pre-approved by either the chair or the full audit committee. In fiscal year 2007, 100 percent of the services provided to the Company by the independent registered public accounting firm were pre-approved in compliance with the policies described above.

114

PART IV

Item 15.    Exhibits and Financial Statement Schedules.

        The financial statements and financial statement schedule listed under Item 8 are included in this report beginning on page F-1. The following exhibits have been filed with, or are incorporated by reference, in this report:

2.1	Form of Agreement and Plan of Reorganization Among Prospect Medical Holdings, Inc., Prospect Health Administrators, Inc., ProMed Health Services Company, ProMed Health Care Administrators, the ProMed Executive Officers, and the Principal ProMed Shareholders, dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	Schedule 2.4—ProMed Company Consent Requirements, Schedule 2.6(a)—List of Holders of Record and Number of Shares Held in ProMed Company, Schedule 2.6(b)—ProMed Company Options Outstanding, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or incurred in the ordinary course of business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.11—Real Estate Leased, Schedule 2.12(b)—Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14 - Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b) —Existing/Threatened Claims cont'd, Schedule 2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule 2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 2.26—Permits, Schedule 2.30—Bank Accounts, Schedule 3.3—Holdings Consent Requirements, Schedule 7.2(b) —Principal ProMed Shareholder and ProMed Executive Officer Indemnification Limit, Exhibit A—Form of Agreement of Merger, Exhibit B—Principal ProMed Shareholders, Exhibit C—Form of Joinder Agreement, Exhibit D—Piggy-Back Registration Rights, Exhibit E—Form of Prasad Non-Compete Agreement, Exhibit F—Form of Thapar Non-Compete Agreement, Exhibit G—Form of Bahremand Non-Compete Agreement, Exhibit H—Prasad Employment Agreement, Exhibit I—Thapar Employment Agreement, Exhibit J—Bahremand Employment Agreement, Exhibit K—Investment Representation Certificate, Exhibit L—ProMed Company/ProMed Subsidiary Legal Opinion Matters, Exhibit M—Holdings Legal Opinion Matters
2.2	Form of Agreement and Plan of Reorganization Among Prospect Medical Group, Inc., Prospect Pomona Medical Group, Inc., Prospect Medical Holdings, Inc., Pomona Valley Medical Group, Inc., the ProMed Executive Officers, and the Principal ProMed Shareholders, dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	Schedule 2.4—ProMed Pomona Consent Requirements, Schedule 2.6—List of Holders of Record and Number of Shares Held in ProMed Pomona, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or incurred in the ordinary course of business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.12(b)—Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14—Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b)—Existing/Threatened Claims Not Covered By Insurance, Schedule—2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule—2.17(c) —Employees contd., Schedule—2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 2.26—Permits,

115

	Schedule 2.28—Fraud and Abuse, Schedule 2.32—Bank Accounts, Schedule 3.3—Group Consent Requirements, Schedule 5.2—Amendment to Primary Care Provider Agreement of ProMed Pomona and, if applicable, ProMed Upland, Schedule 5.15—Physician Retention Bonus, Schedule 7.2(b)—Principal ProMed Shareholder and ProMed Executive Officer Indemnification Limit, Exhibit A—Form of Agreement of Merger, Exhibit B—Principal ProMed Shareholders, Exhibit C—Form of Joinder Agreement, Exhibit D—Piggy-Back Registration Rights, Exhibit E—Form of Prasad Non-Compete Agreement, Exhibit F—Form of Thapar Non-Compete Agreement, Exhibit G—Form of Bahremand Non-Compete Agreement, Exhibit H—Prasad Employment Agreement, Exhibit I—Thapar Employment Agreement, Exhibit J—Bahremand Employment Agreement, Exhibit K—Investment Representation Certificate, Exhibit L—ProMed Pomona Legal Opinion Matters, Exhibit M—Group/Group Subsidiary/Holdings Legal Opinion Matters
2.3	Form of Stock Purchase Agreement Among Prospect Medical Group, Inc., Prospect Medical Holdings, Inc., Upland Medical Group, a Professional Medical Corporation, and Jeereddi Prasad, M.D., dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	ProMed Upland Consent Requirements, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or Incurred in the Ordinary Course of Business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.12(b) —Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14—Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b)—Existing/Threatened Claims contd., Schedule 2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule 2.17(c)—Employees contd., Schedule 2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 22.7—Permits, Schedule 2.28—Fraud and Abuse, Schedule 2.32—Bank Accounts, Schedule 3.3—Group Consent Requirements, Schedule 5.13(a)—Physician Retention Bonus, Schedule 5.13(b)—Amendment to Primary Care Provider Agreement of ProMed Upland and if applicable, ProMed Pomona., Exhibit A—Piggy-Back Registration Rights, Exhibit C [sic]—Form of Prasad Non-Compete Agreement, Exhibit C—Form of Thapar Non-Compete Agreement, Exhibit E—Form of Bahremand Non-Compete Agreement, Exhibit F—Prasad Employment Agreement, Exhibit G—Thapar Employment Agreement,
	Exhibit H—Bahremand Employment Agreement, Exhibit I—Investment Representation Certificate, Exhibit J—ProMed Upland Legal Opinion Matters, Exhibit K—Group/Holdings Legal Opinion Matters
2.4	Form of Agreement and Plan of Reorganization by and among Prospect Medical Holdings, Inc., Prospect Hospitals System, LLC, Alta HealthCare System, Inc. and the Shareholders of Alta HealthCare System, Inc., dated as of July 25, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules to the Stock Purchase Agreement will be provided supplementally to the Commission upon request
	Schedule 2.3(e), Merger Consideration Allocation, Schedule 3.1, Shareholders and Number of Company Shares, Schedule 4.1, Capitalization of the Company, Schedule 4.2, Capitalization of the Acquired Subsidiaries, Schedule 4.4, Permits, Authorizations of the Acquired Entities and Shareholders, Schedule 4.5(a), Historical Financial Statements, Schedule 4.6, Undisclosed Liabilities, Schedule 4.7(b), Absence of Changes, Schedule 4.7(c), Absence of Certain Additional Changes, Schedule 4.8(a), Material Contracts, Schedule 4.10(a), Real Property, Schedule 4.11, Liens or Encumbrances on Personal Property, Schedule 4.12(a), Employee,

116

	Labor Matters, Company Plans, Schedule 4.12(b), Company Plans, Schedule 4.12(c), Contributions to Company Plans, Schedule 4.12(d), Continuation of Coverage, Schedule 4.12(e), Employees with Employment Contracts, Schedule 4.12 (f), Unfunded Liabilities, Schedule 4.12(h), List of All Employees, Schedule 4.13(b), Provider Numbers, Schedule 4.13(i), Audited Cost Reports, Schedule 4.13(s), JCAHO Accreditation, Schedule 4.16, Intellectual Property, Schedule 4.17(e), Permits and licenses, Schedule 4.17(j), Compliance with Laws, Schedule 4.18(g), Environmental Reports, Schedule 4.19, Legal Proceedings, Schedule 4.20, Insurance Policies, Schedule 7.5, Employees With Employment Contracts that Continue Post-Closing, Exhibit A, Shareholders/Shareholders, Exhibit B, Business, Exhibit C, Certificate of Merger, Exhibit D, Certificate of Designation, Exhibit E, Knowledge of Company Individuals, Exhibit F, Knowledge of Holdings Individuals, Exhibit G, Merger Consideration Certificate, Exhibit H, Registration Rights Agreement, Exhibit I, Managers of Surviving Entity, Exhibit J, Officers of Surviving Entity, Exhibit K, Lee Employment Agreement, Exhibit L, Topper Employment Agreement , Exhibit M-1, Form of Voting Agreement (Non-Management), Exhibit M-2, Form of Voting Agreement (Management), Exhibit N-1, Form of Limited Power of Attorney (Norwalk Community Hospital), Exhibit N-2, Form of Limited Power of Attorney (Los Angeles Community Hospital), Exhibit N-3, Form of Limited Power of Attorney (Van Nuys Community Hospital), Exhibit N-4, Form of Limited Power of Attorney (Hollywood Community Hospital), Exhibit O, Extraordinary Collections, Company Disclosure Schedules, Holdings Disclosure Schedules
3.1	Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.4	Certificate of Designation of Series A Convertible Preferred Stock of Prospect Medical Holdings, Inc.(1)
3.5	Certificate of Elimination of Series A Convertible Preferred Stock of Prospect Medical Holdings, Inc.(10)
3.6	Certificate of Designation of Series B Preferred Stock of Prospect Medical Holdings, Inc.(11)
3.7	Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(1)
3.8	First Amendment to Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(1)
3.9	Second Amendment to Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(11)
4.1	Specimen Common Stock Certificate(1)
10.1	Warrant to Acquire Common Stock between Prospect Medical Holdings, Inc. and Spencer Trask Venture Investment Partners, LLC(1)
10.2	Warrant Agreement for Series A Preferred Stock dated as of January 15, 2004 between Prospect Medical Holdings, Inc. and Spencer Trask Ventures, Inc.(1)
10.3	Form of Registration Rights Agreement between Prospect Medical Holdings, Inc. and each Investor of Series A Convertible Preferred Stock(1)
10.4	Form of Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of June 4, 1996, between Prospect Medical Systems, Inc. and Prospect Medical Group, Inc.(1)

117

10.5	Form of Amendment to Management Services Agreement, made as of October 1, 1998, between Prospect Medical Systems, Inc. and Prospect Medical Group, Inc.(1)
10.6	Management Agreement dated as of January 1, 2003 between Pinnacle Health Resources Inc. and StarCare Medical Group, Inc. dba Gateway Medical Group, Inc.(1)
10.7	Management Agreement dated as of January 1, 2003 between Pinnacle Health Resources Inc. and APAC Medical Group, Inc. dba Gateway Physicians Medical Associates, Inc.(1)
10.8	Form of Management Services Agreement, made as of August 1, 1999, between Prospect Medical Systems, Inc. and Nuestra Familia Medical Group(1)
10.9	Management Services Agreement, made as of July 1, 1999, between Prospect Medical Systems, Inc. and AMVI/Prospect Medical Group(1)
10.10	Employment Agreement, dated as of August 1, 1999 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(1)
10.11	Amendment to Employment Agreement, dated as of August 1, 2002 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(1)
10.12	Form of Management Services Agreement dated as of January 1, 2001 between Prospect Medical Systems, Inc. and Prospect Health Source Medical Group, Inc.(1)
10.13	Form of Amendment to Management Services Agreement dated as of November 1, 2002 between Prospect Medical Systems, Inc. and Prospect Health Source Medical Group, Inc.(1)
10.14	Form of Management Services Agreement dated as of October 1, 2003, by and between Prospect Medical Systems, Inc. and Prospect Professional Care Medical Group, Inc.(1)
10.15	Form of Management Services Agreement dated as of March 1, 2004 by and between Prospect Medical Systems, Inc. and Prospect NWOC Medical Group, Inc.(1)
10.16	Form of Second Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of September 25, 1997, between Sierra Medical Management, Inc. and Sierra Primary Care Medical Group,  Inc.(1)
10.17	Form of Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of October 31, 1997, by and between Sierra Medical Management, Inc. and Pegasus Medical Group,  Inc.(1)
10.18	Amendment to Management Services Agreement made as of October 1, 1998, by and between Sierra Medical Management, Inc. and Pegasus Medical Group, Inc.(1)
10.19	Employment Agreement made as of April 8, 2004, but effective on April 19, 2004, between Prospect Medical Holdings, Inc. and Mike Heather(1)
10.20	Form of Partnership Agreement dated July 1, 1999 between AMVI/MC Health Network, Inc. and Santa Ana/Tustin Physicians Group(1)
10.21	Prospect Medical Holdings, Inc. 1998 Stock Option Plan(1)
10.22	First Amendment to Prospect Medical Holdings, Inc. 1998 Stock Option Plan(1)
10.23	Form of Cash Management Agreement among Prospect Medical Systems, Inc., Prospect Medical Holdings, Inc., and Prospect Medical Group, Inc., effective as of June 6, 1996(4)
10.24	Second Amendment to Prospect Medical Holdings, Inc. 1998 Stock Option Plan(5)
10.25	Management Services Agreement effective as of May 19, 2003, by and between Sierra Medical Management, Inc. and Antelope Valley Medical Associates, Inc.(5)

118

10.26	Amendment to Management Agreement, effective as of February 1, 2004 to that certain Management Agreement made and entered into as of January 1, 2003, entered into by and between Pinnacle Health Resources and StarCare Medical Group,  Inc. dba Gateway Medical Group, Inc.(5)
10.27	Amendment to Management Agreement, effective as of February 1, 2004 to that certain Management Agreement made and entered into as of January 1, 2003, entered into by and between Pinnacle Health Resources and APAC Medical Group, Inc. dba Gateway Physicians Medical Associates, Inc.(5)
10.28	Form of stock option agreement used for incentive stock options granted under the registrant's 1998 Stock Option Plan, as amended(7)
10.29	Form of stock option agreement used for non-qualified stock options granted under the registrant's 1998 Stock Option Plan, as amended(7)
10.30	Second Amendment to Employment Agreement, dated as of August 1, 2005 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(9)
10.31	Form of First Lien Credit Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Cratos Capital Management, LLC, as Syndacation Agent, certain other Lenders, and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager(14)
10.32	Form of Second Lien Credit Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, Bank of America, N.A., as Administrative Agent, certain other Lenders, and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager(14)
10.33	Form of First Lien Collateral Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Grantors, in favor of Bank of America, N.A., as Administrative Agent(14)
10.34	Form of Second Lien Collateral Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Grantors, in favor of Bank of America, N.A., as Administrative Agent(14)
10.35	Form of Continuing Guaranty (First Lien) dated as of August 8, 2007 by Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Guarantor, in favor of Bank of America, N.A., as Administrative Agent(14)
10.36	Form of Continuing Guaranty (Second Lien) dated as of August 8, 2007 by Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Guarantor, in favor of Bank of America, N.A., as Administrative Agent(14)
10.37	Form of First Lien Pledge Agreement dated as of August 8, 2007 by Jacob Y. Terner, M.D. in favor of Bank of America, N.A., as Administrative Agent(14)
10.38	Form of Second Lien Pledge Agreement dated as of August 8, 2007 by Jacob Y. Terner, M.D. in favor of Bank of America, N.A., as Administrative Agent(14)
10.39	Form of First Lien Collateral Assignment of ProMed Acquisition Documents and Alta Acquisition Documents dated as of August 8, 2007 by Alta Hospitals Systems LLC, Prospect Hospitals System LLC, Alta Healthcare System, Inc., Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and Bank of America, N.A., as Administrative Agent(14)

119

10.40	Form of Second Lien Collateral Assignment of ProMed Acquisition Documents and Alta Acquisition Documents dated as of August 8, 2007 by Alta Hospitals Systems LLC, Prospect Hospitals System LLC, Alta Healthcare System, Inc., Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and Bank of America, N.A., as Administrative Agent(14)
10.41	Form of Intercreditor Agreement dated as of August 8, 2007 by Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, certain of their Subsidiaries as Guarantors, and Bank of America, N.A., as First Lien Collateral Agent, Second Lien Collateral Agent, and Control Agent(14)
10.42	Form of Third Amended and Restated Assignable Option Agreement dated as of August 8, 2007 by Prospect Medical Systems, Inc., Prospect Medical Group, Inc. and Jacob Y. Terner, M.D.(14)
10.43	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Los Angeles Community Hospital(14)
10.44	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Hollywood Community Hospital(14)
10.45	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Norwalk Angeles Community Hospital(14)
10.46	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Van Nuys Community Hospital(14)
10.47	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Los Angeles Community Hospital(14)
10.48	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Hollywood Community Hospital(14)
10.49	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Norwalk Angeles Community Hospital(14)
10.50	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A., as Beneficiary, for the property constituting Van Nuys Community Hospital(14)
10.51	Form of Executive Employment Agreement dated August 8, 2007 between Alta Hospitals System, LLC, and Samuel S. Lee(12)
10.52	Form of Amendment to Executive Employment Agreement effective March 19, 2008 between Prospect Medical Holdings, Inc., Alta Hospitals System, LLC and Samuel S. Lee(13)
10.53	Form of Management Services Agreement between Pomona Valley Medical Group, Inc. and ProMed Health Care Administors effective October 1, 1998(14)
10.54	Form of Management Services Agreement between Upland Medical Group, A Professional Medical Corporation and ProMed Health Care Administors effective October 1, 2002(14)

120

10.55	Form of Hospital Inpatient Services Agreement between Alta Los Angeles Hospitals, Inc. and the Department of Health Services, as amended (Certain portions of this Exhibit have been omitted subject to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and Rule 406 under the Securities Act of 1933)(14)
10.56	Form of Hospital Inpatient Services Agreement between Alta Hollywood Hospitals, Inc. and the Department of Health Services, as amended (Certain portions of this Exhibit have been omitted subject to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and Rule 406 under the Securities Act of 1933)(14)
10.57	Form of Registration Rights Agreement between Prospect Medical Holdings, Inc. and each holder of Series B Convertible Preferred Stock(12)
10.58	Form of Non-Management Voting Agreement between Samuel S. Lee and certain non-management shareholders of Prospect Medical Holdings, Inc. (12)
10.59	Form of Management Voting Agreement between Samuel S. Lee and certain management shareholders of Prospect Medical Holdings, Inc.(12)
14.1	Code of Ethics(8)
21.1	List of Subsidiaries of Prospect Medical Holdings, Inc.(14)
23.1	Consent of Independent Registered Public Accounting Firm(14)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended(14)
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended(14)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(14)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(14)

(1)

Previously filed as an exhibit to our Form 10 registration statement (the "Form 10") on May 27, 2004, and incorporated herein by reference.

(2)

Previously filed as an exhibit to our registration statement on Form S-1 (File No. 333-63801) on September 18, 1998, and incorporated herein by reference.

(3)

Previously filed as an exhibit to Amendment No. 1 to the Form 10 on May 27, 2004, and incorporated herein by reference.

(4)

Previously filed as an exhibit to Amendment No. 2 to the Form 10 on August 27, 2004, and incorporated herein by reference.

(5)

Previously filed as an exhibit to Amendment No. 3 to the Form 10 on October 21, 2004, and incorporated herein by reference.

(6)

Previously filed as an exhibit to our registration statement on Form S-1 (File No. 333-124915) on July 21, 2005, and incorporated herein by reference.

(7)

Previously filed as an exhibit to our Form 8-K current report filed on September 20, 2005, and incorporated herein by reference.

121

(8)

Previously filed as an exhibit to our annual report on Form 10-K filed on December 28, 2006, and incorporated herein by reference.

(9)

Previously filed as an exhibit to our quarterly report on Form 10-Q filed on February 14, 2006, and incorporated herein by reference.

(10)

Previously filed as an exhibit to our quarterly report on Form 10-Q filed on August 20, 2007, and incorporated herein by reference.

(11)

Previously filed as an exhibit to our Form 8-K current report on August 10, 2006, and incorporated herein by reference.

(12)

Previously filed as an exhibit to Schedule 13D filed on August 20, 2007, and incorporated herein by reference.

(13)

Previously filed as an exhibit to Schedule 13D/A filed on April 22, 2008, and incorporated herein by reference.

(14)

Filed herewith.

122

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) 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.

	PROSPECT MEDICAL HOLDINGS, INC. (Registrant)
Date: May 30, 2008	By:	/s/  SAMUEL S. LEE Samuel S. Lee Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  SAMUEL S. LEE Samuel S. Lee	Chairman, Chief Executive Officer and Director (Principal Executive Officer)	May 30, 2008
/s/  MIKE HEATHER Mike Heather	Chief Financial Officer (Principal Financial and Accounting Officer)	May 30, 2008
/s/  CATHERINE DICKSON Catherine Dickson	President, Chief Operating Officer and Director	May 30, 2008
/s/  DAVID A. LEVINSOHN David A. Levinsohn	Director	May 30, 2008
/s/  JOEL S. KANTER Joel S. Kanter	Director	May 30, 2008
/s/  GENE E. BURLESON Gene E. Burleson	Director	May 30, 2008

123

/s/  JEEREDDI PRASAD, M.D. Jeereddi Prasad, M.D.	Director	May 30, 2008
/s/  GLENN R. ROBSON Glenn R. Robson	Director	May 30, 2008
/s/  KENNETH SCHWARTZ Kenneth Schwartz	Director	May 30, 2008

124

INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE

	Page
Report of Independent Registered Public Accounting Firm	F-2
Consolidated Balance Sheets as of September 30, 2006 and 2007	F-3
Consolidated Statements of Operations for the Years Ended September 30, 2005, 2006 and 2007	F-4
Consolidated Statements of Shareholders' Equity for the Years Ended September 30, 2005, 2006, and 2007	F-5
Consolidated Statements of Cash Flows for the Years Ended September 30, 2005, 2006, and 2007	F-6
Notes to Consolidated Financial Statements	F-7
Schedule II—Valuation and Qualifying Accounts	F-51

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors
Prospect Medical Holdings, Inc.

        We have audited the accompanying consolidated balance sheets of Prospect Medical Holdings, Inc. (the Company), as of September 30, 2006 and 2007, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended September 30, 2007. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Prospect Medical Holdings, Inc. at September 30, 2006 and 2007, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 2007, in conformity with U.S. generally accepted accounting principles.

        As discussed in Note 1 to the consolidated financial statements, Prospect Medical Holdings, Inc. changed its method of accounting for share-based payments in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004) on October 1, 2005.

	/s/  ERNST & YOUNG LLP
Los Angeles, California May 28, 2008

F-2

PROSPECT MEDICAL HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

		September 30
		2006			2007
Assets
Current assets:
	Cash and cash equivalents	$	16,623,407		$	21,599,270
	Investments, primarily restricted certificates of deposit		836,244			636,592
	Patient accounts receivable, net of allowance for doubtful accounts of $4,447,000 at September 30, 2007		—			15,840,292
	Government program receivables		—			4,273,944
	Risk pool receivables		1,418,973			179,184
	Other receivables, net of allowances of $509,000 and $632,000 at September 30, 2006 and 2007		1,916,883			2,558,566
	Notes receivable, current portion		176,265			59,072
	Refundable income taxes		2,493,035			5,041,272
	Deferred income taxes, net		657,678			3,394,872
	Prepaid expenses and other current assets		645,466			3,816,069
Total current assets			24,767,951			57,399,133
Property, improvements and equipment:
	Land and land improvements		40,620			18,492,620
	Buildings		—			22,233,000
	Leasehold improvements		984,934			2,013,128
	Equipment		3,478,435			9,651,475
	Furniture and fixtures		782,087			998,482
			5,286,076			53,388,705
	Less accumulated depreciation and amortization		(3,999,863	)		(5,094,318	)
Property, improvements and equipment, net			1,286,213			48,294,387
Notes receivable, less current portion			413,577			490,260
Deposits and other assets			613,087			914,121
Deferred financing costs			101,475			7,430,636
Goodwill			37,838,169			129,121,934
Other intangible assets, net			1,637,000			51,989,017
Total assets		$	66,657,472		$	295,639,488
Liabilities and shareholders' equity
Current liabilities:
	Accrued medical claims and other health care costs payable	$	11,400,000		$	22,638,960
	Accounts payable and other accrued liabilities		6,861,364			14,972,096
	Third-party settlements		—			1,034,170
	Accrued salaries, wages and benefits		1,330,485			6,897,913
	Current portion of capital leases		—			355,966
	Current portion of long-term debt		5,300,000			8,000,000
	Other current liabilities		—			1,251,394
Total current liabilities			24,891,849			55,150,499
Deferred income taxes			1,145,573			28,669,304
Malpractice reserve			—			645,000
Long-term debt, less current portion			6,700,000			138,750,000
Capital leases, net of current portion			—			644,058
Interest rate swap liability			—			1,934,016
Other long-term liabilities			34,712			231,368
Total liabilities			32,772,134			226,024,245
Minority interest			81,881			79,486
Shareholders' equity:
	Preferred stock, $.01 par value, 5,000,000 shares authorized, 1,672,880 issued and outstanding at September 30, 2007		—			16,728
	Common stock, $.01 par value, 40,000,000 shares authorized, 7,186,977 and 11,402,567 shares issued and outstanding at September 30, 2006 and 2007		71,869			114,025
	Additional paid-in capital		20,345,805			89,751,225
	Accumulated other comprehensive loss		—			(255,253	)
	Retained earnings (accumulated deficit)		13,385,783			(20,090,968	)
Total shareholders' equity			33,803,457			69,535,757
Total liabilities and shareholders' equity		$	66,657,472		$	295,639,488

See accompanying notes.

F-3

PROSPECT MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

			Year ended September 30
			2005			2006			2007
Revenues:
	Managed care revenues		$	133,518,379		$	135,796,277		$	165,070,079
	Net patient revenues			—			—			15,583,040
Total revenues				133,518,379			135,796,277			180,653,119
Operating expenses:
	Managed care cost of revenues			96,371,197			97,184,201			131,044,814
	Hospital operating expenses			—			—			10,699,194
	General and administrative			27,228,736			30,205,352			37,777,192
	Depreciation and amortization			948,017			1,513,170			3,106,331
	Impairment of goodwill and intangibles			—			—			38,776,421
Total operating expenses				124,547,950			128,902,723			221,403,952
Operating income from unconsolidated joint venture				87,516			1,400,492			2,663,544
	Operating income (loss)			9,057,945			8,294,046			(38,087,289	)
Other income (expense):
	Investment income			400,356			913,068			1,096,556
	Interest expense and amortization of deferred financing costs			(958,634	)		(1,107,081	)		(5,256,858	)
	Loss on interest rate swaps			—			—			(868,480	)
	Total expense, net			(558,278	)		(194,013	)		(5,028,782	)
Equity in losses, and write down, of unconsolidated investment				(1,000,000	)		—			—
	Income (loss) before income taxes			7,499,667			8,100,033			(43,116,071	)
	Provision (benefit) for income taxes			3,415,178			3,193,522			(9,649,359	)
	Net income (loss) before minority interest			4,084,489			4,906,511			(33,466,712	)
	Minority interest			(11,930	)		(16,476	)		(10,039	)
	Net income (loss)		$	4,072,559		$	4,890,035		$	(33,476,751	)
	Net earnings (loss) per common share:
		Basic	$	0.83		$	0.71		$	(3.94	)
		Diluted	$	0.48		$	0.60		$	(3.94	)
Weighted average shares outstanding:
		Basic		4,915,537			6,913,405			8,488,986
		Diluted		8,470,411			8,106,652			8,488,986

See accompanying notes.

F-4

PROSPECT MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

		Class A Common Stock Number of Shares		Common Stock			Preferred Shares		Preferred Stock			Additional Paid-in Capital			Deferred Compensation			Accumulated Other Comprehensive Income (Loss)			Retained Earnings (Accumulated Deficit)			Total, Net
Balance at September 30, 2004		4,344,525		$	43,445		2,265,237		$	22,652		$	18,630,525		$	(232,871	)	$	—		$	4,423,189		$	22,886,940
Issuance of common stock		30,622			306		—			—			183,932			—			—			—			184,238
Conversion of preferred shares to common stock		2,265,215			22,652		(2,265,215	)		(22,652	)		—			—			—			—			—
	Refund of fractional shares	—			—		(22	)		—			(50	)		—			—			—			(50	)
	Additional costs related to private placement	—			—		—			—			(440,920	)		—			—			—			(440,920	)
	Change in deferred compensation	—			—		—			—			—			232,871			—			—			232,871
Net income		—			—		—			—			—			—			—			4,072,559			4,072,559
Balance at September 30, 2005		6,640,362			66,403		—			—			18,373,487			—			—			8,495,748			26,935,638
Options exercised		546,615			5,466		—			—			1,334,372			—			—			—			1,339,838
Tax benefit of options exercised		—			—		—			—			605,868			—			—			—			605,868
Stock-based compensation		—			—		—			—			32,078			—			—			—			32,078
Net income		—			—		—			—			—			—			—			4,890,035			4,890,035
Balance at September 30, 2006		7,186,977			71,869		—			—			20,345,805			—			—			13,385,783			33,803,457
Options exercised		565,973			5,660		—			—			1,410,978			—			—			—			1,416,638
Stock-based compensation		—			—		—			—			509,235			—			—			—			509,235
Stock issued for ProMed acquisition		1,543,237			15,432		—			—			6,944,568			—			—			—			6,960,000
Stock issued for Alta acquisition		1,887,136			18,871		1,672,880			16,728			60,994,685			—			—			—			61,030,284
Refund of fractional shares		(131	)		(1	)	—			—			(590	)		—			—			—			(591	)
Dividends payable on preferred stock		—			—		—			—			(1,122,319	)		—			—			—			(1,122,319	)
Tax benefit of options exercised		—			—		—			—			(115,105	)		—			—			—			(115,105	)
Warrants exercised		219,375			2,194		—			—			783,968			—			—			—			786,162
Comprehensive loss:
	Net loss	—			—		—			—			—			—			—			(33,476,751	)		(33,476,751	)
	Unrealized losses on cash flow hedges (net of income tax effect of $168,997)	—			—		—			—			—			—			(255,253	)		—			(255,253	)
Subtotal—comprehensive loss		—			—		—			—			—			—			(255,253	)		(33,476,751	)		(33,732,004	)
Balance at September 30, 2007		11,402,567		$	114,025		1,672,880		$	16,728		$	89,751,225		$	—		$	(255,253	)	$	(20,090,968	)	$	69,535,757

See accompanying notes.

F-5

PROSPECT MEDICAL HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Year ended September 30,
			2005			2006			2007
Operating activities:
Net income (loss)			$	4,072,559		$	4,890,035		$	(33,476,751	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization			948,017			1,513,170			3,106,331
	Amortization of deferred financing costs			—			—			1,140,568
	Equity in losses, and write down, of unconsolidated investment			1,000,000			—			—
	Provision for bad debts			141,008			106,036			1,018,745
	Loss on disposal of assets			190,241			1,692			—
	Deferred income taxes, net			(49,390	)		1,346,336			(8,203,985	)
	Loss on interest rate swaps			—			—			868,480
	Change in deferred compensation			232,871			—			—
	Stock based compensation			—			32,078			509,235
	Excess benefits from options exercised			—			(605,868	)		115,105
	Impairment of goodwill and identifiable intangibles			—			—			38,776,421
	Changes in assets and liabilities, net of effect of assets acquired and liabilities assumed in purchase transactions:
		Risk pool receivables		30,713			(1,286,821	)		1,835,332
		Other receivables		(957,130	)		(77,886	)		491,464
		Prepaid expenses and other current assets		(555,373	)		7,710			199,098
		Refundable income taxes		—			(3,141,804	)		(935,293	)
		Deposits and other assets		35,251			(32,012	)		(374,858	)
		Accrued medical claims and other health care costs payable		(1,791,294	)		(998,723	)		4,701,435
		Accounts payable and other accrued liabilities		1,776,161			(966,931	)		(3,441,907	)
Net cash provided by operating activities				5,073,634			787,012			6,329,420
Investing activities:
Purchase of property, improvements and equipment				(282,945	)		(640,915	)		(922,658	)
Proceeds from note receivable				273,469			35,298			40,510
Cash paid for acquisitions, net of cash received				—			(6,560,892	)		(128,074,804	)
(Increase) decrease in restricted certificates of deposit				(587,313	)		293,273			229,652
Capitalized expenses related to acquisitions				238,573			(35,188	)		(1,495,032	)
Investment in unconsolidated entity				(1,000,000	)		—			—
Other investing activities				1,753			16,476			(2,395	)
Net cash used in investing activities				(1,356,463	)		(6,891,948	)		(130,224,727	)
Financing activities:
Borrowings from term loans				—			4,000,000			193,000,000
Cash paid for deferred financing costs				—			—			(7,809,728	)
Borrowings on line of credit				1,000,000			4,500,000			3,000,000
Repayments on line of credit				(6,000,000	)		(2,000,000	)		(2,500,000	)
Repayments of long-term debt and capital leases				(1,841,888	)		(2,666,667	)		(9,656,207	)
Repayment of ProMed acquisition debt				—			—			(48,000,000	)
Repayment of Alta acquisition debt				—			—			(1,250,000	)
Proceeds (expenses) from issuance of common and preferred stock				(256,733	)		1,339,838			2,202,801
Excess benefits from options exercised				—			605,868			(115,105	)
Payment of fractional shares				—			—			(591	)
Net cash (used in) provided by financing activities				(7,098,621	)		5,779,039			128,871,170
Net (decrease) increase in cash and cash equivalents				(3,381,450	)		(325,897	)		4,975,863
Cash and cash equivalents at beginning of year				20,330,754			16,949,304			16,623,407
Cash and cash equivalents at end of year			$	16,949,304		$	16,623,407		$	21,599,270
Supplemental disclosure of cash flow information
Details of businesses acquired:
	Fair value of assets acquired		$	—		$	9,329,556		$	263,287,599
	Liabilities assumed or created			—			(1,329,556	)		(129,503,025	)
	Less cash acquired			—			(1,439,108	)		(5,707,517	)
	Net cash paid for acquisition(s)		$	—		$	6,560,892		$	128,077,057
Dividend on preferred shares			$	—		$	—		$	1,122,319
Interest paid			$	957,720		$	1,121,886		$	4,175,888
Income taxes paid			$	3,586,000		$	4,297,000		$	1,011,148

See accompanying notes.

F-6

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Business

        Prospect Medical Holdings, Inc. (Prospect, or the Company) is a Delaware corporation. Prior to the August 8, 2007 acquisition of Alta Healthcare System, Inc. (Alta), the Company was primarily engaged in providing management services to affiliated physician organizations that operate as independent physician associations ("IPAs") or medical clinics. With the acquisition of Alta, the Company now owns and operates four community-based hospitals in Southern California and its operations are now organized into two primary reportable segments, IPA management and Hospital services, as discussed below.

Liquidity and Recent Operating Results

        As discussed in Note 4, the Company recorded a 2007 non-cash impairment charge of approximately $38.8 million to write off goodwill and intangibles within the IPA Management segment, which resulted in losses in the Company's core operations during 2007, although operating activities have generated positive cash flows from 2005 to 2007. The improvement of the Company's core operations and the successful integration of its newly acquired subsidiaries has required and will continue to require significant investment and management attention. The Company is undertaking a review of its operations to improve profitability and efficiency and to reduce costs, which may include the divestiture of non-strategic assets.

        The Company is subject to certain financial and administrative covenants, cross default provisions and other conditions required by the loan agreements with the lenders, including a maximum senior debt/EBITDA ratio and a minimum fixed-charge coverage ratio, each computed quarterly based on consolidated trailing twelve-month operating results, including the pre-acquisition operating results of any acquired entities. The administrative covenants and other restrictions with which the Company must comply include, among others, restrictions on additional indebtedness, incurrence of liens, engaging in business other than the Company's primary business, paying certain dividends, acquisitions and asset sales. The credit facility provides that an event of default will occur if there is a change in control.

        While the Company has met all debt service requirements timely, it did not comply with certain financial and administrative convents as of September 30, 2007 and for periods thereafter as discussed in Note 9. The Company did not make timely filings of its Form 10-K for the year ended September 30, 2007 and its Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008. Effective January 16, 2008, trading of the Company's shares was suspended.

        On February 13, 2008, April 10, 2008 and May 14, 2008, the Company and its lenders entered into forbearance agreements, whereby the lenders agreed not to exercise their rights under the credit facility through May 15, 2008, subject to satisfaction of specified conditions. On May 15, 2008, the Company and its lenders entered into an agreement to waive past covenant violations and to amend the financial covenant provisions prospectively. Effective May 15, 2008, the maximum senior debt/EBITDA ratios were increased to levels ranging from 3.90 to 7.15 for monthly reporting periods from April 30, 2008 through June 30, 2009 and were increased to levels ranging from 3.30 to 3.75 beginning with the September 30, 2009 quarterly reporting period through maturity of the term loan. The minimum fixed charge coverage ratios were reduced to levels ranging from 0.475 to 0.925 for monthly reporting periods from April 30, 2008 through June 30, 2009 and were reduced to levels ranging from 0.85 to 0.90 beginning with the September 30, 2009 quarterly reporting period through maturity of the term loan. The Company is also required to meet a minimum EBITDA for future monthly reporting periods

F-7

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business (Continued)

from April 30, 2008 through June 30, 2009 and the remaining quarterly periods through maturity of the term loan. In addition, the Company is required to, among other conditions, file its Form 10-K for the year ended September 30, 2007 and Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008 by June 16, 2008. Failure to perform any obligation under the waiver and the amended credit facility agreement constitutes an additional event of default.

        As discussed in Note 9, for the period January 28, 2008 through April 10, 2008, interest was assessed at default interest rates. Under the April 2008 forbearance agreement, the applicable margin on the first and second lien term loans and the revolver were permanently increased effective April 10, 2008. During the forbearance periods, the Company had limited or no access to the line of credit. The Company also agreed to pay certain fees and expenses to the lenders.

        Management has implemented a turnaround plan to improve the operating results of the IPA Management segment, including measures to retain and increase enrollment, increase health plan reimbursements and reduce medical costs. The Company also plans to divest non-strategic assets to reduce debt service. Management believes that it will be able to comply with all covenants, as modified, at least through September 30, 2008 and has included scheduled payments due after twelve months from the balance sheet date as non-current liabilities at September 30, 2007.

        However, there can be no assurance that this turnaround plan will have a successful outcome and that the Company will be able to meet all of the financial covenants and other conditions required by the loan agreements for future periods. The lenders may not provide forbearance or grant waivers of future covenant violations and could require full and immediate repayment of the loans, which would negatively impact the Company's liquidity, ability to operate and ability to continue as a going concern.

IPA Management

        The IPA Management segment is a health care management services organization that develops integrated delivery systems, and provides medical management systems and services to affiliated medical organizations. The affiliated medical organizations employ and/or contract with physicians and professional medical corporations, and contract with managed care payers. Prospect currently manages the provision of prepaid health care services for its affiliated medical organizations in Southern California. The network consists of the following medical organizations as of September 30, 2007 (each, an "Affiliate"):

Prospect Medical Group, Inc. (PMG)
Sierra Primary Care Medical Group, a Medical Corporation (SPCMG)
Santa Ana-Tustin Physicians Group, Inc. (SATPG)
Pegasus Medical Group, Inc. (PEG)
Antelope Valley Medical Associates, Inc. (AVM)
Prospect Health Source Medical Group, Inc. (PHS)
Prospect Professional Care Medical Group, Inc. (PPM)
Prospect NWOC, Inc. (PNW)
Starcare Medical Group, Inc. (PSC)
APAC Medical Group, Inc. (APA)
Nuestra Famila Medical Group, Inc. (Nuestra)
AMVI/Prospect Health Joint Venture (AMVI/Prospect)
Genesis HealthCare of Southern California (Genesis)

F-8

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business (Continued)

Pomona Valley Medical Group (PVMG)*
Upland Medical Group (UMG)*

*

PVMG and UMG are collectively referred to as ProMed

        These Affiliates are managed by three medical management company subsidiaries that are wholly-owned by Prospect, including:

Prospect Medical Systems (PMS)
Sierra Medical Management, Inc. (SMM)
ProMed Health Care Administrators, Inc. (PHCA)

        All of the Affiliates are wholly-owned by PMG, with the exception of Nuestra, which is 55% owned by PMG and AMVI/Prospect which is a 50/50 Joint Venture between AMVI and PMG. PMG is owned by a nominee physician shareholder who is also an employee, member of management and a shareholder of Prospect. The results of all of these entities, with the exception of AMVI/Prospect, are consolidated in the accompanying financial statements.

        The AMVI Joint Venture was formed for the sole purpose of combining enrollment in order to meet minimum enrollment levels required for participation in the CalOPTIMA Medicaid (Medi-Cal in California) program in Orange County, California. The joint venture ownership is set at 50/50 to prevent either party from exerting control over the other; however, AMVI and Prospect's businesses are operated autonomously, and enrollees, financial results and cash flows are each separately tracked and recorded. In accordance with the joint venture partnership agreement, profits and losses are not split in accordance with the partnership ownership interest, but rather, are directly tied to the results generated by each separate portion of the business. Separate from any earnings the Company generates from their portion of business within the joint venture, the Company also earn fees for management services they provide to their partner in the joint venture. The Company accounts for their interest in the joint venture partnership using the equity method of accounting. The Company includes in the financial statements only the net results attributable to those enrollees specifically identified as assigned to the Company, together with the management fee that they charge for managing those enrollees specifically assigned to the other joint venture partner. Note 14 contains summarized unaudited financial information for the joint venture.

        Prospect Medical Systems, one of the Company's management company subsidiaries (PMS), has entered into an assignable option agreement with PMG and the nominee physician shareholder of PMG. Under the assignable option agreement, Prospect acquired an assignable option for a nominal amount from PMG and the nominee shareholder to purchase all or part of PMG's assets (the Asset Option) and the right to designate the purchaser (successor physician) for all or part of PMG's issued and outstanding stock held by the nominee physician shareholder (the Stock Option) in its sole discretion. The Company may also assign the assignable option agreement to any person. The assignable option agreement has an initial term of 30 years and is automatically extended for additional terms of 10 years each, as long as the term of the related management services agreement described below (the Management Agreement) is automatically extended. Upon termination of the Management Agreement with PMG, the related Asset Option and Stock Option are automatically and immediately exercised. The Asset and Stock Options may be exercised separately or simultaneously for a purchase price of $1,000 each. Under these nominee shareholder agreements, Prospect has the unilateral right to establish or effect a change of the nominee, at will, and without the consent of the nominee, on an

F-9

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business (Continued)

unlimited basis and at nominal cost throughout the term of the Management Agreement. In addition to the Management Agreement with PMG, Prospect, through one of its management company subsidiaries, has a management agreement with each Affiliate. The term of the Management Agreements is generally 30 years. Prospect has an employment agreement with the current nominee shareholder of PMG in his former capacity as the Chief Executive Officer of the Company. The employment agreement was for an initial term of three years and could not be terminated without cause, provided for a base compensation and certain customary benefits. Since the agreement is only for the employment of the nominee shareholder as an executive of Prospect and not in his capacity as the nominee shareholder of PMG, the agreement does not affect Prospect's ability to change the nominee shareholder at will. PMG is the nominee shareholder of SPCMG, SATPG, PEG, AVM, PHS, PPM, PNW, PSC, APA, Nuestra (as to a 55% interest), Genesis, PVMG, and UMG.

        The Company's Affiliates have each entered into a Management Agreement whereby the Affiliate has agreed to pay a management fee to PMS, SMM, or PHCA, as applicable (each of which is a wholly-owned subsidiary of Prospect). The fee is based in part on the costs to the management company and on a percentage of revenues the Affiliate receives (i) for the performance of medical services by the Affiliate's employees and independent contractor physicians and physician extenders, (ii) for all other services performed by the Affiliates, and (iii) as proceeds from the sale of assets or the merger or other business combination of the Affiliates. The management fee also includes a fixed fee for marketing and public relations services. The revenue from which this fee is determined includes medical capitation, all sums earned from participation in any risk pools and all fee-for-service revenue earned. Except in the case of Nuestra and AMVI/Prospect, the Management Agreements have initial terms of 30 years, renewable for successive 10-year periods thereafter, unless terminated by either party for cause. In the case of Nuestra, its Management Agreement has an initial 10 year term renewable for successive 1 year terms. In the case of AMVI/Prospect, its Management Agreement has a 1 year term with successive 1 year renewal terms. In return for payment of the management fee, Prospect has agreed to provide financial management, information systems, marketing, advertising, public relations, risk management, and administrative support, including for utilization review and quality of care. The Company has exclusive decision-making authority with respect to the establishment and preparation of operating and capital budgets, and the establishment of policies and procedures for the Affiliates, and makes recommendations for the development of guidelines for selection and hiring of health care professionals, compensation payable to such personnel, scope of services to be provided, patient acceptance policies, pricing of services, and contract negotiation and execution. At its cost, Prospect has assumed the obligations for all facilities, medical and non-medical supplies, and employment of non-physician personnel of its affiliated medical clinics.

        The management fee earned by Prospect fluctuates based on the profitability of each wholly-owned Affiliate. Prospect is allocated a 50% residual interest in the profits above 8% of the profits or a 50% residual interest in the losses of the Affiliate, after deduction for costs to the management company and physician compensation. The remaining balance is retained by the Affiliates. ProMed Health Care Administrators receives a management fee of 12%, with no profit split. Supplemental management fees are periodically negotiated where significant incremental efforts and expense have been incurred by Prospect on behalf of the Affiliates.

        The Management Agreements are not terminable by the Affiliates except in the case of gross negligence, fraud or other illegal acts of Prospect, or bankruptcy of the Company. Through the Management Agreements and the Company's relationship with the nominee shareholder of each

F-10

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

1. Business (Continued)

Affiliate, Prospect has exclusive authority over all decision-making related to the ongoing major or central operations of the physician practices. The Company, however, does not engage in the practice of medicine.

        Further, Prospect's rights under the Management Agreements are unilaterally salable or transferable. Based on the provisions of the Management Agreements and the assignable option agreement with PMG, Prospect has determined that it has a controlling financial interest in the Affiliates. Consequently, under applicable accounting principles, Prospect consolidates the revenues and expenses of all the Affiliates except AMVI/Prospect from the respective dates of execution of the Management Agreements. All significant inter-entity balances have been eliminated in consolidation. In the case of AMVI/Prospect, only that portion of the results which are contractually identified as Prospect's are recognized in the financial statements, together with the management fee that the Company charges AMVI for managing AMVI's share of the joint venture operations.

        As of September 30, Prospect managed health care services to the following number of enrollees under contracts with various health plans:

	Commercial	Senior	MediCal	Total
2005	144,900	12,500	14,500	171,900
2006	140,300	14,100	17,000	171,400
2007	184,300	23,700	32,800	240,800

Hospital Services

        Alta Healthcare System, Inc. (Alta), acquired on August 8, 2007, is a wholly-owned subsidiary of Prospect Medical Holdings, Inc. Alta owns and operates (i) Alta Hollywood Hospitals, Inc., a California corporation, dba Hollywood Community Hospital and Van Nuys Community Hospital; and (ii) Alta Los Angeles Hospitals, Inc., a California corporation dba Los Angeles Community Hospital and Norwalk Community Hospital. Alta and its subsidiaries (collectively, the Hospital Services segment) own and operate four hospitals in the greater Los Angeles area with a combined 339 licensed beds served by 351 on-staff physicians. Each of the three hospitals in Hollywood, Los Angeles and Norwalk offers a comprehensive range of medical and surgical services, including inpatient, outpatient, skilled nursing and urgent care services. The hospital in Van Nuys provides acute and outpatient psychiatric services. Admitting physicians are primarily practitioners in the local area. The hospitals have payment arrangements with Medicare, Medi-Cal and other third-party payers, including commercial insurance carriers, health maintenance organizations (HMOs) and preferred provider organizations (PPOs).

2. Significant Accounting Policies

Basis of Presentation

        The Company consolidates all controlled subsidiaries, which control is effectuated through ownership of voting common stock or by other means. The subsidiaries which have been consolidated under Emerging Issues Task Force No. 97-2, "Application of FASB Statement No. 94 and APB Opinion No. 16 to Physician Practice Management Entities and Certain Other Entities with Contractual Management Agreements" (EITF 97-2), would also be consolidated under the provisions of Interpretation No. 46, "Consolidation of Variable Interest Entities, an interpretation of ARB No. 51"

F-11

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

(FIN 46). The underlying entities (subsidiaries) have been determined to be variable interest entities due to the existence of a call option under which the Company has the ability to require the holders of all of the voting common stock of the underlying subsidiaries to sell their shares at a fixed nominal price ($1,000) to another designated physician chosen by the Company. This call option agreement represents rights provided through a variable interest other than the equity interest itself that caps the returns that could be earned by the equity holders. In addition, the Company has a management agreement with the subsidiaries and the holders of the voting common stock of the subsidiaries which allows the Company to direct all of the activities of the subsidiaries, retain all of the economic benefits and assume all of the risks associated with ownership of the subsidiaries. In this manner, the Company has all of the economic benefits and risks associated with the subsidiaries, but has disproportionately few voting rights (based on the terms of the equity). Substantially all of the activities of the subsidiaries are conducted on behalf of the Company and, as such, the subsidiaries are variable interest entities due to the fact that they violate the anti-abuse clause provisions in FIN 46. As the Company retains all of the economic benefits and assumes all of the risks associated with ownership of the subsidiaries, the Company is considered to be the primary beneficiary of the activities of the subsidiaries. As a result, the Company must consolidate the underlying subsidiaries under FIN 46. All significant intercompany transactions have been eliminated in consolidation.

Revenues and Cost Recognition

        Revenues by reportable segment are comprised of the following amounts:

		Year ended September 30,
		2005		2006		2007
IPA management(1)
	Capitation	$	129,143,656	$	131,436,858	$	160,905,653
	Fee for service		2,232,059		2,074,104		2,001,205
	Management fees		806,788		1,233,027		697,101
	Other		1,335,876		1,052,288		1,466,120
Total revenues: IPA management		$	133,518,379	$	135,796,277	$	165,070,079
Hospital services(2)
	Inpatient	$	—	$	—	$	14,198,911
	Outpatient		—		—		1,055,614
	Other		—		—		328,515
Total revenues: Hospital services		$	—	$	—	$	15,583,040
Total revenues		$	133,518,379	$	135,796,277	$	180,653,119

(1)

ProMed revenues have been included in the consolidated financial statements since its June 1, 2007 acquisition date.



(2)

Alta revenues have been included in the consolidated financial statements since its August 8, 2007 acquisition date.

        The Company presents segment information externally the same way management uses financial data internally to make operating decisions and assess performance. With the acquisition of Alta

F-12

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Healthcare System, Inc. in August 2007, the Company's operations are now organized into two reporting segments: (i) IPA management, and (ii) Hospital services.

IPA Management Segment

Managed Care Revenues

        Operating revenue of the IPA Management Segment consists primarily of payments for medical services provided by the Affiliates under capitated contracts or fee-for-service arrangements with various managed care providers including HMOs. Capitation revenue under HMO contracts is prepaid monthly to the Affiliates based on the number of enrollees electing any one of the Affiliates as their health care provider. See "Concentrations of Credit Risks" below for revenues received from the four largest contracted HMOs.

        Capitation revenue (net of capitation withheld to fund risk share deficits discussed below) is recognized in the month in which the Affiliates are obligated to provide services. Minor ongoing adjustments to prior months' capitation, primarily arising from contracted HMOs' finalizing of monthly patient eligibility data for additions or subtractions of enrollees, are recognized in the month they are communicated to the Company. Additionally, in calendar 2004, Medicare began a four year phase-in of a revised capitation model for managed care beneficiaries. Previously, monthly capitation revenue was based on age, sex and location determined prospectively and was not subject to adjustments. Under the revised payment model referred to as the "Risk Adjustment model," Medicare compensates managed care organizations and providers based on the sickness acuity of each individual enrollee. Health plans and providers with higher acuity enrollees will receive more and those with healthier enrollees will receive less. The four year phase-in period is now complete. Under Risk Adjustment, capitation is determined based on health severity, measured using patient encounter data. Capitation is paid on an interim basis based on data submitted for the enrollee for the preceding year and is adjusted in subsequent periods (generally in the fourth quarter) after the final data is compiled. Positive or negative capitation adjustments are made for seniors with conditions requiring more or less healthcare services than assumed in the interim payments. Since the Company does not currently have the ability to reliably predict these adjustments, periodic changes in capitation amounts earned as a result of Risk Adjustment are recognized in the year to which they relate, generally in the fourth quarter, when those changes are communicated by the health plans to the Company. The Company received and recorded as an addition (reduction) to revenue of approximately $4,000,000, ($1,500,000) and $1,528,000, in positive (negative) capitation risk adjustments in the fourth quarter of fiscal 2005, 2006 and 2007 pertaining to services for each respective year.

        Fee-for-service revenues are recognized when the services have been performed. Fee for service revenues are recorded net of allowances to reduce billed amounts to estimated contractually entitled amounts. All receivables are recorded net of an allowance for bad debts. Uncollectible amounts are written off when collection efforts have ceased, or amounts have been turned over to an outside collection agency.

        HMO contracts also include provisions to share in the risk for hospitalization, whereby the Affiliate can earn additional incentive revenue or incur penalties based upon the utilization of hospital services. Except for two contracts, representing a small percentage of the Company's enrollees, where the Company is contractually obligated for downside risk, any shared risk deficits are not payable until and unless the Company generates future risk sharing surpluses, or if the HMO withholds a portion of

F-13

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

the capitation revenue to fund any risk share deficits. At the termination of the HMO contract, any accumulated risk share deficit is extinguished. Due to the lack of access to timely inpatient utilization information and the difficulty in estimating the related costs, shared-risk amounts receivable from the HMOs are recorded when such amounts are known. Risk pools for the prior contract years are generally final settled in the third or fourth quarter of the following fiscal year. In fiscal 2005, 2006 and 2007, managed care revenues include approximately, $1,007,000, $2,376,000 and ($1,000,000), respectively, of additional (reduction in) revenues due to favorable (unfavorable) settlements on prior year risk-sharing arrangements. At September 30, 2006 and 2007, contingent liabilities for risk-pool deficits that may be offset against future surpluses were $9,495,235 and $1,664,564, respectively, based on the available information from the health plans. During 2007, a health plan canceled approximately $8.1 million in prior year risk pool deficits that would have been required to be offset against future surplus.

        In addition to risk-sharing revenues, the Company also receives incentives under "pay-for-performance" programs for quality medical care based on various criteria. These incentives, which are included in other revenues, are generally recorded in the third and fourth quarters of the fiscal year and are recorded when such amounts are known.

        Management fee revenue is earned in the month the services are delivered. Management fee arrangements provide for compensation ranging from 8.5% of revenues to 15% of revenues. The Company provides management services to affiliated providers whose results are consolidated in the Company's financial statements under management fee arrangements based on cost, a fixed marketing fee, a percentage of revenues and a percentage of net income or loss. Revenues and expenses relating to these inter-entity agreements have been eliminated in consolidation.

        In connection with providing services to HMO enrollees, the Affiliates are responsible for the medical services their affiliated physicians provide to assigned HMO enrollees. Under the OneCare contract with CalOPTIMA administered through the AMVI/Prospect joint venture, the Company was required, through December 31, 2006, to pay medical costs at least equal to 85% of the capitation revenue.

Managed Care Cost of Revenues

        The cost of health care services consist primarily of capitation and claims payments, pharmacy costs, incentive payments to contracted providers and costs of operating medical clinics, including compensation for employed physicians, medical and support personnel. These costs are recognized in the period incurred or when the services are provided. Claims costs also include an estimate of the cost of services which have been incurred but not yet reported. The estimate for accrued medical costs is based on projections of costs using historical studies of claims paid and adjusted for seasonality, utilization and cost trends. These estimates are subject to trends in loss severity and frequency. Although considerable variability is inherent in such estimates, management records its best estimate of the amount of medical claims incurred at each reporting period. Estimates are continually monitored and reviewed and, as settlements are made or estimates adjusted, differences are reflected in current operations. See Note 13 for changes in claims estimates during each of the three years in the period ended September 30, 2007.

        In addition to contractual reimbursements to providers, the Company also makes discretionary incentive payments to physicians, which are in large part based on the pay-for-performance and shared

F-14

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

risk revenues and favorable senior capitation risk adjustment payments received by the Company. Since the Company records these revenues generally in the third or fourth quarter of each fiscal year when the incentives and capitation adjustments due from the health plans are known, the Company also records the discretionary physician bonuses in the same period. In fiscal 2005, 2006, and 2007, the Company recorded discretionary physician incentives expense totaling $2,579,000, $0, and $421,000, respectively.

        The Company also regularly evaluates the need to establish premium deficiency reserves for the probability that anticipated future health care costs could exceed future capitation payments from HMOs under capitated contracts. To date, management has determined that no premium deficiency reserves have been necessary.

Hospital Services Segment

        Operating revenue of the Hospital Services segment consists primarily of net patient service revenue. We report net patient service revenue at the estimated net realizable amounts from patients and third-party payors and others in the period in which services are rendered. The Company has agreements with third-party payors, including Medicare, Medi-Cal, managed care and other insurance programs, that provide for payments at amounts different from the Company's established rates. These payment arrangements include prospectively determined rates per discharge, reimbursed costs, discounted charges and per diem payments, as further described below. Estimates of contractual allowances are based upon the payment terms specified in the related contractual agreements. The Company accrues for amounts that it believes may ultimately be due to or from the third party payers. Normal estimation differences between final settlements and amounts accrued in previous years are reported as changes in estimates in the current year. Outstanding receivables, net of allowances for contractual discounts and bad debts, are included in patient accounts receivable in the accompanying balance sheets. A summary of the payment arrangements with major third-party payers follows:

        Medicare: Inpatient services rendered to Medicare program beneficiaries are paid at prospectively determined rates per discharge, according to a patient classification system based on clinical, diagnostic, and other factors. Outpatient services are paid based on a blend of prospectively determined rates and cost-reimbursed methodologies. The Company is also reimbursed for various disproportionate share and Medicare bad debt components at tentative rates, with final settlement determined after submission of annual Medicare cost reports and audits thereof by the Medicare fiscal intermediary. Normal estimation differences between final settlements and amounts accrued in previous years are reflected in net patient service revenue in the year of final settlement. These differences were not significant for the post-acquisition period ended September 30, 2007. Cost report settlements are recorded as third-party settlements receivable or payable in the accompanying balance sheets.

        Medi-Cal: Inpatient services rendered to Medi-Cal program beneficiaries are paid at contracted per diem rates. The per diem rates are not subject to retrospective adjustment. Outpatient services are paid based on prospectively determined rates per procedure provided. The Alta hospitals are eligible for State of California Medi-Cal Disproportionate Share (DSH) program under which medical facilities that serve a disproportionate number of low-income patients receive additional reimbursements. Eligibility is determined annually based on prescribed guidelines. The Company accrues a receivable based on the expected total annual DSH payments each month.

F-15

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Differences between the estimated and the actual award (which have not been significant) are recorded in the period known. The Medi-Cal DSH receivable as of September 30, 2007 totaled $4,273,944 and is included in government program receivables in the accompanying balance sheet.

        Managed Care: The Company has also entered into payment agreements with certain commercial insurance carriers, HMOs, and PPOs. The basis for payment under these agreements includes prospectively determined rates per discharge, per diems and discounts from established charges. Certain agreements also include stop-loss provisions where the Company receives additional reimbursement when charges incurred exceed a predetermined amount. Whether Company provides medical care on a non-contract basis, it receives standard billed charges or rates negotiated on a case by case basis.

        Collection of receivables from third-party payors and patients is the Company's primary source of cash and is critical to their operating performance. The Company closely monitors its historical collection rates as well as changes in applicable laws, rules and regulations and contract terms, to assure that provisions for contractual allowances are made using the most accurate information available. However, due to the complexities involved in these estimations, actual payments from payors may be different from the amounts management estimates and records. Our primary collection risks relate to uninsured patients and the portion of the bill which is the patient's responsibility, primarily co-payments and deductibles. Payments for services may also be denied due to issues over patient eligibility for medical coverage, the Company's ability to demonstrate medical necessity for services rendered and payor authorization of hospitalization. The Company estimates the provisions for doubtful accounts based on general factors such as payor mix, the age of the receivables and historical collection experience. Management routinely review accounts receivable balances in conjunction with these factors and other economic conditions which might ultimately affect the collectibility of the patient accounts and make adjustments to the Company's allowances as warranted.

        See "Concentrations of Credit Risks" below for revenues received from the Medicare and Medi-Cal programs.

Property, Improvements and Equipment

        Property, improvements and equipment are stated on the basis of cost or, in the case of acquisitions, at their acquisition date fair values. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, and amortization of leasehold improvements is provided using the straight-line basis over the shorter of the lease period or the estimated useful lives of the leasehold improvements. Leasehold improvements are generally depreciated over five to ten years, buildings are depreciated over twenty to twenty-eight years, equipment is depreciated over two to five years and furniture and fixtures is depreciated over two to seven years. Capitalized lease obligations are amortized over the life of the lease. Amortization for assets under lease agreements is included in depreciation expense. At September 30, 2007, the Company had assets under capitalized leases of $1,792,000. There were no capitalized leases at September 30, 2006.

        Depreciation expense was $494,938, $555,230 and $1,094,455 for the years ended September 30, 2005, 2006 and 2007, respectively.

F-16

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Goodwill and Other Intangible Assets

        Goodwill and other intangible assets totaled $39,475,169 and $181,110,951 at September 30, 2006 and 2007, respectively, and arose as a result of business acquisitions. Intangible assets include customer relationships, covenants not-to-compete, trade names and provider networks. Goodwill represents the excess of the consideration paid and liabilities assumed over the fair value of the assets acquired, including identifiable intangible assets. In conjunction with these acquisitions, management of the Company has reviewed the allocation of the excess of the purchase consideration (including costs incurred related to the acquisitions) over net tangible and intangible assets acquired, and has determined that the goodwill is primarily related to the operating platforms acquired through the addition of the existing renewable HMO contracts in the case of IPA acquisitions and new business segments in the case of the Alta acquisition. Acquisitions are discussed further in Note 3 below.

Goodwill Impairment Test

        Under Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets," goodwill and other intangible assets with indefinite useful lives are not amortized; rather they are reviewed annually for impairment for each reporting unit or more frequently if impairment indicators arise. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. A two-step impairment test is used to identify potential goodwill impairment and to measure the amount of goodwill impairment loss to be recognized, if any. As further discussed in Notes 4 and 15, the Company has three reporting units, consisting of Alta, ProMed and Prospect (which includes all other affiliated physician organizations).

        The Company tests for goodwill impairment in the fourth quarter of each year, or sooner if events or changes in circumstances indicate that the carrying amount may exceed the fair value. In evaluating whether indicators of impairment exist, the Company considers adverse changes in market value and/or stock price, laws and regulations, profitability, cash flows, ability to maintain enrollment and renew payer contracts at favorable terms, among other factors. The goodwill impairment test is a two-step process. The first step consists of estimating the fair value of the reporting unit based on a weighted combination of (i) the guideline company method that utilizes revenue or earnings multiples for comparable publicly-traded companies, and (ii) a discounted cash flow model that utilizes expected future cash flows, the timing of those cash flows, and a discount rate (or weighted average cost of capital, which considers the cost of equity and cost of debt financing expected by a typical market participant) representing the time value of money and the inherent risk and uncertainty of the future cash flows. If the estimated fair value of the reporting unit is less than its carrying value, a second step is performed to compute the amount of the impairment by determining the "implied fair value" of the goodwill, which is compared to its corresponding carrying value.

Long-Lived Assets and Amortizable Intangibles

        Long-lived assets, including property, improvement and equipment and amortizable intangibles, are evaluated for impairment under SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. The Company considers assets to be impaired and writes them down to fair value if estimated undiscounted cash flows associated with those assets are less than their carrying amounts. Fair value is based upon

F-17

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

the present value of the associated cash flows. Changes in circumstances (for example, changes in laws or regulations, technological advances or changes in strategies) may also reduce the useful lives from initial estimates. Changes in planned use of intangibles may result from changes in customer base, contractual agreements, or regulatory requirements. In such circumstances, management will revise the useful life of the long-lived asset and amortize the remaining net book value over the adjusted remaining useful life.

Impairment Charge

        As a result of the impairment analyses for the Prospect reporting unit, the Company recorded a charge in the fourth quarter of fiscal 2007 totaling $38,776,421. At September 30, 2007, the remaining goodwill and intangibles relate to the ProMed and Alta acquisitions (see Note 4).

Medical Malpractice Liability Insurance

        Certain of the IPA Affiliates maintain claims-made basis medical malpractice insurance coverage on employed physicians of up to $1,000,000 per incident and $3,000,000 in the aggregate on an annual basis. Claims-made coverage covers only those claims reported during the policy period. The Company renews the claims-made policy each year. Under the malpractice agreement with the carrier, the Company has pre-funded a tail liability policy to take effect in the event the claims-made policy is not renewed. The individual physicians who contract with the Affiliates carry their own medical malpractice insurance. In the Hospital Services segment, Alta purchases professional and general liability insurance to cover medical malpractice claims under a claims-made policy. The Company has coverage of $10,000,000 per claim after a $1,000,000 payment by the Company, per claim. Under the policy, insurance premiums cover only those claims actually reported during the policy term. Should the claims-made policy not be renewed or replaced with equivalent insurance, claims related to occurrences during the policy term but reported subsequent to the policy's termination may be uninsured.

        Accounting principles generally accepted in the United States of America require that a health care organization record and disclose the estimated costs of medical malpractice claims in the period of the incident of malpractice, if it is reasonably possible that liabilities may be incurred and losses can be reasonably estimated. The Company has recognized an estimated liability for incurred but not reported claims and the self-insured risks (including deductibles and potential claims in excess of policy limits) based upon an actuarial valuation of the Company's historical claims experience in the affiliated physician organizations and Alta. The claims liability at September 30, 2007, of $876,000, primarily relates to Alta and was estimated using a discount factor of 6%.

        The claim reserve is based on the best data available to the Company; however, the estimate is subject to a significant degree of inherent variability. The estimate is continually monitored and reviewed, and as the reserve is adjusted, the difference is reflected in current operations. While the ultimate amount of medical malpractice liability is dependent on future developments, management is of the opinion that the associated liabilities recognized in the accompanying consolidated financial statements are adequate to cover such claims. Management is aware of no potential medical malpractice claims whose settlement, if any, would have a material adverse effect on the Company's consolidated financial position, results of operations or cash flows.

F-18

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Workers' Compensation Insurance

        The IPA Affiliates purchases commercial coverage for workers' compensation claims. The policy has no deductibles and covers claims incurred during the policy period up to $1,000,000 per event and in aggregate. Workers Compensation coverage for Alta is provided via a loss responsive rating plan under which the premium is determined after the policy has expired based on contractual factors, chiefly the loss experience of the insured during the policy term. The insured retains $250,000 of loss arising out of a single accident including allocated loss adjustments expenses (ALAE). The current plan is subject to an aggregate loss limit of $1,503,000. Losses within the deductible are funded via a cash loss fund and reconciled annually. Accruals for uninsured claims and claims incurred but not reported of $417,000 at September 30, 2007, primarily relates to Alta and is estimated based upon an actuarial valuation of the Company's claims experience. Accruals were estimated using a discount factor of 6%.

Earnings Per Share

        Basic earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. Diluted earnings per share is computed by dividing net income by the weighted average number of common shares outstanding, after giving effect to potentially dilutive shares computed using the treasury stock method. Such shares are excluded if determined to be anti-dilutive. Common stock issued at below estimated fair value on the issuance date is included in weighted average number of common shares as if such shares have been outstanding for all periods presented.

        The following is a reconciliation of the numerators and denominators used in the calculation of basic and diluted earnings per share for each period presented in the financial statements.

		Year ended September 30
		2005		2006		2007
Basic earnings per common share:
	Numerator—net income (loss)	$	4,072,559	$	4,890,035	$	(33,476,751	)
Denominator—
	Weighted average number of common shares outstanding		4,915,537		6,913,405		8,488,986
	Basic earnings per common share	$	0.83	$	0.71	$	(3.94	)
Diluted earnings per common share:
	Numerator—net income (loss)	$	4,072,559	$	4,890,035	$	(33,476,751	)
Denominator—
	Weighted average number of common shares outstanding		4,915,537		6,913,405		8,488,986
	Dilutive stock options, warrants and preferred shares		3,554,874		1,193,247		—
	Weighted average diluted shares outstanding		8,470,411		8,106,652		8,488,986
	Diluted earnings per common share	$	0.48	$	0.60	$	(3.94	)

        The number of stock options, warrants and preferred shares excluded from the computation of diluted earnings per share in 2007, prior to the application of treasury stock method, were 2,249,906, 1,016,536 and 8,364,400, respectively, due to their antidilutive effect.

F-19

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Stock Options

        The Company has stock option agreements with certain directors, officers and employees. On October 1, 2005, the Company adopted SFAS No. 123(R), "Share-Based Payment," by applying the modified prospective method and the supplemental implementation guidance in Staff Accounting Bulletin (SAB) No. 107. SFAS No. 123(R) requires compensation cost for all share-based payments in exchange for employee services (including employee stock options) to be measured at fair value and eliminates the intrinsic value method previously permitted under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees" and SFAS No. 123 "Accounting for Stock-Based Compensation." Under APB No. 25, compensation costs were recognized only to the extent the market price of the underlying stock exceeded the exercise price on the date of grant. Since the Company generally issues shared-based awards at or above the market price of the underlying stock, these equity awards have not historically resulted in compensation expense.

        Under the modified prospective method, prior periods are not restated to reflect the impact of SFAS No. 123(R). Compensation cost is recognized for all awards granted, modified or settled subsequent to the adoption date, or where the requisite service period has not been completed prior to the date of adoption. Compensation cost for awards granted prior to, but not vested as of the adoption date is based on the same estimated grant-date fair value previously used for pro forma disclosure purposes under SFAS No. 123. Compensation costs for awards granted, modified, or settled after the adoption date are measured and recognized in the financial statements based on their grant date fair value, net of estimated forfeitures over the awards' service period, in accordance with SFAS No. 123(R). The Company adopted the Black-Scholes option pricing model for estimating stock-based compensation after it became a publicly traded entity in May 2005 and continues to use the Black-Scholes option pricing model and a single option award approach to estimate the fair value of options granted. The adoption of SFAS No. 123(R) did not result in adjustments that are required to be reported as the cumulative effect of a change in accounting principle. Equity-based compensation is classified within the same line items as cash compensation paid to employees. Cash retained as a result of excess tax benefits relating to share-based payments is presented in the statement of cash flows as a financing cash inflow. Previously, the cash retained from excess tax benefits was presented in operating cash flows.

        The adoption of SFAS No. 123(R) did not have a significant effect on the Company's financial position or results of operations since the Company fully vested all remaining unvested portions of previously issued stock options in September 2005 and made insignificant grants thereafter. Because none of the stock options whose vesting was accelerated had exercise prices below the market value of the Company's stock, no expense was recognized upon the acceleration of vesting. The Company did not make other changes to the terms of the options, which generally vest pro-rata over 2 years (the requisite service period) and expire after 5 years from the date of grant.

        The fair value of the options granted prior to the Company becoming a public reporting entity in May 2005 was estimated at the date of grant using the Minimum-Value option model. Under SFAS No. 123, non-public companies were permitted to use the Minimum-Value method to estimate compensation costs for pro-forma disclosure purposes, which effectively valued employee stock options using an assumed volatility of zero. The Minimum Value method is not an acceptable approach under SFAS No. 123(R). The fair value of the options granted after the Company became a public reporting entity was estimated at the date of the grant using the Black-Scholes option pricing model.

F-20

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

        The following table illustrates the effect on net income if the Company had applied the fair value recognition provisions for options granted in September 2005 that were estimated using the Black-Scholes pricing model:

Net income, as reported		$	4,072,559
Add stock-based compensation under the intrinsic value method, included in net income as reported			139,723
Less stock-based compensation under the fair value method			(1,420,555	)
Pro forma net income		$	2,791,727
Basic earnings per share:
	As reported	$	0.83
	Pro forma	$	0.57
Diluted earnings per share:
	As reported	$	0.48
	Pro forma	$	0.33

        The Company has not granted equity awards that vest based on performance or market conditions and have no liability awards that may be settled for cash. No awards have been issued to non-employees in exchange for goods and services.

Asset Retirement Obligations

        The Company recognizes the fair value of a liability for legal obligations associated with asset retirements in the period in which it is incurred, in accordance with SFAS No. 143, "Accounting for Asset Retirement Obligations" (SFAS No. 143) and Financial Accounting Standards Board (FASB) Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations—an Interpretation of FASB Statement No. 143" (FIN 47), if a reasonable estimate of the fair value of the obligation can be made. When the liability is initially recorded, management capitalizes the cost of the asset retirement obligation by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost associated with the retirement obligation is depreciated over the useful life of the related asset. Upon settlement of the obligation, any difference between the cost to settle the asset retirement obligation and the liability recorded is recognized as a gain or loss in the consolidated statement of operations.

Cash and Cash Equivalents

        Cash equivalents are considered to be all liquid investments with initial maturities of three months or less.

Restricted Investments

        The Company is required to keep restricted deposits by certain HMOs for the payment of claims. Such restricted deposits are classified as a current asset in the accompanying balance sheet, as they are restricted for payment of current liabilities.

F-21

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Deferred Financing Fees

        Prepaid financing fees are amortized over the period in which the related debt is outstanding using the effective interest method. Deferred financing costs at September 30, 2006 and 2007 are as follows:

	2006						2007
	Gross book value		Accumulated amortization		Net book value		Gross book value		Accumulated amortization		Net book value
Deferred financing costs	$	304,424	$	202,949	$	101,475	$	7,573,814	$	143,178	$	7,430,636

Income Taxes

        The Company accounts for income taxes under the liability method as required by SFAS No. 109, "Accounting for Income Taxes". Under the liability method, deferred taxes are determined based on temporary differences between financial statement and tax basis of assets and liabilities existing at each balance sheet date using enacted tax rates for years in which the related taxes are expected to be paid or recovered. The Company assesses the recoverability of its deferred tax assets and provides a valuation reserve when it is not more likely than not that the assets will be recovered. As of September 30, 2006 and 2007, the valuation allowance for deferred tax assets was $400,000 and $782,852, respectively.

Fair Value of Financial Instruments

        The financial instruments reported in the accompanying consolidated balance sheets consist primarily of cash and cash equivalents, investments, patient accounts and other receivables, accounts payable and accrued expenses, medical claims and related liabilities, notes receivable and payable, capital lease obligations, debt, interest rate swaps, and other liabilities. The carrying amounts of current assets and liabilities approximate their fair value due to the relatively short period of time between the origination of the instruments and their expected realization.

        The carrying amounts of notes payable and capital lease obligations approximate their fair value based on the Company's current incremental borrowing rates for similar types of arrangements. Long term debt approximates fair value since the revolving bank loan and bank term loans are variable rate instruments and bear interest at LIBOR plus an applicable margin. Accrued self-insurance liabilities are carried at the estimated present value of such obligations using appropriate discount factors. The interest rate swaps are recorded at fair value.

Interest Rate Swaps

        Under SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," and its amendments , the Company recognizes all derivatives on the balance sheet at fair value. Derivatives that are not hedges are adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in its fair value are offset against either the change in fair value of assets, liabilities, or firm commitments through earnings. The ineffective portion of a derivative's change in fair value is immediately recognized in income. The Company's derivative instruments comprised two interest rate swap agreements which were entered into on May 16, 2007 in conjunction with the ProMed Acquisition and on September 5, 2007 in conjunction with the Alta Acquisition. The

F-22

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

September 2007 instrument was designated as a cash flow hedge effective as of September 6, 2007. The agreements have notional amounts of $48,000,000 and $97,750,000, respectively. The Company used these instruments to hedge the risk of interest rate changes during the term of the senior credit facility (see Note 9). At present, the Company has not elected hedge accounting for the May 2007 instrument and changes in its fair value are recorded through earnings.

        As of April 30, 2008, the mark-to-market adjustments in the value of the swaps increased to $2,156,668 from $844,183 as of September 30, 2007, with respect to the May 2007 swap and to $5,649,635 from $1,089,833 as of September 30, 2007, with respect to the September 2007 swap.

Concentrations of Credit Risk

        Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash held in financial institutions which exceeds the $100,000 insurance limit of the Federal Deposit Insurance Corporation, shared-risk receivables, receivables due from health plans, receivables form Medicare and Medi-Cal, and notes receivable.

        The Company invests excess cash in liquid securities at institutions with strong credit ratings. There are established guidelines relative to diversification and maturities to maintain safety and liquidity. These guidelines are periodically reviewed and modified to take advantage of trends in yields and interest rates. Management attempts to schedule the maturities of the Company's investments to coincide with the Company's expected cash requirements. Credit risk with respect to receivables is limited since amounts are generally due from large HMOs within the IPA Management segment and from the Medicare and Medi-Cal programs within the Hospital Services segment. Notes receivables are fully secured by collateral of equal or greater value. Management reviews the financial condition of these institutions on a periodic basis and does not believe the concentration of cash or receivables results in a high level of risk.

        For the fiscal years ended September 30, 2005, 2006 and 2007, the IPA Management segment received between 73% and 79% of their capitation revenues from four HMOs, as follows:

	Capitation Revenue Year Ended September 30, 2005		% of Total Capitation Revenue		Capitation Revenue Year Ended September 30, 2006		% of Total Capitation Revenue		Capitation Revenue Year Ended September 30, 2007		% of Total Capitation Revenue
PacifiCare	$	40,155,679	31	%	$	39,337,714	30	%	$	41,698,230	26	%
Health Net		25,224,324	20	%		27,113,638	21	%		34,153,902	21	%
Blue Cross		21,365,598	17	%		20,948,066	16	%		24,436,362	15	%
Blue Shield		14,802,756	11	%		15,954,577	12	%		18,268,356	11	%
Totals	$	101,548,357	79	%	$	103,353,995	79	%	$	118,556,850	73	%

        For the period August 8, 2007 through September 30, 2007, the Hospital Services segment received $5,998,079, or 39.3% of their revenues from the Medicare program and $8,226,765, or 53.9% of their revenues, from the MediCal program.

        The Company is also subject to interest rate fluctuation under its floating rate credit facility and interest rate swap agreements.

F-23

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

Use of Estimates

        The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and the disclosure of contingent assets and liabilities at the dates, and for the periods, that the financial statements are prepared. Actual results could differ from those estimates. Principal areas requiring the use of estimates include third-party cost report settlements, risk-sharing programs, patient and medical related receivables, determination of allowances for contractual discounts and uncollectible accounts, medical claims and accruals, impairment of goodwill, long-lived and intangible assets, valuation of interest rate swaps, share-based payments, professional and general liability claims, reserves for the outcome of litigation and valuation allowances for deferred tax assets.

Adoption of SFAS No. 154, "Accounting Changes and Error Corrections" and SAB No. 108

        In September 2006, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 108, "Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements," regarding the process of quantifying financial statement misstatements. SAB No. 108 states that registrants should use both a balance sheet approach and an income statement approach when quantifying and evaluating materiality of a misstatement. The interpretation in SAB No. 108 contains guidance on correcting errors under the dual approach as well as provides transition guidance for correcting errors. This interpretation does not change the requirements within SFAS No. 154, "Accounting Changes and Error Corrections,", for the correction of an error in financial statements. SAB No. 108 is effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The Company adopted SAB No. 108 as of October 1, 2006. The adoption did not have a material effect on the consolidated financial position or results of operations.

Recent Accounting Pronouncements

        In July 2006, the FASB issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes, an interpretation of SFAS No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements in accordance with SFAS No. 109, "Accounting for Income Taxes," and prescribes a minimum recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition. In addition, FIN 48 excludes income taxes from the scope of SFAS No. 5, "Accounting for Contingencies." FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company will adopt the new requirements in its first fiscal quarter of fiscal 2008. Differences between the amounts recognized in the financial statements prior to the adoption of FIN 48 and the amounts reported after adoption are accounted for as a cumulative effect adjustment to beginning retained earnings. The Company is currently evaluating the impact that this standard will have on its consolidated financial statements although it does not believe the impact will be significant.

        In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements" (SFAS No. 157.) This Statement defines fair value, establishes a framework for measuring fair value in generally

F-24

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

accepted accounting principles, and expands disclosures about fair value measurements. This Statement applies under other accounting pronouncements that require or permit fair value measurements, the Board having previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, this Statement does not require any new fair value measurements. This Statement is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. The Company is required to adopt SFAS No. 157 on October 1, 2008 and is currently evaluating the impact of the provisions of SFAS No. 157.

        In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities—Including an Amendment of FASB Statement No. 115," (SFAS No. 159). SFAS No. 159 permits a company to choose to measure many financial instruments and certain other items at fair value at specified election dates. Most of the provisions in SFAS No. 159 are elective; however, it applies to all companies with available-for-sale and trading securities. A company will report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. The fair value option: (a) may be applied instrument by instrument, with a few exceptions, such as investments otherwise accounted for by the equity method; (b) is irrevocable (unless a new election date occurs), and; (c) is applied only to entire instruments and not to portions of instruments. SFAS No. 159 is effective as of the beginning of a company's first fiscal year beginning after November 15, 2007. The Company will adopt SFAS No. 159 on October 1, 2008 and is currently evaluating this statement and has not yet determined if it will elect to measure any additional financial assets and liabilities at fair value.

        In December 2007, the FASB issued SFAS No. 141 (revised 2007) "Business Combinations" (SFAS No. 141R). SFAS No. 141R establishes new principles and requirements for how the acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS No. 141R also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. In general, SFAS No. 141R requires the acquiring entity to recognize all the assets acquired and liabilities assumed in the transaction and establishes the acquisition-date fair value as the measurement objective. This standard will, among other things, impact the determination of acquisition-date fair value of consideration paid in a business combination, including recognition of contingent consideration and most pre-acquisition loss and gain contingencies at their acquisition-date fair values, expense as incurred transaction costs, and recognize changes in income tax valuation allowances and tax uncertainty accruals that result from a business combination as adjustments to income tax expense. SFAS 141(R) will also place new restrictions on the ability to capitalize acquisition-related restructuring costs. SFAS No. 141R applies prospectively to business combinations in the first annual reporting period beginning on or after December 15, 2008. The Company will adopt SFAS No. 141R on October 1, 2009. Management is currently evaluating the potential impact of the adoption of SFAS No. 141R on its consolidated financial statements.

        In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in Consolidated Financial Statements—an Amendment of ARB No. 51" (SFAS No. 160). SFAS No. 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling (minority) interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements separate from parent's equity. Net income attributable to the non controlling

F-25

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

2. Significant Accounting Policies (Continued)

interest will be included in consolidated net income on the face of the income statement. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. SFAS No. 160 requires retroactive adoption of the presentation and expanded disclosure requirements for existing minority interests. All other requirements of SFAS No. 160 shall be applied prospectively. The Company will adopt SFAS No. 160 on October 1, 2009 and is currently evaluating the potential impact of the adoption of SFAS No. 160 on its consolidated financial statements.

Reclassifications

        Certain prior year amounts have been reclassified to conform to the current year presentation. This includes presenting deferred financing costs separately from other intangible assets and presenting accrued salaries, wages and benefits separately from accounts payable and other accrued liabilities.

3. Acquisitions

Genesis HealthCare of Southern California

        On November 1, 2005, PMG acquired the outstanding stock of Genesis HealthCare of Southern California (Genesis) for $8,000,000 in cash. The purchase price was funded using $4,000,000 of the Company's existing cash and a $4,000,000 term loan from Residential Funding Corporation (RFC). Revenues and expenses for this acquisition have been included in the consolidated results starting November 1, 2005. $194,800 of the purchase price was allocated to trade name, $199,200 to a covenant not-to-compete and $984,800 to customer relationships, which were being amortized on a straight-line basis over 18 months to four years. The Company made a Section 338 election, and expects $7,777,452 of total goodwill and intangibles to be deductible for tax purposes.

        Under the acquisition agreement, differences between the estimated claims and tax liabilities recorded on the closing date and the ultimate payment amounts were to be paid to, or received from, the seller. The Company paid approximately $132,000 in fiscal year 2007 per this agreement. The agreement also guaranteed certain minimum risk pool incentives for the 2005 calendar year, which were met.

ProMed Health Services Company

        On June 1, 2007, the Company and PMG completed the acquisition of ProMed Health Services Company, a California corporation and its subsidiary, ProMed Health Care Administrators, Inc. (collectively referred to as ProMed Health Care Administrators), and two affiliated IPAs; Pomona Valley Medical Group, Inc., dba ProMed Health Network (Pomona Valley Medical Group), and Upland Medical Group, Inc. (Upland Medical Group), collectively referred to as the "ProMed Entities". ProMed Health Care Administrators (PHCA) manages the medical care of HMO enrollees served by Pomona Valley Medical Group and Upland Medical Group. Total purchase consideration of $48,000,000 included $41,040,000 of cash and 1,543,237 shares of Prospect Medical common stock valued at $6,960,000, or $4.51 per share. The transaction is referred to as the ProMed Acquisition.

        The ProMed Acquisition, and $372,000 in related transaction costs, was financed by $48,000,000 in borrowings (less $896,000 in debt issuance costs) and $2,359,000 from cash reserves. The debt proceeds and cash reserves were used to fund the cash consideration of $41,040,000 and to repay all existing

F-26

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Acquisitions (Continued)

debt of Prospect Medical ($7,842,000 plus $209,000 of prepayment penalties). The $48,000,000 in borrowings used to finance the acquisition of the ProMed Entities was refinanced in August 2007, using proceeds from the $155,000,000 credit facility entered into in connection with the Alta transaction, described below. The purchase agreements provide for certain post-closing working capital and medical claims reserve adjustments. Any final settlement payments made to, or received from, the sellers of the ProMed Entities, when finally determined, will be reported as an adjustment to goodwill. Such adjustments cannot be reasonably estimated at this time.

Alta Healthcare System, Inc.

        On August 8, 2007, the Company acquired the outstanding common shares of Alta Healthcare System, Inc., a California corporation ("Alta") and the name of the surviving entity was changed to Alta Hospitals System, LLC. The purchase transaction is referred to as the "Alta Acquisition." Alta is a private, for-profit hospital management company that, through two subsidiary corporations, owns and operates four community-based hospitals—Van Nuys Community Hospital, Hollywood Community Hospital, Los Angeles Community Hospital and Norwalk Community Hospital. These hospitals provide a comprehensive range of medical, surgical and psychiatric services and have a combined 339 licensed beds served by 351 on-staff physicians. Total purchase consideration, including transaction costs, was approximately $154,895,000, including repayment of approximately $41,500,000 of Alta's existing debt, payment of approximately $51,300,000 in cash to the former Alta shareholders, issuance of 1,887,136 shares of Prospect common stock, issuance of 1,672,880 shares of Prospect convertible preferred stock valued, for purposes of the transaction, at $61,030,000, and payment of transaction costs of $1,123,000. Each share of preferred stock will automatically convert into five common shares upon approval by a shareholders vote that was scheduled for November 2007 but was postponed and is anticipated to be convened in mid (calendar) 2008. Until conversion occurs, each share of preferred stock accrues dividends at 18% per year, compounding annually. However, no dividends will be paid upon conversion to common shares. For purposes of determining the number of shares to be issued in connection with the transaction, Prospect common stock was valued at $5.00 per share and Prospect preferred stock was valued at $25.00 per share. However, for purposes of recording the transaction, (i) the value per share of common stock was estimated at $5.58, based on the average of the stock's closing prices before and after the acquisition announcement date of July 25, 2007, and (ii) the value per share of preferred stock was estimated at $6.04, based on the closing stock price of common share on the acquisition date plus a premium for the preference features of the stock. As such, total recorded purchase consideration, exclusive of transaction costs, was $153,772,000. At September 30, 2007, accrued dividends of $1,122,319 were included in other current liabilities. Upon conversion of the preferred shares into common shares at the next scheduled shareholders' meeting, the accrued dividends are expected to be forgiven and the liability will be reclassified to additional paid-in capital.

        The Alta Acquisition, the extinguishment of Alta's existing debt and the refinancing of the ProMed Acquisition debt described above were financed by a $155,000,000 senior secured credit facility arranged by Bank of America, comprising $145,000,000 in term loans and a $10,000,000 revolver, of which $3,000,000 was drawn at closing. The term debt is comprised of a $95,000,000, seven year first-lien term loan at LIBOR plus 400 basis points, with quarterly principal payments of $1,250,000 and an annual principal payment of 50% of excess cash flow, as defined in the loan agreement; and a $50,000,000 seven and one-half year second-lien term loan, at LIBOR plus 825 basis points, with all principal due at maturity (see Note 9 for discussion of long-term debt). Net proceeds of $141.1 million

F-27

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Acquisitions (Continued)

(net of issuance discount and financing costs of $6.9 million) were used to repay Alta's existing borrowings of $41.5 million, refinance $47.0 million in outstanding ProMed acquisition debt, pay the cash portion of the purchase price of $51.3 million and fund $1.1 million in direct transaction costs.

        The following table summarizes the estimated fair values of the assets acquired and liabilities assumed, as of the date of acquisition, and cash paid for Genesis, the ProMed and Alta.

        The allocation of the purchase price for the Genesis, ProMed and Alta acquisitions is as follows:

			Genesis			ProMed			Alta
Acquisition costs
	Cash consideration		$	8,000,000		$	41,040,000		$	51,257,675
	Stock consideration			—			6,960,000			61,030,284
	Debt assumption and repayments			—			—			41,484,650
	Direct acquisition costs			—			372,330			1,122,703
	Aggregate purchase consideration		$	8,000,000		$	48,372,330		$	154,895,312
Allocation of purchase price
	Net tangible assets			222,548			3,622,143			54,001,536
	Amortizable intangibles:
		Customer relationships	$	984,800		$	25,200,000		$	—
		Trade names		194,800			9,450,000			14,140,000
		Covenants not-to-compete		199,200			940,000			2,240,000
		Provider networks		—			1,200,000			—
Total amortizable intangible assets			$	1,378,800		$	36,790,000		$	16,380,000
Net deferred tax liabilities on book-tax basis difference in assets acquired				—			(14,663,043	)		(21,984,928	)
Goodwill				6,398,652			22,623,230			106,498,704
			$	8,000,000		$	48,372,330		$	154,895,312
Net cash paid
	Aggregate purchase consideration		$	8,000,000		$	48,372,330		$	154,895,312
	Stock consideration			—			(6,960,000	)		(61,030,284	)
	Cash acquired			(1,439,108	)		(5,331,339	)		(376,182	)
	Net cash paid in acquisition		$	6,560,892		$	36,080,991		$	93,488,846

F-28

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Acquisitions (Continued)

The following table represents the acquired companies' summarized balance sheet at the date of acquisition
	Cash	$	1,439,108		$	5,331,339		$	376,182
	Other current assets		81,431			5,890,305			26,052,818
	Property and equipment		—			375,972			46,804,000
	Other noncurrent assets		31,565			77,459			—
	Accounts payable and current liabilities		(1,329,556	)		(8,052,932	)		(17,902,876	)
	Other noncurrent liabilities acquired		—			—			(1,328,588	)
Tangible net assets		$	222,548		$	3,622,143		$	54,001,536

        Goodwill from the ProMed and Alta Acquisitions are primarily related to a new platform for future growth, driven by new geographic markets and business segments, as well as an experienced management team and workforce. Through the ProMed Acquisition, the Company expanded into a new service market in the Pomona Valley and Inland Empire areas. With the Alta Acquisition, the Company purchased a hospital network and now operates as an integrated healthcare delivery system with in-network medical groups and acute care facilities. As a stock purchase, the goodwill and a significant portion of the intangible assets acquired in the ProMed and Alta Acquisitions are not deductible for income tax purposes. Future tax liabilities related to the fair value of these assets in excess of the tax deductible amounts have been recorded as deferred tax liabilities on the acquisition date (also see Note 8).

        The following unaudited pro forma financial information for the years ended September 30, 2006 and 2007 gives effect to the acquisitions of ProMed and Alta as if they had occurred on October 1, 2005. Such unaudited pro forma information is based on historical financial information with respect to the acquisition and does not include synergies, operational or other changes that might have been effected by the Company, except for the elimination of $7.3 million in transaction bonuses paid by certain acquired entities prior to the transaction as these costs were directly related to the acquisitions.

        Significant proforma adjustments include increased interest expense related to the acquisition debt, increased depreciation and amortization expense related to fixed assets and amortizable intangibles acquired, additional income taxes for acquired entities that previously operated as S-corporations, reduction in interest income to reflect cash consideration paid and distributions made by acquired entities to selling shareholders and the elimination of intercompany management fees among the ProMed Entities. Basic and diluted earnings per share reflect the common and preferred shares issued in the acquisitions on an as-converted basis.

	Year ended September 30
	2006		2007
	(unaudited)
Net revenue	$	328,675,467	$	337,842,392
Net income		7,005,512		(37,372,699	)
Basic earnings per share	$	0.37	$	(1.84	)
Diluted earnings per share	$	0.35	$	(1.84	)

F-29

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

3. Acquisitions (Continued)

Investment in Brotman Medical Center, Inc (Hospital)

        Effective August 31, 2005, the Company acquired an approximately 38% stake in Brotman Medical Center, Inc. (Brotman) for $1,000,000. The Company made the investment with the intention that it, with Brotman, would be able to offer joint contracting to HMOs operating in Brotman's service area. Brotman, previously owned by Tenet HealthCare, had been incurring significant operating deficits. The new investors, including Prospect, hoped to help turn around Brotman's operations and restore profitability.

        During September 2005, the first month of operation under new ownership, Brotman experienced a net loss of approximately $1,000,000, of which Prospect's portion totaled approximately $400,000. Brotman has continued to incur significant losses since September 30, 2005. Based on Brotman's significant operating deficits, uncertain ability to increase revenues and reduce costs, and limited capital, management of Prospect believed that the remaining investment in Brotman Medical Center at September 30, 2005 was impaired and wrote off its entire investment as of September 30, 2005.

        Prospect is not obligated and has not invested additional monies in Brotman. The Company has not recognized any equity in earnings during 2006 and 2007 as Brotman continued to incur losses. In November 2007, Brotman Medical Center, Inc. filed for bankruptcy protection under Chapter 11 of the U.S. Bankruptcy Code.

4. Goodwill and intangible assets

        In accordance with SFAS No. 142, the Company performed its annual goodwill impairment analysis for each reporting unit that constitutes a business for which 1) discrete financial information is produced and reviewed by management, and 2) services that are distinct from the other reporting units. For the IPA Management reporting segment, the Company has determined that ProMed and other affiliated physician organizations as a group (collectively referred to as Prospect) each constitutes a reporting unit. While each affiliated physician organization within the Prospect reporting unit earns revenues, incurs expenses and produces discrete financial information (including balance sheets and statements of operations), these entities are similarly organized and operated to provide managed health care services. They share similar characteristics in the enrollees they serve, the nature of services provided and the method by which medical care is rendered. They are centrally managed, sharing assets and resources, including executive management, payer and provider contracting, claims and utilization management, information technology, legal, financial accounting, risk management and human resource support. The entities in the Prospect reporting unit are also subject to similar regulatory environments and long-term economic prospects. They form an integrated medical network within a common service area that supports and benefits from each other in delivering care to the Company's patient base. Since goodwill is recoverable from these affiliated physician organizations working in concert, they have been aggregated into a single reporting unit for the purpose of goodwill impairment testing in accordance with SFAS No. 142. While ProMed is also a physician organization, it is a separate reporting unit in that ProMed has autonomous operations, a separate management team and serves a new market area with different payors from the Prospect reporting unit. The Company has also determined that all affiliated physician organizations, including ProMed, represent a single reportable segment for financial reporting under SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information" based on the way the chief operating decision maker uses financial data internally to make operating decisions, allocate resources and assess performance. For the Hospital Services

F-30

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

4. Goodwill and intangible assets (Continued)

segment, the reporting unit for the annual goodwill impairment analysis is determined to be at the segment level.

        During the fourth quarter of fiscal 2007, the Company identified triggering events which caused us to reassess goodwill and identifiable intangibles for impairment in the Prospect reporting unit within the IPA Management segment. During the fourth quarter of fiscal 2007, the Prospect reporting unit experienced a significant decline in enrollment representing approximately 50% of the total enrollment decline for the entire fiscal year 2007. This membership decline was attributed to increased competitive pressures that materialized into an accelerated decline in enrollment versus prior periods. In addition, the Company experienced a significant increase in medical expenses (primarily claims) and outside professional fees. As a result of the impairment analyses, the goodwill and identifiable intangibles in the Prospect reporting unit were determined to be impaired, as the aggregate fair value of the reporting unit was less than its carrying value including goodwill and identifiable intangibles. The impairment was also indicated by the reporting unit's negative operating cash flow expectations for fiscal 2008 and 2009 and uncertainty as to when the reporting unit may return to profitability. As a result, the Company recorded a non-cash, pre-tax goodwill impairment charge of approximately $38.0 million and a non-cash, pre-tax intangibles impairment charge of $0.8 million in the fourth quarter of fiscal 2007, related to the IPA Management segment. The Company is currently evaluating selling non-performing IPAs and, recovery, if any, will be recorded when realized.

        Intangibles at September 30, 2006 and 2007 are as follows:

	2006			2007			Amortization Period
Customer relationships	$	2,613,202		$	25,200,000		14 years
Covenants not-to-compete		249,200			3,180,000		4 -   6 years
Trade names		194,800			23,590,000		15 - 20 years
Provider networks		—			1,200,000		3 years
Gross carrying value		3,057,202			53,170,000
Accumulated amortization		(1,420,202	)		(1,180,983	)
Other intangibles, net		1,637,000			51,989,017

        Amortization expense for the years ended September 30, 2005, 2006 and 2007 was $453,079, $957,400 and $2,011,875 (exclusive of the asset impairment charge), respectively.

        Estimated amortization expense for each succeeding year is as follows:

2008	$	4,251,167
2009		4,251,167
2010		4,117,833
2011		3,721,492
2012		3,148,667
2013 and thereafter		32,498,691
	$	51,989,017

F-31

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

5. Private Placement

        The Company entered into a Private Placement Agency Agreement effective November 1, 2003. Per the terms of the agreement, the Company offered for sale through Spencer Trask Ventures, Inc., and its selected dealers, as exclusive agent for the Company, shares of the Company's Series A Convertible Preferred Stock, $0.01 par value at $5.50 per share. Effective July 27, 2005, these shares were converted into common stock on a 1 to 1 basis.

        In conjunction with the Private Placement, the Company issued warrants to purchase 659,409 shares of the Company's common stock at $1.00 per share to Spencer Trask Investment Partners, LLC as a promotional fee. These warrants are exercisable at any time and expire on September 19, 2010. On November 3, 2003, 100,000 warrants were exercised. The original warrant certificate was cancelled and reissued for 559,409 warrants at the same terms and conditions.

        In addition to commissions and expenses, and the $1.00 warrants discussed above, Prospect also agreed to issue warrants to purchase 453,047 shares of the Company's Series A Convertible Preferred Stock to private placement investors at an exercise price of $5.50 per share. These warrants are exercisable at any time and expire 10 years from the date of issuance. Because, effective July 27, 2005, the Company's Series A Convertible Stock was, by its terms, automatically converted to shares of common stock, these 453,047 warrants to buy Series A Convertible Preferred Stock now effectively represent the right to buy a like number of shares of common stock.

        This offering was finalized on March 31, 2004, whereby a total of 2,265,237 shares of preferred stock were sold for gross proceeds of $12,458,802, related expenses of $2,439,061, and net cash proceeds of $10,019,741. The proceeds were used to complete the acquisitions of various physician organizations and to repay $1,750,000 borrowed through the bank line of credit to finance a prior acquisition.

6. Notes Receivable

        In connection with the April 1, 2004 sale of three medical clinics, the Company received promissory notes in the aggregate amount of $1,068,247. There are three separate notes, each bearing interest at 5% per annum, with varying principal and interest payment requirements. The notes receivable are secured by all of the clinic assets and are personally guaranteed by each of the purchasers.

        Current and non-current portions of the notes receivable as of September 30, 2007 were as follows:

Total principal outstanding	$	549,332
Less current maturities		(59,072	)
Non-current portion	$	490,260

F-32

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

6. Notes Receivable (Continued)

        Future minimum payments required under the notes receivable as of September 30, 2007 are as follows:

2008	$	91,007
2009		235,770
2010		21,930
2011		21,930
2012 and thereafter		305,836
Gross payments		676,473
Amount representing interest		(127,141	)
Net principal outstanding	$	549,332

7. Related Party Transactions

        The Company had an employment agreement with its former Executive Chairman, Jacob Y. Terner that expires August 1, 2008 and provides for base compensation (currently $400,000 per year) and further provides that if the Company terminates Dr. Terner's employment without cause, the Company will be required to pay him $12,500 for each month of past service as the Chief Executive Officer, commencing as of July 31, 1996, up to $1,237,500. Dr. Terner resigned as the Chief Executive Officer effective March 19, 2008 and resigned as the chairman of the board of directors effective May 12, 2008. In consideration for Dr. Terner's resignation as chairman of the board and other promises in his resignation agreement, and in satisfaction of our contractual obligations under Dr. Terner's employment agreement, we agreed to pay to his family trust the sum of $19,361.10 each month during the twelve-month period ending on April 30, 2009 and the sum of $42,694.45 each month during the twenty-four month period ending on April 30, 2011, for the total sum of $1,257,000. At present, Dr. Terner remains as the nominee physician shareholder for the affiliated physician organizations.

        Prospect Medical Group, Inc. (PMG), which is wholly-owned by Dr. Terner as the nominee physician shareholder, and whose accounts are consolidated in these financial statements under EITF 97-2, maintains an intercompany account receivable from Prospect Medical Holdings, Inc. The intercompany receivable was created in connection with previous acquisitions. In the event that PMG is required by the HMO's or regulatory agencies to maintain a positive tangible net equity and positive working capital, Dr. Terner had previously agreed to personally guarantee the intercompany account receivable due from Prospect Medical Holdings, Inc. up to a level sufficient to enable PMG to attain positive tangible net equity and working capital. On June 1, 2003, in consideration for Dr. Terner's personal guarantee and pledge, the Compensation Committee of the Board of Directors granted to Dr. Terner a six-year, non-qualified stock option to purchase 800,000 shares of common stock at $3.00 per share. During its term, Dr. Terner's personal guarantee was supported through the pledge of certain of his personal assets. Dr. Terner agreed to maintain his personal guarantee and collateral in effect until PMG had positive tangible net equity. This personal guarantee arrangement was terminated by the Board of directors effective January 19, 2005.

        Through the ProMed acquisition, the Company acquired the lease of an office facility which is owned by a shareholder of the Company, who formerly was an executive officer and shareholder of ProMed.

F-33

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Income Taxes

        The components of the provision for income taxes for the years ended September 30, 2005, 2006 and 2007 are as follows:

		2005			2006		2007
Current:
	Federal	$	2,746,453		$	1,410,516	$	1,598,944
	State		738,031			436,670		153,570
			3,484,484			1,847,186		1,445,374
Deferred:
	Federal		(89,167	)		1,075,233		(5,915,457	)
	State		19,861			271,103		(2,288,528	)
			(69,306	)		1,346,336		(8,203,985	)
Total:
	Federal		2,657,286			2,485,749		(7,514,401	)
	State		757,892			707,773		(2,134,958	)
		$	3,415,178		$	3,193,522	$	(9,649,359	)

        Temporary differences and carry forward items that result in deferred income tax balances as of September 30 are as follows:

	2006			2007
Deferred tax assets:
State tax benefit	$	126,793		$	44,976
Fixed assets		53,463			—
Allowances for bad debts		218,259			2,038,538
Vacation accrual and other		217,882			606,967
Accrued physician bonuses		94,781			355,934
Deferred rent		35,644			33,143
Charitable contributions		404			—
Net operating loss		—			696,741
Unrealized loss on interest rate swap		—			168,997
Capital loss on investment in Brotman		400,000			782,852
Deferred income tax asset		1,147,226			4,728,148
Valuation allowance		(400,000	)		(782,852	)
Net deferred income tax assets		747,226			3,945,296
Deferred tax liabilities:
Intangible assets		(1,235,121	)		(14,395,640	)
Fixed assets		—			(14,824,088	)
Deferred income tax liabilities		(1,235,121	)		(29,219,728	)
Net deferred income tax asset (liability)	$	(487,895	)	$	(25,274,432	)

F-34

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

8. Income Taxes (Continued)

        As a result of the ProMed and Alta acquisitions in 2007, the Company recorded $36,647,971 in deferred tax liabilities principally related to differences in tax and book basis for intangibles such as customer relationships, trade names, non-compete agreements, and provider networks and for property, improvements and equipment, for which deductions are limited to their carryover basis. These deferred tax liabilities were recorded as an increase to goodwill on the respective acquisition date.

        Other deferred income tax assets and liabilities reflect the effect of temporary differences between the assets and liabilities recognized for financial reporting purposes and the amounts recognized for income tax purposes.

        Given uncertainty regarding the likelihood of the Company generating sufficient future capital gains to utilize the unrealized capital loss associated with the Brotman investment, the related deferred tax asset was fully reserved. The valuation allowance was increased by $382,852 in 2007 for capital loss carryovers acquired in the Alta Acquisition. If realized, the $382,852 tax benefit will be recorded as a reduction in goodwill.

        At September 30, 2007, the Company had federal and state net operating loss carryovers of $2,378,925 and $6,543,668 which, if unutilized, will expire in 2027 and 2017, respectively.

        At September 30, 2007, the Company has approximately $120,823 of unrealized excess tax benefits related to employee stock options. This amount is not included in the table of deferred tax assets above and the benefit will be recorded as an increase to additional paid in capital if and when realized.

        The differences between the provision for income tax expense at the federal statutory rate of 34% and that reflected in the consolidated statements of operations are summarized as follows for the years ended September 30:

	2005		2006		2007
Tax provision at statutory rate	34	%	34	%	(34	)%
State taxes, net of federal benefit	6		6		(3	)
Write off of non-deductible intangibles	—		—		14
Change in valuation allowance	6		—		—
Other	—		(1	)	1
	46	%	39	%	(22	)%

        Taxes paid totaled approximately $3,586,000, $4,297,000 and $1,011,148 for the years ended September 30, 2005, 2006 and 2007, respectively.

F-35

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt

        Long-term debt consists of the following at September 30:

	2006			2007
Term loans	$	9,500,000		$	143,750,000
Revolving credit facility		2,500,000			3,000,000
		12,000,000			146,750,000
Less current maturities		(5,300,000	)		(8,000,000	)
Long-term portion	$	6,700,000		$	138,750,000

        On September 27, 2004, the Company entered into a senior secured credit facility with Residential Funding Corporation (RFC, a subsidiary of General Motors Acceptance Corporation) that consisted of a $10,000,000 term loan and a $5,000,000 revolving credit facility. Amounts outstanding under the term loan bore interest at a rate of prime plus 2% per annum (10.25% at September 30, 2006) and amounts outstanding under the revolving credit facility bore interest at a rate of prime plus 0.5% per annum (8.75% at September 30, 2006).

        In November 2005, in connection with the acquisition of Genesis, RFC provided the Company with an additional $4 million term loan on terms similar to the existing term loan.

        All amounts owing to RFC ($7,842,000, plus $209,000 of prepayment penalties) were repaid on June 1, 2007, from proceeds of a new three-year senior secured credit facility entered into with Bank of America, in connection with the purchase of the ProMed Entities. The Bank of America facility totaled $53,000,000, and comprised a $48,000,000 variable-rate term loan, and a $5,000,000 revolver (which had not been drawn). The $48,000,000 term loan was repaid on August 8, 2007, with proceeds from a new $155,000,000 syndicated senior secured credit facility arranged by Bank of America in connection with the acquisition of Alta, comprising a $95,000,000, seven year first-lien term loan at LIBOR plus 400 basis points (9.05% at September 30, 2007), with quarterly payments of $1,250,000 and an annual principal payment of 50% of excess cash flow, as defined in the loan agreement; a $50,000,000 seven and one-half year second-lien term loan at LIBOR plus 825 basis points (13.55% at September 30, 2007), with all principal due at maturity and a revolving credit facility of $10,000,000 which bears interest at prime plus a margin that ranges from 275 to 300 basis points based on the consolidated leverage ratio (10.50% at September 30, 2007). The Company may borrow, make repayments and re-borrow under the revolver until August 8, 2012, at which all outstanding amounts must be repaid. $3 million was drawn on the revolving line of credit, which remained outstanding at September 30, 2007.

        The Company recorded an interest charge of $895,914 to write off deferred financing costs upon the extinguishment of the $53 million credit facility and capitalized approximately $6.9 million in deferred financing costs on the $155 million credit facility, which will be amortized over the term of the related debt using the effective interest method.

        As required by the $53 million credit facility, on May 16, 2007, the Company entered into a $48 million interest rate swap, which effectively converts the variable interest rate (the LIBOR component) under the credit facility to a fixed rate of 5.3%, plus the applicable margin per year throughout the term of the loan. This interest rate swap remains in effect even though the related term loan was repaid in August 2007.

F-36

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

        In addition to the pre-existing $48,000,000 interest rate swap described above, on September 5, 2007, the Company entered into a separate interest rate swap agreement for the incremental debt, initially totaling $97,750,000 which effectively converts the variable interest rate (the LIBOR component) under the incremental portion of the $155 million credit facility to a fixed rate of 5.05%, plus the applicable margin, per year, throughout the term of the loan. The notional amounts of these interest rate swaps are scheduled to decline as the principal balances owing under the term loans decline. Under these swaps, the Company is required to make quarterly fixed-rate payments to the counterparties calculated on the notional amount of the swap and the interest rate for the particular swap, while the counterparties are obligated to make certain monthly floating rate payments to the Company referencing the same notional amount. These interest rate swaps effectively fix the weighted average annual interest rate payable on the term loans to 5.13%, plus the applicable margin. Notwithstanding the terms of the interest rate swap transactions, the Company is ultimately obligated for all amounts due and payable under its existing credit facility.

        The interest rate swap agreements are designated as cash flow hedges of expected interest payments of long term debt with the effective date of the $48,000,000 swap to be in the second quarter of 2008 and the effective date of the $97,750,000 swap to be September 6, 2007. Prior to the hedge effective date, all mark-to-market adjustments in the value of the swaps are charged to other expense. Total gains or losses on all cash flow swaps charged to earnings through September 30, 2007 were approximately $868,480. The effective portions of the fair value gains or losses on these cash flow hedges are initially recorded as a component of other comprehensive income and subsequently reclassified into earnings when the forecasted transaction affects earnings. The amount of the loss recorded in other comprehensive income at September 30, 2007 that is expected to be reclassified to interest expense in the future is approximately $255,000, after tax. There were no components of cash flow hedges that were excluded from the assessment of effectiveness.

        The Company is subject to certain financial and administrative covenants, cross default provisions and other conditions required by the loan agreements with the lenders, including a maximum senior debt/EBITDA ratio and a minimum fixed-charge coverage ratio, each computed quarterly based on consolidated trailing twelve-month results, including the pre-acquisiton results of any acquired entities. The administrative covenants and other restrictions with which the Company must comply include, among others, restrictions on additional indebtedness, incurrence of liens, engaging in business other than the Company's primary business, paying certain dividends, acquisitions and asset sales. The credit facility provides that an event of default will occur if there is a change in control. The payment of principal and interest under the credit facility is fully and unconditionally guaranteed, jointly and severally by PMG, PMH and most of its existing wholly-owned subsidiaries. Substantially, all of the Company's assets are pledged to secure the credit facility. The Company exceeded the maximum senior debt/EBITDA ratio of 3.75 as of September 30, 2007. The Company also exceeded the maximum senior debt/EBITDA ratio of 3.75 and failed to meet the minimum fixed charge coverage ratio of 1.25 as of and for the rolling twelve-month periods ended December 31, 2007 and March 31, 2008. In addition, the Company did not comply with certain administrative covenants including timely filing of its Form 10-K for the year ended September 30, 2007 and other periodic reports.

        On February 13, 2008, April 10, 2008 and May 14, 2008, the Company and its lenders entered into forbearance agreements, whereby the lenders agreed not to exercise their rights under the credit facility through May 15, 2008, subject to satisfaction of specified conditions. For the period January 28, 2008 through April 10, 2008, interest was assessed at default rates of 11.4% with respect to the first lien

F-37

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

term loan and 15.4% with respect to the second-lien term loan. Under the April 2008 forbearance agreements, the applicable margin on the first and second lien term loans were permanently increased to 750 and 1,175 basis points, respectively, and the range of applicable margins on the revolving line of credit was increased to 500 to 750 basis points effective April 10, 2008. During the forbearance periods, the Company had limited or no access to the line of credit. The Company also agreed to pay certain fees and expenses to the lenders and their advisors as described below.

        On May 15, 2008, the Company and its lenders entered into an agreement to waive past covenant violations and amended the financial covenant provisions prospectively starting in April 2008 to modify the required ratios and to increase the frequency of compliance reporting from quarterly to monthly for a specified period. Effective May 15, 2008, the maximum senior debt/EBITDA ratios were increased to levels ranging from 3.90 to 7.15 for future monthly reporting periods from April 30, 2008 through June 30, 2009 and were increased to levels ranging from 3.30 to 3.75 beginning with the September 30, 2009 quarterly reporting period through maturity of the term loan. The minimum fixed charge coverage ratios were reduced to levels ranging from 0.475 to 0.925 for monthly reporting periods from April 30, 2008 through June 30, 2009 and were reduced to levels ranging from 0.85 to 0.90 beginning with the September 30, 2009 quarterly reporting periods through maturity of the term loan. The Company is also required to meet a new minimum EBITDA requirement for future monthly reporting periods from April 30, 2008 through June 30, 2009 and the remaining quarterly reporting periods through maturity of the term loan. In addition, the Company is required to, among other conditions, file its Form 10-K for the year ended September 30, 2007 and the Forms 10-Q for the quarters ended December 31, 2007 and March 31, 2008 by June 16, 2008. Failure to perform any obligations under the wavier and the amended credit facility agreement constitutes additional events of default. The Company has met all debt service requirements on a timely basis.

        The Company believes that it will be able to comply with the adjusted financial ratios through September 30, 2008. As such, scheduled payments due after twelve months have been classified as non-current at September 30, 2007. However, there can be no assurance that the Company will be able to meet all of the financial covenants and other conditions required by the loan agreements for periods beyond September 30, 2008. The lenders may not provide forbearance or grant waivers of future covenant violations and could require full repayment of the loans, which would negatively impact the Company's liquidity, ability to operate and its ability to continue as a going concern.

        In connection with obtaining the waivers and amendments, the Company was required to pay $675,000 in fees to Bank of America, $2,274,000 in forbearance fees to the lenders, $400,000 in legal and consulting fees to the lenders' advisors, and add 1% to the principal balance of the first and second lien debt of $1,415,000. In addition, the Company will incur an additional 4% "payment-in-kind" interest expense on the second lien debt, which accrues and is added to the principal balance. The 4% may be reduced on a quarterly basis by 0.50% for each 0.25% reduction in the Company's consolidated leverage ratio.

        Interest paid totaled $957,720, $1,121,886 and $4,175,888 in fiscal 2005, 2006, and 2007, respectively.

F-38

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

9. Long-Term Debt (Continued)

        Scheduled payments under current and long-term debt, inclusive of the $3,000,000 owing on the revolving credit facility (due in 2008), as of September 30, 2007, are as follows:

2008	$	8,000,000
2009		5,000,000
2010		5,000,000
2011		5,000,000
2012 and thereafter		123,750,000
Total minimum payments	$	146,750,000

        The scheduled maturities above do not include mandatory principal payments based on 50% of excess cash flows from operation (as defined) and the net proceeds from the planned sale of SMM, SPCMG, AVM and PEG (see Note 17) since such amounts cannot be determined in advance.

10. Stock Transactions and Option Plans

Stock Options

Option Activities

        The Company has stock option agreements with certain directors, officers and employees. A summary of the option activities for the year ended September 30 is as follows:

		2005				2006				2007
		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price		Options		Weighted Average Exercise Price
Outstanding, beginning of year		2,681,500		$	3.43	3,375,863		$	3.89	2,812,247		$	4.15
	Granted	705,313			5.65	35,500			5.67	249,805			5.49
	Exercised	—			—	(546,615	)		2.51	(761,315	)		3.24
	Forfeited	(10,950	)		5.93	(52,501	)		5.54	(50,831	)		5.52
	Expired	—			—	—			—	—			—
Outstanding, end of year		3,375,863		$	3.89	2,812,247		$	4.15	2,249,906		$	4.57
Exercisable, end of year		3,375,863		$	3.89	2,788,914		$	4.14	2,163,803		$	4.55
Price range		$1.25 - $7.15				$3.00 - $7.15				$3.00 - $7.15

        The aggregate intrinsic value of stock options outstanding and exercisable at September 30, 2007 was $1,997,761 and $1,990,012, respectively. The aggregate intrinsic value is calculated as the difference between the exercise price of the underlying awards and the quoted price of the Company's common stock for those awards that have an exercise price currently below the quoted market price.

        There was no stock-based compensation expense recognized during fiscal 2005 under the intrinsic method. Stock-based compensation expense recognized in fiscal 2006 and 2007 under the fair value method was $32,078 and $509,235, respectively. During the years ended September 30, 2006 and 2007,

F-39

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock Transactions and Option Plans (Continued)

options were exercised for cash proceeds of approximately $1,339,838 and $1,416,638, respectively. The aggregate intrinsic value of the gross option shares exercised in 2006 and 2007 was $1,597,975 and $1,655,043, respectively. The Company realized net tax benefits of $605,868 from options exercised in 2006, where the price paid was below the fair value of the common shares on the exercise date. These benefits reduced income tax payable and increased additional paid-in capital in 2006 and were reported as a financing activity in the statements of cash flows. No tax benefits were recorded for options exercised in 2007 since these benefits are not currently deductible due to the Company's operating losses.

        At September 30, 2007, there are 86,103 in unvested options. Compensation of $192,544 for the unvested options will be recognized ratably over the two year vesting period. The weighted average remaining contractual life of stock options outstanding at September 30, 2007 was 27 months. At September 30, 2007, 2,040,000 common shares have been authorized for options and restricted share awards, of which 55,496 shares are available.

Fair Value Assumptions

        The weighted average grant date fair value (determined using Black Scholes option pricing model) of options granted were $2.60 and $2.81 per option in 2006 and 2007, respectively. Fair value for options granted during the year ended September 30, 2006 and 2007 was estimated with the following weighted average assumptions:

	2006		2007
Market price of the Company's common stock on the date of grant	$5.65 - 6.75		$5.20 - 5.81
Weighted average expected life of the options	4 years		5 years
Risk-free interest rate	4.35% - 4.67	%	4.67% - 4.75	%
Weighted average expected volatility	53.03	%	53.21	%
Dividend yield	0.00	%	0.00	%

        Expected Term—The expected term of options granted represents the period of time that they are expected to be outstanding. During its initial period of implementation of SFAS 123(R), the Company has adopted the "simplified method" of determining the expected term for "plain vanilla" options, as allowed under Staff Accounting Bulletin (SAB) No. 107. The "simplified method" states that the expected term is equal to the sum of the vesting term plus the contract term, divided by two. "Plain vanilla" options are defined as those granted at-the-money, having service time vesting as a condition to exercise, providing that non-vested options are forfeited upon termination and that there is a limited time to exercise the vested options after termination of service, usually 90 days, and providing the options are non-transferable and non-hedgeable. The simplified method is not permitted for options granted, modified or settled after December 31, 2007. We will continue to gather additional information about the exercise behavior of participants and will adjust the expected term of our option awards to reflect the actual exercise experience after the required transition date.

F-40

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock Transactions and Option Plans (Continued)

        Expected Volatility—The Company estimates the volatility of the common stock at the date of grant based on the average of the historical volatilities of a group of peer companies. Since the Company's shares did not become publicly traded until May 2005, management believes there is currently not enough historical volatility data available to predict the stock's future volatility. The Company has identified three comparable companies to calculate historical volatility from publicly available data for sequential periods approximately equal to the expected terms of the option grants. In selecting comparable companies, management considered several factors including industry, stage of development, size and market capitalization.

        Risk-Free Interest Rate—The Company bases the risk-free interest rate on the implied yield in effect at the time of option grant on U.S. Treasury zero-coupon issues with equivalent remaining terms.

        Dividends—The Company has never paid any cash dividends on our common stock and do not anticipate paying any cash dividends in the foreseeable future.

        Forfeitures—Share based compensation is recognized only for those awards that are ultimately expected to vest. Prior to October 1, 2005, management accounted for forfeitures as they occurred. Compensation expense related to unvested forfeited options was reversed in the period the employee was terminated. SFAS No. 123(R) requires us to record compensation expense, net of estimated forfeitures, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. The Company used historical data since May 2005 to estimate pre-vesting option forfeitures for all our employees on a combined basis.

Warrants

        In 1997, a warrant to purchase 132,375 shares of the Company's common stock, at $5.00 per share, was issued to the Company's lender in connection with obtaining a revolving credit facility. The warrant expired in July 2004. In 1998, another warrant to purchase 60,350 shares of the Company's common stock at $5.00 per share was issued to the Company's lender upon the amendment of the Company's credit facility. This warrant was exercised in February 2005. An additional warrant to purchase 40,000 shares of the Company's common stock at $3.00 per share was issued to the lender on July 3, 1999 in connection with a further amendment to the credit facility. This warrant expired in July 2006. All warrants issued to the bank were immediately exercisable.

        In 2000, the Company also issued warrants to purchase 480,461 shares of the Company's common stock at $5.00 per share to certain shareholders. The shareholders paid cash or converted outstanding loans in order to receive the warrants. The warrants were exercisable on January 31, 2002 and expired on January 31, 2007. No value was assigned to the issuance of these warrants as the exercise price exceeded the fair value of the underlying stock, estimated at $1.25 to $2.00 per share during this period, and there was either no or only nominal trading activity in the stock. Consequently, the Company determined that the fair value of the warrants was de minimis. All of these warrants were exercised in January 2007, resulting in net proceeds totaling $783,968.

        In conjunction with the March 2004 Private Placement (Note 5), the Company issued warrants to purchase 659,409 shares of the Company's common stock at $1.00 per share to Spencer Trask Investment Partners, LLC., as a promotional fee. These warrants are exercisable at any time and expire on September 19, 2010. On November 3, 2004, 100,000 warrants were exercised. The original warrant certificate was cancelled and reissued for 559,409 warrants at the same terms and conditions.

F-41

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

10. Stock Transactions and Option Plans (Continued)

        In addition to the $1.00 warrants discussed above, Prospect also issued warrants to the investors of the Private Placement offering to purchase, at an exercise price of $5.50, 453,047 preferred shares. These warrants are exercisable at any time and expire 10 years from the date of issuance. Because the Series A Convertible Stock were automatically converted into shares of common stock on July 27, 2005, these warrants now effectively represent the right to buy a like number of shares of common stock.

        On June 15, 2004, the Company issued warrants to purchase a total of 22,727 shares of common stock at a price of $5.50 per share to New Capital Advisors. These warrants were issued for services provided in connection with the March 2004 Private Placement, are exercisable at any time, and expire on June 15, 2011.

11. Commitments and Contingencies

Leases

        The Company leases an office facility owned by a shareholder of the Company (see Note 7) and various office facilities and equipment from third parties under non-cancelable operating and capital lease arrangements expiring at various dates through 2014. Operating leases contain rent escalation clauses and renewal options. Capital leases bear interest at rates ranging from 7% - 18%.

        Future annual minimum lease payments required under operating and capital lease obligations as of September 30, 2007 are as follows:

	Non Related Entities
						Related Entities Operating Leases
Years ending September 30,	Capital Leases			Operating Leases				Total Operating Leases
2008	$	471,774		$	2,125,981	$	471,662	$	2,597,643
2009		383,454			2,099,335		487,612		2,586,947
2010		325,056			1,792,540		512,676		2,305,216
2011		59,898			835,913		537,740		1,373,653
2012		—			381,721		565,083		946,804
Thereafter		—			26,126		1,209,915		1,236,042
Total minimum lease payments	$	1,240,182		$	7,261,616	$	3,784,688	$	11,046,305
Less amounts representing interest		(240,158	)
Less current portion		(355,966	)
	$	644,058

        Consolidated rent expense for 2005, 2006, and 2007 was $1,664,374, $1,706,843 and $2,214,327, respectively.

Seismic Retrofit

        Alta is required to comply with the Hospital Seismic Safety Act (SB1953), which regulates the seismic performance of all aspects of hospital facilities in California. SB1953 imposes near-term and long-term compliance deadlines for seismic safety assessment, submission of corrective plans, and the

F-42

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Commitments and Contingencies (Continued)

retrofitting or replacement of medical facilities to comply with current seismic standards. These requirements can result in significant operational changes and capital outlays. Management is continuing to assess its options and the methods of financing the retrofit. Based on management's evaluation, the renovation needs to comply with the California seismic safety standards for its acute- care facilities, including asbestos abatement, are not expected to be significant.

Regulatory Matters

        Laws and regulations governing the Medicare program and health care generally are complex and subject to interpretation. Prospect and its affiliates believe that they are in compliance with all applicable laws and regulations and are not aware of any pending or threatened investigations involving allegations of potential wrongdoing. While no such regulatory inquiries have been made, 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.

        The Company's affiliated physician organizations must comply with a minimum working capital requirement, Tangible Net Equity (TNE) requirement, cash-to-claims ratio and claims payment requirements prescribed by the California Department of Managed Health Care. TNE is defined as net assets, less intangibles and amounts due from affiliates, plus subordinated obligations. At September 30, 2007, while the Company has not filed the fiscal 2007 audited financial statements of PMG, management believes that the affiliated physician organizations were in compliance with those regulatory requirements.

NASD Inquiry

        On February 3, 2004, the Company received a notice of inquiry from the National Association of Securities Dealers, Inc. (NASD), concerning trading in its common stock that took place around the time that it announced the first closing of a private placement of its Series A Preferred Stock. The Company responded to an NASD request for documents on February 12, 2004, and has received no further contacts from the NASD since that date. However, it is possible that the NASD could continue its inquiry or open a formal investigation and that the NASD or other government agencies could initiate enforcement proceedings if the NASD concluded that improprieties occurred in connection with the trading.

Trading Suspension

        Following non-timely filing of the Company's Form 10-K for the fiscal year ended September 30, 2007, the American Stock Exchange suspended trading of the Company's common stock, effective January 16, 2008. The Exchange will not resume trading in our common stock until the Company has filed its Form 10-K and the late Form 10-Q reports for the quarters ended December 31, 2007 and March 31, 2008, and the Company has met other requirements of the Exchange.

Litigation

        St. Jude Medical Center    In 1998, Prospect initiated arbitration proceedings against St. Jude Medical Center ("St. Jude") and PacifiCare of California ("PacifiCare") for failure by St. Jude to provide an accurate accounting of hospital incentive pools for the years 1997, 1998 and 1999. In

F-43

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

11. Commitments and Contingencies (Continued)

November 2001, the Arbitrator awarded Prospect $1,200,000, plus interest, plus legal fees of approximately $1,000,000. Approximately $1,200,000 was included in fiscal 2001 net patient service revenue, related to this matter. In November 2001, Prospect received a partial payment of $925,000 related to the above amounts. On January 31, 2003, St. Jude paid Prospect approximately $1,492,000, reflecting the remaining amount due under the arbitration award, including interest and attorneys' fees. The payment was made subject to Prospect's agreement to repay this amount in the event the arbitration award was ultimately vacated as a result of further judicial proceedings.

        Various appeals and other court actions ensued, related to portions of the arbitration award, interest thereon, and legal fees. Pending the final outcome of this matter, management reserved approximately $700,000 primarily related to those amounts already received from St. Jude, but which remained subject to appeal.

        During Prospect's fourth quarter of fiscal 2005, the parties concluded a settlement agreement as to all disputed matters with nominal consideration to either party. Upon entering into this settlement agreement, Prospect reversed the remaining legal reserve, effective in the fourth quarter of fiscal 2005.

        Other Matters    The Company and its affiliated physician organizations and hospitals are parties to other legal actions arising in the ordinary course of business. The Company believes that a liability, if any, under these claims will not have a material adverse effect on the consolidated financial position, results of operations, or cash flows.

12. Defined Contribution Plan

        Each of the entities, Prospect, ProMed and Alta sponsor a defined contribution plan covering substantially all employees who meet certain eligibility requirements. Under these plans, employees can contribute up to 15% of their annual compensation. Employer contributions vest immediately. Beginning January 1, 2006, the Company changed matching under the Prospect plan from 25% of the first 4% contributed, to 100% of the first 3% and 50% of the next 2% contributed. Under the ProMed plan, the Company provides a match of 50% up to 6% contributed which vests equally over five years. There is currently no company match under the Alta plan. The Company is currently evaluating alternatives for combining one or more of these plans. The total expense under the plans was $102,498 in 2005, $251,679 in 2006 and $312,472 in 2007.

F-44

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

13. Incurred But Not Reported Claims Reserves

        The following table presents the roll-forward of incurred but not reported, or IBNR, claims reserves as of the periods indicated:

		Year ended September 30
		2005			2006			2007
IBNR as of beginning of year		$	13,323,622		$	11,532,328		$	11,400,000
IBNR acquired in business combinations			—			866,395			6,537,525
Health care claim expenses incurred during the year:
	Related to current year		46,030,847			50,587,185			70,193,936
	Related to prior year		(855,164	)		(854,595	)		(301,257	)
	Total incurred		45,175,683			49,732,590			69,892,679
Health care claims paid during the year:
	Related to current year		(35,266,828	)		(39,488,526	)		(54,240,165	)
	Related to prior year		(11,700,149	)		(11,242,787	)		(10,951,079	)
	Total paid		(46,966,977	)		(50,731,313	)		(65,191,244	)
IBNR as of end of year		$	11,532,328		$	11,400,000		$	22,638,960

        Following is a reconciliation of managed care cost of revenues per the statements of operations to healthcare claims expense reflected in the preceding table:

	Year ended September 30
	2005		2006		2007
Capitation expense	$	45,967,875	$	44,553,992	$	56,658,495
Fee-for-service claims expense		45,175,683		49,732,590		69,892,679
Other physician compensation		4,524,284		2,151,526		2,993,259
Other cost of revenues		703,355		746,093		1,500,381
Total cost of revenues	$	96,371,197	$	97,184,201	$	131,044,814

14. Joint Venture

        As discussed at Note 1, the Company and an unrelated third party, AMVI/IMC Health Network, Inc. (AMVI) formed a joint venture to initially service Medi-Cal (Medi-Cal is the California Medicaid program), members under the CalOPTIMA program in Orange County, California. Healthy Families and OneCare members were subsequently added to the joint venture arrangement. The Company does not consolidate the joint venture. The Company includes in its financial statements only the net results attributable to those enrollees specifically identified as assigned to it, together with the management fee that it charges the joint venture partner for managing those enrollees specifically assigned to AMVI. Costs incurred by the Company in managing the joint venture are included in general and administrative expenses in the accompanying consolidated financial statements. As of September 30, 2007 and 2006, the amounts due to the joint venture of approximately $1,913,000 and $3,148,000, respectively, which represent advance capital distributions from the joint venture, were

F-45

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

14. Joint Venture (Continued)

included in accounts payable and other accrued liabilities in the accompanying consolidated financial statements.

        Under the OneCare contract, the Company was required, through December 31,2006, to pay medical costs at least equal to 85% of the capitation revenue.

        Effective January 1, 2007, the MediCal and Healthy Family enrollees under the CalOPTIMA contract were reassigned from the AVMI/Prospect Joint Venture directly to Prospect Medical Group. As a result, revenues and service costs related to these enrollees, which were previously included in income from unconsolidated joint venture, are reported as capitation revenue and medical costs, respectively, beginning in the second fiscal quarter of 2007.

        Summarized unaudited financial information for the unconsolidated joint venture at September 30, 2005, 2006 and 2007 and for each of the years then ended is as follows:

	2005			2006		2007
Cash	$	823,306		$	800,197	$	997,685
Receivables		914,113			4,294,542		3,350,465
Total assets	$	1,737,419		$	5,094,739	$	4,348,150
Accrued medical claims	$	575,671		$	2,420,031	$	2,648,103
Other payables		900,000			2,315,314		560,272
Other partner's capital		260,748			358,394		1,138,775
Prospect's capital		1,000			1,000		1,000
Total liabilities and partners' capital	$	1,737,419		$	5,094,739	$	4,348,150
Revenues	$	8,836,729		$	16,558,218	$	9,943,925
Income (loss) before income taxes	$	(101,403	)	$	846,489	$	3,042,324
Prospect's equity income	$	87,516		$	1,400,492	$	2,702,365
Management fees earned by Prospect	$	806,788		$	851,838	$	592,193

15. Segment Information

        Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", provides disclosure guidelines for segments of a company based on a management approach to defining reporting segments.

        With the acquisition of Alta in August 2007, the Company's operations are now organized into two reporting segments: (i) IPA Management—which is comprised of the Prospect and ProMed operating units, provides management services to affiliated physician organizations that operate as independent physician associations (IPAs) or medical clinics; and (ii) Hospital Services—which owns and operates four community-based hospitals—Los Angeles Community Hospital, Hollywood Community Hospital, Norwalk Community Hospital and Van Nuys Community Hospital.

        The accounting policies of the reporting segments are the same as those described in the summary of significant accounting policies (see Note 2 and 4). The Company evaluates financial performance

F-46

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Segment Information (Continued)

and allocates resources primarily based on earnings from continuing operations before interest expense, interest income, income taxes, depreciation and amortization, as well as income or loss from operations before income taxes, excluding infrequent or unusual items.

        The reporting segments are strategic business units that offer different services within the healthcare continuum. Business in each reporting segment is conducted by one or more direct or indirect wholly-owned subsidiaries of the Company. Each of these subsidiaries has separate governing bodies.

        The following table summarizes certain information for each of the reporting segments (in thousands) regularly provided to and reviewed by the chief operating decision maker as of and for the year ended September 30, 2007:

		IPA Management(1)			Hospital Services(2)			Intersegment Eliminations			Consolidated
Revenues from external customers		$	165,070,079		$	15,583,040		$	—		$	180,653,119
Intersegment revenues			—			—			—			—
Total revenues			165,070,079			15,583,040			—			180,653,119
Operating expenses
	Cost of revenues		131,044,814			10,699,194			—			141,744,008
	General and administrative		36,208,106			1,569,086			—			37,777,192
	Depreciation and amortization		2,622,494			483,837			—			3,106,331
	Impairment of goodwill and intangibles		38,776,421			—			—			38,776,421
Total operating expenses			208,651,835			12,752,117			—			221,403,952
Operating income from unconsolidated joint venture			2,663,544			—			—			2,663,544
	Operating income (loss)		(40,918,212	)		2,830,923			—			(38,087,289	)
	Other income (expenses)
Investment income			1,096,556			—			—			1,096,556
Interest expense			(6,110,585	)		(14,753	)		—			(6,125,338	)
Income (loss) before income taxes			(45,932,241	)		2,816,170			—			(43,116,071	)
Provision (benefit) for income taxes(3)			(9,649,359	)		—			—			(9,649,359	)
Net income (loss)		$	(36,282,882	)	$	2,816,170		$	—		$	(33,466,712	)
Identifiable segment assets(1)		$	252,929,129		$	72,961,304		$	(30,250,944	)	$	295,639,489
Segment capital expenditures		$	878,665		$	51,723		$	—		$	930,388
Segment goodwill		$	22,623,230		$	106,498,704		$	—		$	129,121,934

(1)

The IPA Management includes operating results of Prospect Medical Holdings, Inc., the parent entity. All acquisition-related debt, goodwill and intangibles, including those related to the Hospital Services segment, are recorded at the Parent level. The Company does not allocate interest expense, amortization expense for intangibles, management fee, costs for shared services or income

F-47

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

15. Segment Information (Continued)

tax expense to the Hospital Services segment. Operating results includes ProMed since its June 1, 2007 date of acquisition.

(2)

Represents Alta operating results since its August 8, 2007 date of acquisition.

(3)

Prospect Medical Holdings, Inc. and Prospect Medical Group (which serves as a holding company for other affiliated physician organizations and is itself an affiliated physician organization) each files a consolidated tax return. The consolidated tax provision (benefit) is recorded as part of the IPA management reporting segment.

16. Quarterly Results of Operations (Unaudited)

        The following is a summary of the quarterly results of operations for the years ended September 30, 2006 and 2007 in thousands, except per share data:

		For the quarter ended
		December 31, 2005		March 31, 2006		June 30, 2006		September 30, 2006
Total revenues		$	33,465	$	34,572	$	34,818	$	32,941
Income before income taxes			1,849		2,059		2,057		2,135
Net income before minority interest			1,104		1,234		1,313		1,256
Net income		$	1,103	$	1,229	$	1,304	$	1,254
Net earnings per common share:
	Basic	$	0.16	$	0.18	$	0.19	$	0.18
	Diluted	$	0.14	$	0.15	$	0.16	$	0.15

		For the quarter ended
		December 31, 2006		March 31, 2007			June 30, 2007		September 30, 2007
Total revenues		$	34,827	$	33,327		$	40,752	$	71,747
Income (loss) before income taxes			562		(1,829	)		921		(42,770	)
Net income (loss) before minority interest			336		(1,092	)		539		(33,250	)
Net income (loss)		$	334	$	(1,091	)	$	534	$	(33,254	)
Net earnings (loss) per common share:
	Basic	$	0.05	$	(0.14	)	$	0.06	$	(3.14	)
	Diluted	$	0.04	$	(0.14	)	$	0.06	$	(3.14	)

        Total revenues of $71.7 million for the fourth quarter of 2007 were $38.8 million higher than total fourth quarter 2006 revenues of $32.9 million. This increase was attributable to incremental acquisition revenue of $38.5 million ($22.9 million from ProMed and $15.6 million from Alta) and a net $0.3 million increase in Prospect revenues, excluding acquisitions. The $0.3 million increase in core business revenue resulted from two divergent factors: 1) a $4.9 million capitation revenue increase, as well as an improvement in Medicare risk-adjustment revenue offset in part primarily by a $4.4 million decrease in risk pool revenue, and $0.2 million decrease in management service fee revenue.

F-48

PROSPECT MEDICAL HOLDINGS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

16. Quarterly Results of Operations (Unaudited) (Continued)

        A net loss of $33.3 million in fourth quarter 2007 compared unfavorably to 2006 fourth quarter net income of $1.3 million, the result of a $2.4 million and $2.8 million net profit for ProMed and Alta, respectively, offset by a $38.4 million net loss for Prospect core business, excluding acquired entities. The net loss for Prospect was attributed to 1) a $38.8 million impairment charge in goodwill and identified intangibles, 2) a decline in membership, and 3) an increase in medical claims expense.

17. Subsequent Event

        On April 23, 2008, the Company entered into a Stock Purchase Agreement, pursuant to which the Company agreed to sell, subject to buyer's due diligence, all of the issued and outstanding stock of SMM, SPCMG, AVM and PEG for $10 million. As discussed in Note 9, pursuant to the amended senior credit facility agreement, all net proceeds from the sale are to be used to prepay the outstanding balance of the first lien debt.

F-49

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We have audited the consolidated financial statements of Prospect Medical Holdings, Inc. as of September 30, 2006 and 2007, and for each of the three years in the period ended September 30, 2007, and have issued our report thereon dated May 28, 2008 (included elsewhere in this Form 10-K). Our audits also included the accompanying financial statement schedule. This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

	/s/ ERNST & YOUNG LLP
Los Angeles, California May 28, 2008

F-50

PROSPECT MEDICAL HOLDINGS, INC.

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

	Balance at the beginning of the year		Acquired in acquisitions		Charges to operations		Deductions		Balance at the end of the year
2005
Allowance for Doubtful Accounts	$	662,000	$	—	$	141,000	$	1,000	$	802,000
2006
Allowance for Doubtful Accounts	$	802,000	$	—	$	106,000	$	399,000	$	509,000
2007
Allowance for Doubtful Accounts	$	509,000	$	6,314,000	$	1,019,000	$	2,763,000	$	5,079,000

F-51

EXHIBIT INDEX

2.1	Form of Agreement and Plan of Reorganization Among Prospect Medical Holdings, Inc., Prospect Health Administrators, Inc., ProMed Health Services Company, ProMed Health Care Administrators, the ProMed Executive Officers, and the Principal ProMed Shareholders, dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	Schedule 2.4—ProMed Company Consent Requirements, Schedule 2.6(a)—List of Holders of Record and Number of Shares Held in ProMed Company, Schedule 2.6(b)—ProMed Company Options Outstanding, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or incurred in the ordinary course of business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.11—Real Estate Leased, Schedule 2.12(b)—Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14 - Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b) —Existing/Threatened Claims cont'd, Schedule 2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule 2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 2.26—Permits, Schedule 2.30—Bank Accounts, Schedule 3.3—Holdings Consent Requirements, Schedule 7.2(b) —Principal ProMed Shareholder and ProMed Executive Officer Indemnification Limit, Exhibit A—Form of Agreement of Merger, Exhibit B—Principal ProMed Shareholders, Exhibit C—Form of Joinder Agreement, Exhibit D—Piggy-Back Registration Rights, Exhibit E—Form of Prasad Non-Compete Agreement, Exhibit F—Form of Thapar Non-Compete Agreement, Exhibit G—Form of Bahremand Non-Compete Agreement, Exhibit H—Prasad Employment Agreement, Exhibit I—Thapar Employment Agreement, Exhibit J—Bahremand Employment Agreement, Exhibit K—Investment Representation Certificate, Exhibit L—ProMed Company/ProMed Subsidiary Legal Opinion Matters, Exhibit M—Holdings Legal Opinion Matters
2.2	Form of Agreement and Plan of Reorganization Among Prospect Medical Group, Inc., Prospect Pomona Medical Group, Inc., Prospect Medical Holdings, Inc., Pomona Valley Medical Group, Inc., the ProMed Executive Officers, and the Principal ProMed Shareholders, dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	Schedule 2.4—ProMed Pomona Consent Requirements, Schedule 2.6—List of Holders of Record and Number of Shares Held in ProMed Pomona, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or incurred in the ordinary course of business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.12(b)—Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14—Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b)—Existing/Threatened Claims Not Covered By Insurance, Schedule—2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule—2.17(c) —Employees contd., Schedule—2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 2.26—Permits, Schedule 2.28—Fraud and Abuse, Schedule 2.32—Bank Accounts, Schedule 3.3—Group Consent Requirements, Schedule 5.2—Amendment to Primary Care Provider Agreement of ProMed Pomona and, if applicable, ProMed Upland, Schedule 5.15—Physician Retention Bonus, Schedule 7.2(b)—Principal ProMed Shareholder and ProMed Executive Officer Indemnification Limit, Exhibit A—Form of Agreement of Merger, Exhibit B—Principal ProMed Shareholders, Exhibit C—Form of Joinder Agreement, Exhibit D—Piggy-Back

	Registration Rights, Exhibit E—Form of Prasad Non-Compete Agreement, Exhibit F—Form of Thapar Non-Compete Agreement, Exhibit G—Form of Bahremand Non-Compete Agreement, Exhibit H—Prasad Employment Agreement, Exhibit I—Thapar Employment Agreement, Exhibit J—Bahremand Employment Agreement, Exhibit K—Investment Representation Certificate, Exhibit L—ProMed Pomona Legal Opinion Matters, Exhibit M—Group/Group Subsidiary/Holdings Legal Opinion Matters
2.3	Form of Stock Purchase Agreement Among Prospect Medical Group, Inc., Prospect Medical Holdings, Inc., Upland Medical Group, a Professional Medical Corporation, and Jeereddi Prasad, M.D., dated as of May 21, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules and exhibits will be provided supplementally to the Commission upon request:
	ProMed Upland Consent Requirements, Schedule 2.8—Liabilities or Obligations Not Shown on the Financial Statements or Incurred in the Ordinary Course of Business, Schedule 2.9—Actions or Proceedings for Taxes, Schedule 2.12(b) —Aggregate Tangible Personal Property, Schedule 2.13—Intellectual Property, Schedule 2.14—Material Contracts, Schedule 2.15(a)—Existing/Threatened Claims, Schedule 2.15(b)—Existing/Threatened Claims contd., Schedule 2.17(a)—Employees, Schedule 2.17(b)—Employees contd., Schedule 2.17(c)—Employees contd., Schedule 2.18—Insurance, Schedule 2.19—Management; Powers of Attorney, Schedule 2.23—Confidentiality and Non-Compete Agreements, Schedule 2.24—Inspections, Schedule 22.7—Permits, Schedule 2.28—Fraud and Abuse, Schedule 2.32—Bank Accounts, Schedule 3.3—Group Consent Requirements, Schedule 5.13(a)—Physician Retention Bonus, Schedule 5.13(b)—Amendment to Primary Care Provider Agreement of ProMed Upland and if applicable, ProMed Pomona., Exhibit A—Piggy-Back Registration Rights, Exhibit C [sic]—Form of Prasad Non-Compete Agreement, Exhibit C—Form of Thapar Non-Compete Agreement, Exhibit E—Form of Bahremand Non-Compete Agreement, Exhibit F—Prasad Employment Agreement, Exhibit G—Thapar Employment Agreement,
	Exhibit H—Bahremand Employment Agreement, Exhibit I—Investment Representation Certificate, Exhibit J—ProMed Upland Legal Opinion Matters, Exhibit K—Group/Holdings Legal Opinion Matters
2.4	Form of Agreement and Plan of Reorganization by and among Prospect Medical Holdings, Inc., Prospect Hospitals System, LLC, Alta HealthCare System, Inc. and the Shareholders of Alta HealthCare System, Inc., dated as of July 25, 2007(10)
	Pursuant to Regulation S-K, Item 601(b)(2), the following schedules to the Stock Purchase Agreement will be provided supplementally to the Commission upon request
	Schedule 2.3(e), Merger Consideration Allocation, Schedule 3.1, Shareholders and Number of Company Shares, Schedule 4.1, Capitalization of the Company, Schedule 4.2, Capitalization of the Acquired Subsidiaries, Schedule 4.4, Permits, Authorizations of the Acquired Entities and Shareholders, Schedule 4.5(a), Historical Financial Statements, Schedule 4.6, Undisclosed Liabilities, Schedule 4.7(b), Absence of Changes, Schedule 4.7(c), Absence of Certain Additional Changes, Schedule 4.8(a), Material Contracts, Schedule 4.10(a), Real Property, Schedule 4.11, Liens or Encumbrances on Personal Property, Schedule 4.12(a), Employee, Labor Matters, Company Plans, Schedule 4.12(b), Company Plans, Schedule 4.12(c), Contributions to Company Plans, Schedule 4.12(d), Continuation of Coverage, Schedule 4.12(e), Employees with Employment Contracts, Schedule 4.12(f), Unfunded Liabilities, Schedule 4.12(h), List of All Employees, Schedule 4.13(b), Provider Numbers, Schedule 4.13(i), Audited Cost Reports, Schedule 4.13(s), JCAHO Accreditation, Schedule 4.16, Intellectual Property, Schedule 4.17(e), Permits and licenses, Schedule 4.17(j), Compliance with Laws, Schedule 4.18(g), Environmental Reports, Schedule 4.19, Legal Proceedings, Schedule 4.20, Insurance Policies, Schedule 7.5, Employees With Employment

	Contracts that Continue Post-Closing, Exhibit A, Shareholders/Shareholders, Exhibit B, Business, Exhibit C, Certificate of Merger, Exhibit D, Certificate of Designation, Exhibit E, Knowledge of Company Individuals, Exhibit F, Knowledge of Holdings Individuals, Exhibit G, Merger Consideration Certificate, Exhibit H, Registration Rights Agreement, Exhibit I, Managers of Surviving Entity, Exhibit J, Officers of Surviving Entity, Exhibit K, Lee Employment Agreement, Exhibit L, Topper Employment Agreement , Exhibit M-1, Form of Voting Agreement (Non-Management), Exhibit M-2, Form of Voting Agreement (Management), Exhibit N-1, Form of Limited Power of Attorney (Norwalk Community Hospital), Exhibit N-2, Form of Limited Power of Attorney (Los Angeles Community Hospital), Exhibit N-3, Form of Limited Power of Attorney (Van Nuys Community Hospital), Exhibit N-4, Form of Limited Power of Attorney (Hollywood Community Hospital), Exhibit O, Extraordinary Collections, Company Disclosure Schedules, Holdings Disclosure Schedules
3.1	Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.2	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.3	Certificate of Amendment of Amended and Restated Certificate of Incorporation of Prospect Medical Holdings, Inc.(1)
3.4	Certificate of Designation of Series A Convertible Preferred Stock of Prospect Medical Holdings, Inc.(1)
3.5	Certificate of Elimination of Series A Convertible Preferred Stock of Prospect Medical Holdings, Inc.(10)
3.6	Certificate of Designation of Series B Preferred Stock of Prospect Medical Holdings, Inc.(11)
3.7	Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(1)
3.8	First Amendment to Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(1)
3.9	Second Amendment to Amended and Restated Bylaws of Prospect Medical Holdings, Inc.(11)
4.1	Specimen Common Stock Certificate(1)
10.1	Warrant to Acquire Common Stock between Prospect Medical Holdings, Inc. and Spencer Trask Venture Investment Partners, LLC(1)
10.2	Warrant Agreement for Series A Preferred Stock dated as of January 15, 2004 between Prospect Medical Holdings, Inc. and Spencer Trask Ventures, Inc.(1)
10.3	Form of Registration Rights Agreement between Prospect Medical Holdings, Inc. and each Investor of Series A Convertible Preferred Stock(1)
10.4	Form of Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of June 4, 1996, between Prospect Medical Systems, Inc. and Prospect Medical Group, Inc.(1)
10.5	Form of Amendment to Management Services Agreement, made as of October 1, 1998, between Prospect Medical Systems, Inc. and Prospect Medical Group, Inc.(1)
10.6	Management Agreement dated as of January 1, 2003 between Pinnacle Health Resources Inc. and StarCare Medical Group, Inc. dba Gateway Medical Group, Inc.(1)
10.7	Management Agreement dated as of January 1, 2003 between Pinnacle Health Resources Inc. and APAC Medical Group, Inc. dba Gateway Physicians Medical Associates, Inc.(1)
10.8	Form of Management Services Agreement, made as of August 1, 1999, between Prospect Medical Systems, Inc. and Nuestra Familia Medical Group(1)

10.9	Management Services Agreement, made as of July 1, 1999, between Prospect Medical Systems, Inc. and AMVI/Prospect Medical Group(1)
10.10	Employment Agreement, dated as of August 1, 1999 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(1)
10.11	Amendment to Employment Agreement, dated as of August 1, 2002 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(1)
10.12	Form of Management Services Agreement dated as of January 1, 2001 between Prospect Medical Systems, Inc. and Prospect Health Source Medical Group, Inc.(1)
10.13	Form of Amendment to Management Services Agreement dated as of November 1, 2002 between Prospect Medical Systems, Inc. and Prospect Health Source Medical Group, Inc.(1)
10.14	Form of Management Services Agreement dated as of October 1, 2003, by and between Prospect Medical Systems, Inc. and Prospect Professional Care Medical Group, Inc.(1)
10.15	Form of Management Services Agreement dated as of March 1, 2004 by and between Prospect Medical Systems, Inc. and Prospect NWOC Medical Group, Inc.(1)
10.16	Form of Second Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of September 25, 1997, between Sierra Medical Management, Inc. and Sierra Primary Care Medical Group,  Inc.(1)
10.17	Form of Amended and Restated Management Services Agreement, made as of September 15, 1998 and deemed to have been effective as of October 31, 1997, by and between Sierra Medical Management, Inc. and Pegasus Medical Group,  Inc.(1)
10.18	Amendment to Management Services Agreement made as of October 1, 1998, by and between Sierra Medical Management, Inc. and Pegasus Medical Group, Inc.(1)
10.19	Employment Agreement made as of April 8, 2004, but effective on April 19, 2004, between Prospect Medical Holdings, Inc. and Mike Heather(1)
10.20	Form of Partnership Agreement dated July 1, 1999 between AMVI/MC Health Network, Inc. and Santa Ana/Tustin Physicians Group(1)
10.21	Prospect Medical Holdings, Inc. 1998 Stock Option Plan(1)
10.22	First Amendment to Prospect Medical Holdings, Inc. 1998 Stock Option Plan(1)
10.23	Form of Cash Management Agreement among Prospect Medical Systems, Inc., Prospect Medical Holdings, Inc., and Prospect Medical Group, Inc., effective as of June 6, 1996(4)
10.24	Second Amendment to Prospect Medical Holdings, Inc. 1998 Stock Option Plan(5)
10.25	Management Services Agreement effective as of May 19, 2003, by and between Sierra Medical Management, Inc. and Antelope Valley Medical Associates, Inc.(5)
10.26	Amendment to Management Agreement, effective as of February 1, 2004 to that certain Management Agreement made and entered into as of January 1, 2003, entered into by and between Pinnacle Health Resources and StarCare Medical Group,  Inc. dba Gateway Medical Group, Inc.(5)
10.27	Amendment to Management Agreement, effective as of February 1, 2004 to that certain Management Agreement made and entered into as of January 1, 2003, entered into by and between Pinnacle Health Resources and APAC Medical Group, Inc. dba Gateway Physicians Medical Associates, Inc.(5)
10.28	Form of stock option agreement used for incentive stock options granted under the registrant's 1998 Stock Option Plan, as amended(7)

10.29	Form of stock option agreement used for non-qualified stock options granted under the registrant's 1998 Stock Option Plan, as amended(7)
10.30	Second Amendment to Employment Agreement, dated as of August 1, 2005 between Prospect Medical Holdings, Inc. and Jacob Y. Terner, M.D.(9)
10.31	Form of First Lien Credit Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, Bank of America, N.A., as Administrative Agent, Swing Line Lender, and L/C Issuer, Cratos Capital Management, LLC, as Syndacation Agent, certain other Lenders, and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager(14)
10.32	Form of Second Lien Credit Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, Bank of America, N.A., as Administrative Agent, certain other Lenders, and Banc of America Securities LLC, as Sole Lead Arranger and Sole Book Manager(14)
10.33	Form of First Lien Collateral Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Grantors, in favor of Bank of America, N.A., as Administrative Agent(14)
10.34	Form of Second Lien Collateral Agreement dated as of August 8, 2007 among Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Grantors, in favor of Bank of America, N.A., as Administrative Agent(14)
10.35	Form of Continuing Guaranty (First Lien) dated as of August 8, 2007 by Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Guarantor, in favor of Bank of America, N.A., as Administrative Agent(14)
10.36	Form of Continuing Guaranty (Second Lien) dated as of August 8, 2007 by Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and certain of their Subsidiaries as the Guarantor, in favor of Bank of America, N.A., as Administrative Agent(14)
10.37	Form of First Lien Pledge Agreement dated as of August 8, 2007 by Jacob Y. Terner, M.D. in favor of Bank of America, N.A., as Administrative Agent(14)
10.38	Form of Second Lien Pledge Agreement dated as of August 8, 2007 by Jacob Y. Terner, M.D. in favor of Bank of America, N.A., as Administrative Agent(14)
10.39	Form of First Lien Collateral Assignment of ProMed Acquisition Documents and Alta Acquisition Documents dated as of August 8, 2007 by Alta Hospitals Systems LLC, Prospect Hospitals System LLC, Alta Healthcare System, Inc., Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and Bank of America, N.A., as Administrative Agent(14)
10.40	Form of Second Lien Collateral Assignment of ProMed Acquisition Documents and Alta Acquisition Documents dated as of August 8, 2007 by Alta Hospitals Systems LLC, Prospect Hospitals System LLC, Alta Healthcare System, Inc., Prospect Medical Holdings, Inc., Prospect Medical Group, Inc., and Bank of America, N.A., as Administrative Agent(14)
10.41	Form of Intercreditor Agreement dated as of August 8, 2007 by Prospect Medical Holdings, Inc. and Prospect Medical Group, Inc. as the Borrowers, certain of their Subsidiaries as Guarantors, and Bank of America, N.A., as First Lien Collateral Agent, Second Lien Collateral Agent, and Control Agent(14)
10.42	Form of Third Amended and Restated Assignable Option Agreement dated as of August 8, 2007 by Prospect Medical Systems, Inc., Prospect Medical Group, Inc. and Jacob Y. Terner, M.D.(14)
10.43	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Los Angeles Community Hospital(14)

10.44	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Hollywood Community Hospital(14)
10.45	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Norwalk Angeles Community Hospital(14)
10.46	Form of First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Van Nuys Community Hospital(14)
10.47	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Los Angeles Community Hospital(14)
10.48	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Hollywood Community Hospital(14)
10.49	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Los Angeles Hospitals, Inc. in favor of Bank of America, N.A. for the property constituting Norwalk Angeles Community Hospital(14)
10.50	Form of Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated August 8, 2007 made by Alta Hollywood Hospitals, Inc. in favor of Bank of America, N.A., as Beneficiary, for the property constituting Van Nuys Community Hospital(14)
10.51	Form of Executive Employment Agreement dated August 8, 2007 between Alta Hospitals System, LLC, and Samuel S. Lee(12)
10.52	Form of Amendment to Executive Employment Agreement effective March 19, 2008 between Prospect Medical Holdings, Inc., Alta Hospitals System, LLC and Samuel S. Lee(13)
10.53	Form of Management Services Agreement between Pomona Valley Medical Group, Inc. and ProMed Health Care Administors effective October 1, 1998(14)
10.54	Form of Management Services Agreement between Upland Medical Group, A Professional Medical Corporation and ProMed Health Care Administors effective October 1, 2002(14)
10.55	Form of Hospital Inpatient Services Agreement between Alta Los Angeles Hospitals, Inc. and the Department of Health Services, as amended (Certain portions of this Exhibit have been omitted subject to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and Rule 406 under the Securities Act of 1933)(14)
10.56	Form of Hospital Inpatient Services Agreement between Alta Hollywood Hospitals, Inc. and the Department of Health Services, as amended (Certain portions of this Exhibit have been omitted subject to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934 and Rule 406 under the Securities Act of 1933)(14)
10.57	Form of Registration Rights Agreement between Prospect Medical Holdings, Inc. and each holder of Series B Convertible Preferred Stock(12)
10.58	Form of Non-Management Voting Agreement between Samuel S. Lee and certain non-management shareholders of Prospect Medical Holdings, Inc. (12)
10.59	Form of Management Voting Agreement between Samuel S. Lee and certain management shareholders of Prospect Medical Holdings, Inc.(12)
14.1	Code of Ethics(8)

21.1	List of Subsidiaries of Prospect Medical Holdings, Inc.(14)
23.1	Consent of Independent Registered Public Accounting Firm(14)
31.1	Certification of Chief Executive Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended(14)
31.2	Certification of Chief Financial Officer pursuant to Rules 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended(14)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S. C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(14)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002(14)

(1)

Previously filed as an exhibit to our Form 10 registration statement (the "Form 10") on May 27, 2004, and incorporated herein by reference.

(2)

Previously filed as an exhibit to our registration statement on Form S-1 (File No. 333-63801) on September 18, 1998, and incorporated herein by reference.

(3)

Previously filed as an exhibit to Amendment No. 1 to the Form 10 on May 27, 2004, and incorporated herein by reference.

(4)

Previously filed as an exhibit to Amendment No. 2 to the Form 10 on August 27, 2004, and incorporated herein by reference.

(5)

Previously filed as an exhibit to Amendment No. 3 to the Form 10 on October 21, 2004, and incorporated herein by reference.

(6)

Previously filed as an exhibit to our registration statement on Form S-1 (File No. 333-124915) on July 21, 2005, and incorporated herein by reference.

(7)

Previously filed as an exhibit to our Form 8-K current report filed on September 20, 2005, and incorporated herein by reference.

(8)

Previously filed as an exhibit to our annual report on Form 10-K filed on December 28, 2006, and incorporated herein by reference.

(9)

Previously filed as an exhibit to our quarterly report on Form 10-Q filed on February 14, 2006, and incorporated herein by reference.

(10)

Previously filed as an exhibit to our quarterly report on Form 10-Q filed on August 20, 2007, and incorporated herein by reference.

(11)

Previously filed as an exhibit to our Form 8-K current report on August 10, 2006, and incorporated herein by reference.

(12)

Previously filed as an exhibit to Schedule 13D filed on August 20, 2007, and incorporated herein by reference.

(13)

Previously filed as an exhibit to Schedule 13D/A filed on April 22, 2008, and incorporated herein by reference.

(14)

Filed herewith.

QuickLinks

Table of Contents Form 10-K
PART I

Item 1. Business.

Item 1A. Risk Factors

Item 1B. Unresolved Staff Comments.
Item 2. Properties.
Item 3. Legal Proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.

PART II

Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Item 6. Selected Financial Data.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Item 7A. Quantitative and Qualitative Disclosures Regarding Market Risk.
Item 8. Financial Statements and Supplementary Data.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures.
Item 9B. Other Information.

PART III

Item 10. Directors, Executive Officers and Corporate Governance.
Item 11. Executive Compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Item 14. Principal Accounting Fees and Services.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

SIGNATURES
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROSPECT MEDICAL HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
PROSPECT MEDICAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
PROSPECT MEDICAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
PROSPECT MEDICAL HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
PROSPECT MEDICAL HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
PROSPECT MEDICAL HOLDINGS, INC. SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX

EX-10.31

Exhibit 10.31

Execution Version

Published CUSIP Number:  74349EAD6

Revolving Credit CUSIP Number:  74349EAF1

Term Loan CUSIP Number:74349EAE4

FIRST LIEN CREDIT AGREEMENT

Dated as of August 8, 2007

among

PROSPECT MEDICAL HOLDINGS, INC.

AND

PROSPECT MEDICAL GROUP, INC.,

as the Borrowers,

BANK OF AMERICA, N.A.,
as Administrative Agent, Swing Line Lender and
L/C Issuer,

CRATOS CAPITAL MANAGEMENT, LLC

as Syndication Agent

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC,

as Sole Lead Arranger and Sole Book Manager

TABLE OF CONTENTS

Section Page

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

1.01	Defined Terms	1
1.02	Other Interpretive Provisions	30
1.03	Accounting Terms	31
1.04	Rounding	31
1.05	Times of Day	31
1.06	Letter of Credit Amounts	32
1.07	Currency Equivalents Generally	32

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS

2.01	The Loans	32
2.02	Borrowings, Conversions and Continuations of Loans	33
2.03	Letters of Credit	34
2.04	Swing Line Loans	43
2.05	Prepayments	46
2.06	Termination or Reduction of Commitments	49
2.07	Repayment of Loans	50
2.08	Interest	51
2.09	Fees	51
2.10	Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate	52
2.11	Evidence of Debt	53
2.12	Payments Generally; Administrative Agent’s Clawback	53
2.13	Sharing of Payments by Lenders	55
2.14	Obligations Joint and Several	56
2.15	PMG as Borrower Agent	58

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY

3.01	Taxes	58
3.02	Illegality	60
3.03	Inability to Determine Rates	61
3.04	Increased Costs; Reserves on Eurodollar Rate Loans	61
3.05	Compensation for Losses	63
3.06	Mitigation Obligations; Replacement of Lenders	63
3.07	Survival	64

i

ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

4.01	Conditions of Initial Credit Extension	64
4.02	Conditions to all Credit Extensions	71

ARTICLE V
REPRESENTATIONS AND WARRANTIES

5.01	Existence, Qualification and Power	72
5.02	Authorization; No Contravention	72
5.03	Governmental Authorization; Other Consents	73
5.04	Binding Effect	73
5.05	Financial Statements; No Material Adverse Effect	73
5.06	Litigation	74
5.07	No Default	74
5.08	Ownership of Property; Liens; Investments	74
5.09	Environmental Compliance	75
5.10	Insurance	76
5.11	Taxes	76
5.12	ERISA Compliance	76
5.13	Subsidiaries; Equity Interests; Loan Parties	77
5.14	Margin Regulations; Investment Company Act	77
5.15	Disclosure	78
5.16	Compliance with Laws	78
5.17	Intellectual Property; Licenses, Etc.	78
5.18	Solvency	79
5.19	Casualty, Etc.	79
5.20	Health Care Matters.	79
5.21	Labor Matters.	81
5.22	Collateral Documents.	81

ARTICLE VI
AFFIRMATIVE COVENANTS

6.01	Financial Statements	81
6.02	Certificates; Other Information	82
6.03	Notices	86
6.04	Payment of Obligations	88
6.05	Preservation of Existence, Etc.	88
6.06	Maintenance of Properties	88
6.07	Maintenance of Insurance	88
6.08	Compliance with Laws	89
6.09	Books and Records	89
6.10	Inspection Rights	89
6.11	Use of Proceeds	90
6.12	Covenant to Guarantee Obligations and Give Security	90

ii

6.13	Compliance with Environmental Laws	93
6.14	Preparation of Environmental/Seismic Reports	93
6.15	Further Assurances	94
6.16	Compliance with Terms of Leaseholds	94
6.17	Interest Rate Hedging	94
6.18	Material Contracts	94
6.19	Post-Closing Covenants	94

ARTICLE VII
NEGATIVE COVENANTS

7.01	Liens	95
7.02	Indebtedness	96
7.03	Investments	98
7.04	Fundamental Changes	100
7.05	Dispositions	101
7.06	Restricted Payments	101
7.07	Change in Nature of Business: Limitations on Excluded Subsidiaries	102
7.08	Transactions with Affiliates	102
7.09	Burdensome Agreements	102
7.10	Use of Proceeds	103
7.11	Financial Covenants	103
7.12	Capital Expenditures	104
7.13	Amendments of Organization Documents	104
7.14	Accounting Changes	104
7.15	Prepayments, Etc. of Indebtedness; Payments and Prepayments of the Second Lien Term Loan	104
7.16	Amendment, Etc. of Related Documents and Indebtedness	104
7.17	Designation of Senior Debt	105

ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES

8.01	Events of Default	105
8.02	Remedies upon Event of Default	108
8.03	Application of Funds	109

ARTICLE IX
ADMINISTRATIVE AGENT

9.01	Appointment and Authority	110
9.02	Rights as a Lender	110
9.03	Exculpatory Provisions	111
9.04	Reliance by Administrative Agent	112
9.05	Delegation of Duties	112
9.06	Resignation of Administrative Agent	112
9.07	Non-Reliance on Administrative Agent and Other Lenders	113

iii

9.08	Intercreditor Agreement	113
9.09	No Other Duties, Etc.	114
9.10	Administrative Agent May File Proofs of Claim	114
9.11	Collateral and Guaranty Matters	114

ARTICLE X
MISCELLANEOUS

10.01	Amendments, Etc.	115
10.02	Notices; Effectiveness; Electronic Communications	117
10.03	No Waiver; Cumulative Remedies	119
10.04	Expenses; Indemnity; Damage Waiver	119
10.05	Payments Set Aside	121
10.06	Successors and Assigns	121
10.07	Treatment of Certain Information; Confidentiality	125
10.08	Right of Setoff	127
10.09	Interest Rate Limitation	127
10.10	Counterparts; Integration; Effectiveness	127
10.11	Survival of Representations and Warranties	128
10.12	Severability	128
10.13	Replacement of Lenders	128
10.14	Governing Law; Jurisdiction; Etc.	129
10.15	Waiver of Jury Trial	130
10.16	California Judicial Reference	130
10.17	No Advisory or Fiduciary Responsibility	130
10.18	USA PATRIOT Act Notice	131
SIGNATURES		S-1

iv

SCHEDULES

1.01	Certain EBITDA Add-Backs
2.01	Commitments and Applicable Percentages
4.01(a)(vi)	Pledged Real Property
4.01(a)(xv)	Exceptions to Audited Financial Statements
5.06	Disclosed Litigation
5.07	Material Contracts
5.08(b)	Existing Liens
5.08(c)	Owned Real Property
5.08(d)(i)	Leased Real Property (Lessee)
5.08(d)(ii)	Leased Real Property (Lessor)
5.08(e)	Existing Investments
5.09	Environmental Compliance
5.11	Tax Returns
5.12(c)	Past ERISA Events
5.13	Subsidiaries and Other Equity Investments; Loan Parties
5.21	Labor Matters
7.02	Existing Indebtedness
7.09	Burdensome Agreements
10.02	Administrative Agent’s Office, Certain Addresses for Notices

EXHIBITS

Form of
A	Committed Loan Notice
B	Swing Line Loan Notice
C-1	Term Note
C-2	Revolving Credit Note
D	Compliance Certificate
E	Assignment and Assumption
F	Calculation of Consolidated Membership

v

CREDIT AGREEMENT

This FIRST LIEN CREDIT AGREEMENT (“Agreement”) is entered into as of August 8, 2007, among PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), PROSPECT MEDICAL GROUP, INC., a California professional corporation (together with Holdings, each a “Borrower” and collectively, the “Borrowers”), each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer.

PRELIMINARY STATEMENTS:

The Borrowers have requested that the Lenders provide a term loan facility and a revolving credit facility, and the Lenders have indicated their willingness to lend and the L/C Issuer has indicated its willingness to issue letters of credit, in each case, on the terms and subject to the conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

1.01         Defined Terms.  As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition Co.” means Prospect Hospitals System LLC, a California limited liability company, which entity’s name shall be changed on the Closing Date to Alta Hospitals System, LLC.

“Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrowers and the Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Aggregate Commitments” means the Commitments of all the Lenders.

“Aggregate Credit Exposures” means, at any time, in respect of (a) the Term Facility, the aggregate amount of the Term Loans, as the case may be, outstanding at such time and (b) in respect of the Revolving Credit Facility, the sum of (i) the unused portion of the

Revolving Credit Facility at such time and (ii) the Total Revolving Credit Outstandings at such time.

“Agreement” means this First Lien Credit Agreement, as the same may be amended, restated, supplemented or modified from time to time.

“AMVI/Prospect” means AMVI/Prospect Medical Group, a California general partnership, a/k/a AMVI/Prospect Health Network.

“Applicable Fee Rate” means, at any time, in respect of the Revolving Credit Facility, (a) from the Closing Date until December 31, 2007, 0.50% per annum and (b) thereafter, the applicable percentage per annum set forth below determined by reference to the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b):

Applicable Fee Rate

Pricing Level	Consolidated Leverage Ratio	Commitment  Fee
1	Less than 3.00:1.00	0.375	%
2	Greater than or equal to 3.00:1.00 but less than 3.25:1.00	0.375	%
3	Greater than or equal to 3.25:1.00 but less than 3.50:1.00	0.500	%
4	Greater than or equal to 3.50	0.500	%

Any increase or decrease in the Applicable Fee Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level 4 shall apply as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered.

Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Fee Rate for any period shall be subject to the provisions of Section 2.10(b).

“Applicable Percentage” means (a) in respect of the Term Facility, with respect to any Term Lender at any time, the percentage (carried out to the ninth decimal place) of the Term Facility represented by (i) on or prior to the Closing Date, such Term Lender’s Term Commitment at such time and (ii) thereafter, the principal amount of such Term Lender’s Term Loans at such time and (b) in respect of the Revolving Credit Facility, with respect to any Revolving Credit Lender at any time, the percentage (carried out to the ninth decimal place) of the Revolving Credit Facility represented by such Revolving Credit Lender’s Revolving Credit Commitment at such time.  If the commitment of each Revolving Credit Lender to make Revolving Credit Loans and the obligation of the L/C Issuer to make L/C Credit Extensions have been terminated pursuant to Section 8.02, or if the Revolving Credit Commitments have expired, then the Applicable Percentage of each Revolving Credit Lender in respect of the Revolving

2

Credit Facility shall be determined based on the Applicable Percentage of such Revolving Credit Lender in respect of the Revolving Credit Facility most recently in effect, giving effect to any subsequent assignments.  The initial Applicable Percentage of each Lender in respect of each Facility is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Applicable Rate” means (a) with respect to the Term Loan Facility, 2.75% per annum for Base Rate Loans and 4.00% per annum for Eurodollar Rate Loans and (b) with respect to the Revolving Credit Facility, (i) from the Closing Date to the date on which the Administrative Agent receives a Compliance Certificate pursuant to Section 6.02(b) for the fiscal quarter ending December 31, 2007, 2.75% per annum for Base Rate Loans and 4.00% per annum for Eurodollar Rate Loans and Letter of Credit Fees and (ii) thereafter, the applicable percentage per annum set forth below determined by reference to the Consolidated Leverage Ratio as set forth in the most recent Compliance Certificate received by the Administrative Agent pursuant to Section 6.02(b):

Applicable Rate

Pricing  Level	Consolidated Leverage  Ratio	Eurodollar Rate and  Letter of Credit Fees		Base Rate
1	Less than 3.00:1.00	3.50	%	2.25	%
2	Greater than or equal to 3.00:1.00 but less than 3.25:1.00	3.75	%	2.50	%
3	Greater than or equal to 3.25:1.00 but less than 3.50:1.00	4.00	%	2.75	%
4	Greater than or equal to 3.50	4.25	%	3.00	%

Any increase or decrease in the Applicable Rate resulting from a change in the Consolidated Leverage Ratio shall become effective as of the first Business Day immediately following the date a Compliance Certificate is delivered pursuant to Section 6.02(b); provided, however, that if a Compliance Certificate is not delivered when due in accordance with such Section, then Pricing Level 4 shall apply, in each case as of the first Business Day after the date on which such Compliance Certificate was required to have been delivered.

Notwithstanding anything to the contrary contained in this definition, the determination of the Applicable Rate for any period shall be subject to the provisions of Section 2.10(b).

“Applicable Revolving Credit Percentage” means with respect to any Revolving Credit Lender at any time, such Revolving Credit Lender’s Applicable Percentage in respect of the Revolving Credit Facility at such time.

“Appropriate Lender” means, at any time, (a) with respect to either of the Term Facility or the Revolving Credit Facility, a Lender that has a Commitment with respect to such Facility or holds a Term Loan or a Revolving Credit Loan, respectively, at such time, (b) with respect to the Letter of Credit Sublimit, (i) the L/C Issuer and (ii) if any Letters of Credit

3

have been issued pursuant to Section 2.03(a), the Revolving Credit Lenders and (c) with respect to the Swing Line Sublimit, (i) the Swing Line Lender and (ii) if any Swing Line Loans are outstanding pursuant to Section 2.04(a), the Revolving Credit Lenders.

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Arranger” means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager.

“Assignable Option Agreement” means that certain Third Amended and Restated Assignable Option Agreement dated as of the Closing Date and executed by and among Dr. Terner, PMS and PMG.

“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit E or any other form approved by the Administrative Agent.

“Attributable Indebtedness” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.

“Audited Financial Statements” means, collectively, (a) the audited consolidated balance sheet of Holdings and its Subsidiaries (including PMG and its Subsidiaries) for the fiscal year ended September 30, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of Holdings and its Subsidiaries (including PMG and its Subsidiaries), including the notes thereto and (b) the audited consolidated balance sheet of Alta Healthcare System, Inc. and its Subsidiaries for the fiscal year ended December 31, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of  Alta Healthcare System, Inc., and its Subsidiaries, including the notes thereto.

“Availability Period” means in respect of the Revolving Credit Facility, the period from and including the Closing Date to the earliest of (a) the Maturity Date for the Revolving Credit Facility, (b) the date of termination of the Revolving Credit Commitments pursuant to Section 2.06, and (c) the date of termination of the commitment of each Revolving Credit Lender to make Revolving Credit Loans and of the obligation of the L/C Issuer to make L/C Credit Extensions pursuant to Section 8.02.

4

“Bank of America” means Bank of America, N.A. and its successors.

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.”  The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.  Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Revolving Credit Loan or a Term Loan that bears interest based on the Base Rate.

“Borrowers” has the meaning specified in the introductory paragraph hereto.

“Borrower Agent” means PMG.

“Borrower Materials” has the meaning specified in Section 6.02.

“Borrowing” means a Revolving Credit Borrowing, a Swing Line Borrowing or a Term Borrowing, as the context may require.

 “Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

“Capital Expenditures” means, with respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations).

“Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

“Capitated Contracts” means, collectively, all of the Loan Parties’ contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations and all proceeds therefrom.

“Capitated Contract Rights” means all of the Loan Parties’ rights to payment of any kind arising from or out of Capitated Contracts or any other contracts or rights to payment from health service contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations.

“Cash Collateralize” has the meaning specified in Section 2.03(g).

5

“Cash Equivalents” means any of the following types of Investments, to the extent owned by either Borrower or any of their respective Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents and other Liens permitted hereunder):

(a)           readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

(b)           time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $500,000,000, in each case with maturities of not more than 90 days from the date of acquisition thereof;

(c)           commercial paper issued by any issuer and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and

(d)           Investments, classified in accordance with GAAP as current assets of either Borrower or any of their respective Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

“Cash Management Agreement” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.

“Cash Management Bank” means any Person that, at the time it enters into a Cash Management Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Cash Management Agreement.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

“CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

6

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Change of Control” means an event or series of events by which:

(a)           (i) Any Person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than Samuel S. Lee, the David and Alexa Topper Family Trust U/D/T September 29, 1997) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) of more than twenty percent (20%) of the Equity Interests (based on voting power, in the event different classes of stock shall have different voting powers) of Holdings, (ii) such Person or group shall otherwise obtain the power to control the election of a majority of the board of directors of Holdings, or (iii) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Holdings (together with any new directors whose election by the board of directors of Holdings or whose nomination for election by the stockholders of Holdings was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or

(b)           Holdings shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PMS, SMM, ProMed or Acquisition Co. on a fully diluted basis; or

(c)           PMS shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PHR, on a fully diluted basis; or

(d)           Dr. Terner shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PMG on a fully diluted basis or Dr. Terner institutes or consents to the institution of any proceeding against him or his estate under any Debtor Relief Law, or makes an assignment for the benefit of creditors or Dr. Terner ceases to be duly licensed to practice in the medical industry in the State of California or Dr. Terner ceases to be designated as a licensed professional in accordance with the California Professional Corporation Act; except that, if Dr. Terner shall cease to own and control such Equity Interests by reason of death or disability, a Change of Control under this clause (d) shall not be deemed to have occurred if Dr. Terner is replaced by another owner and controlling shareholder of such capital Stock reasonably acceptable to Administrative Agent and the Required Lenders within sixty (60) days; or

7

(e)           PMG ceases to own and control all of the economic and voting rights associated with ownership of one hundred percent (100%) of the outstanding Equity Interests of all classes of each PMG Loan Party on a fully diluted basis (except with respect to Nuestra Familia Medical Group, Inc., a California professional corporation, in which case a Change of Control shall have occurred if PMG ceases to own and control all of the economic and voting rights associated with ownership of fifty five percent (55%) of the outstanding Equity Interests of all classes of Nuestra Familia Medical Group, Inc., on a fully diluted basis); or

(f)            the outstanding Equity Interests of any Subsidiary (other than Nuestra Familia Medical Group, Inc. and AMVI) ceases to be owned one hundred percent (100%) by a Loan Party; or

(g)           any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Holdings, or control over the equity securities of Holdings entitled to vote for members of the board of directors or equivalent governing body of Holdings on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such securities.

“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

“CMS” means Centers for Medicare and Medicaid Services.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” means all of the “Collateral” and “Mortgaged Property” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

“Collateral Agreement” has the meaning specified in Section 4.01(a)(v).

“Collateral Documents” means, collectively, the Collateral Agreement, the Intercreditor Agreement, the Terner Pledge, the Mortgages, each intellectual property security agreement, and each other collateral assignment, security agreement, pledge agreement or other similar agreement delivered to the Administrative Agent pursuant to the terms hereof or pursuant to Section 6.12, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

“Collection Account Agreement” means each agreement with a depositary bank holding a Deposit Account into which Governmental Receivables are initially deposited executed in accordance with Section 4.6(b) of the Collateral Agreement.

8

“Commitment” means a Term Commitment or a Revolving Credit Commitment, as the context may require.

“Committed Loan Notice” means a notice of (a) a Term Borrowing, (b) a Revolving Credit Borrowing, (c) a conversion of Loans from one Type to the other, or (d) a continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

“Company” means Alta Healthcare System, Inc., a California corporation.

“Compliance Certificate” means a certificate substantially in the form of Exhibit D.

“Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of the Loan Parties and their Subsidiaries on a consolidated basis for the most recently completed Measurement Period plus (a) the following to the extent deducted in calculating such Consolidated Net Income:  (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income taxes payable, (iii) depreciation and amortization expense and (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period (in each case of or by Loan Parties and their Subsidiaries for such Measurement Period) and minus (b) the following to the extent included in calculating such Consolidated Net Income:  (i) Federal, state, local and foreign income tax credits, (ii) all non-cash items increasing Consolidated Net Income (in each case of or by Loan Parties and their Subsidiaries for such Measurement Period), (iii) losses (or plus gains) from dispositions of capital assets (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities); plus (iv) extraordinary losses (or plus gains) as defined under GAAP net of related tax effects included in the determination of Consolidated Net Income.  For purposes of this Agreement, Consolidated EBITDA shall be adjusted on a pro forma basis, in a manner reasonably acceptable to the Administrative Agent, to include, as of the first day of any applicable period, any acquisitions and Dispositions of assets permitted under this Agreement, including, without limitation, adjustments reflecting any non-recurring costs and any extraordinary expenses of any such permitted acquisitions and asset dispositions consummated during such period calculated on a basis consistent with GAAP and Regulation S-X of the Securities Exchange Act of 1934, as amended, or as approved by the Administrative Agent.  For purposes of this Agreement and the calculation of Consolidated Leverage Ratio and Consolidated Fixed Charge Coverage Ratio, the add-backs identified on Schedule 1.01(a) shall be permitted in the amounts and for the periods set forth on such Schedule.

“Consolidated Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) (i) Consolidated EBITDA, less (ii) the aggregate amount of all cash Capital Expenditures to (b) the sum of (i) Consolidated Interest Charges, (ii) the aggregate principal amount of all regularly scheduled principal payments or redemptions or similar acquisitions for value of outstanding debt for borrowed money, but excluding any such payments to the extent refinanced through the incurrence of additional Indebtedness otherwise expressly permitted under Section 7.02, and (iii) the aggregate amount of Federal, state, local and foreign

9

income taxes paid in cash, in each case, of or by Holdings and its Subsidiaries for the most recently completed Measurement Period.

 “Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) all interest paid or payable with respect to discontinued operations and (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

“Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness as of such date to (b) Consolidated EBITDA of Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

“Consolidated Net Income” means, at any date of determination, the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period; provided that Consolidated Net Income shall exclude (a) extraordinary gains and extraordinary losses for such Measurement Period, (b) the net income of any Subsidiary during such Measurement Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary during such Measurement Period, except that Holdings’ equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income, and (c) any income (or loss) for such Period of any Person if such Person is not a Subsidiary, except that Holdings’ equity in the net income of any such Person for such Measurement Period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such Period to Holdings or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to Holdings as described in clause (b) of this proviso).

“Consolidated Total Indebtedness” means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis, the sum of all Indebtedness of Holdings and its Subsidiaries.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.

10

“Credit Extension” means each of the following:  (a) a Borrowing and (b) an L/C Credit Extension.

“Debt Rating” means, as of any date of determination, the rating as determined by either S&P or Moody’s (collectively, the “Debt Ratings”) of each Borrower’s non-credit-enhanced, senior unsecured long-term debt.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means (a) when used with respect to Obligations other than Letter of Credit Fees or Eurodollar Rate Loans, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum, (b) when used with respect to Obligations consisting of Eurodollar Rate Loans, an interest rate equal (i) the Eurodollar Rate plus (ii) the Applicable Rate plus (iii) 2% per annum and (c) when used with respect to Letter of Credit Fees, a rate equal to the Applicable Rate plus 2% per annum.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Term Loans, Revolving Credit Loans, participations in L/C Obligations or participations in Swing Line Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

“Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“Dollar” and “$” mean lawful money of the United States.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

“Dr. Terner” means Jacob Y. Terner, M.D.

“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).

11

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to human health, safety, pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous/biohazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of either Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with either Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by either Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by either Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any

12

liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon either Borrower or any ERISA Affiliate.

“Eurodollar Rate” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period.  If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

“Eurodollar Rate Loan” means a Revolving Credit Loan, or a Term Loan that bears interest at a rate based on the Eurodollar Rate.

“Event of Default” has the meaning specified in Section 8.01.

“Excess Cash Flow” means, for any fiscal year of Holdings, the excess (if any) of (a) Consolidated EBITDA for such fiscal year minus (b) the sum (for such fiscal year) of (i) Consolidated Interest Charges actually paid in cash by the Borrowers or any of their respective Subsidiaries, (ii) scheduled principal repayments, to the extent actually made, of Term Loans pursuant to Section 2.07(a), (iii) all income taxes actually paid in cash by the Borrowers or any of their respective Subsidiaries and (iv) Capital Expenditures actually made by the Borrowers or any of their respective Subsidiaries in such fiscal year (excluding Capital Expenditures made in connection with an insurance and/or condemnation event and reinvested in accordance with Section 2.05(b)(iv)).

“Excluded Subsidiary” means Alta Healthcare Building Corporation.

“Excluded Taxes” means, with respect to the Administrative Agent, any Lender, the L/C Issuer or any other recipient of any payment to be made by or on account of any obligation of either Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which either Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower Agent under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a

13

result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from either Borrower with respect to such withholding tax pursuant to Section 3.01(a).

“Existing Credit Agreements” means, collectively, (a) that certain Credit Agreement dated as of June 1, 2007 among the Borrowers, Bank of America, as agent, and a syndicate of lenders and (b) that certain Financing Agreement dated as of December 6, 2005 among the Company, Alta Hollywood Hospitals, Inc., Alta Los Angeles Hospitals, Inc. and CIT Lending Services Corporation.

“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.

“Facility” means the Term Facility or the Revolving Credit Facility, as the context may require.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

“Fee-For-Service Accounts” means Accounts other than Capitated Contract Rights.

“Fee Letter” means the letter agreement, dated May 23, 2007, among the Borrowers, the Administrative Agent and the Arranger.

“Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which either Borrower is resident for tax purposes.  For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

14

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien).  The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.  The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” means, collectively, the Subsidiaries of each Borrower (other than the Excluded Subsidiary) and each other Subsidiary of the Borrowers that shall be required to execute and deliver a guaranty or guaranty supplement pursuant to Section 6.12.

“Guaranty” means, collectively, the Continuing Guaranty (First Lien) made by the Guarantors in favor of the Secured Parties, together with each other guaranty and guaranty supplement delivered pursuant to Section 6.12.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon

15

gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Health Care Laws” means (i) any and all federal, state and local fraud and abuse and self-referral laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the Stark Law (42 U.S.C. § 1395nn and § 1395x(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the Emergency Medical Treatment and Labor Act.(42 U.S.C. § 1395dd), Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code and the regulations promulgated pursuant to such statutes; (ii) the federal Food, Drug & Cosmetic Act (21 U.S.C. §§ 301 et seq.) and the regulations promulgated thereunder; (iii) the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191) and the regulations promulgated thereunder; (iv) Medicare and the regulations promulgated thereunder; (v) Medicaid and the regulations promulgated thereunder; (vi) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated thereunder; (vii) quality, safety and accreditation standards and requirements of all applicable state laws or regulatory bodies; (viii) requirements of Law relating to the ownership or operation of a health care facility or business, or assets used in connection therewith; (ix) requirements of Law relating to the billing or submission of claims, collection of accounts receivable, underwriting the cost of, or provision of management or administrative services in connection with, any and all of the foregoing, by any Loan Party and its Subsidiaries, including, but not limited to, laws and regulations relating to practice of medicine and other health care professions, professional fee splitting, tax-exempt organization and charitable trust law applicable to health care organizations, certificates of need, certificates of operations and authority; and (x) any and all other applicable health care laws, regulations, manual provisions, policies and administrative guidance, each of (i) through (x) as may be amended from time to time.

“Healthcare Service Plan License” means a license issued by the California Department of Corporations or the corresponding agency of another state and/or any other applicable agency or successor.

“Hedge Bank” means any Person that, at the time it enters into a Secured Hedge Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Secured Hedge Agreement.

“Holdings” has the meaning specified in the introductory paragraph hereto.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a)           all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)           the maximum amount of all direct or contingent obligations of such Person arising under letters of credit, including standby and commercial, solely to the

16

extent that such letters of credit are not fully cash collateralized, bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c)           net obligations of such Person under any Swap Contract;

(d)           all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 90 days after the date on which such trade account was created);

(e)           indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f)            all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;

(g)           all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;

(h)           all Guarantees of such Person in respect of any of the foregoing; and

(i)            all obligations owing in respect of Medicare and/or Medicaid.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.  The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitees” has the meaning specified in Section 10.04(b).

“Information” has the meaning specified in Section 10.07.

“Intercreditor Agreement” means that certain Intercreditor Agreement of even date herewith by and among the Administrative Agent, the Second Lien Administrative Agent and each of the Credit Parties, as amended, restated, supplemented or otherwise modified from time to time.

“Interest Payment Date” means, (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Loan and the Maturity Date of the Facility under which

17

such Loan was made; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan or Swing Line Loan, the last Business Day of each March, June, September and December and the Maturity Date of the Facility under which such Loan was made (with Swing Line Loans being deemed made under the Revolving Credit Facility for purposes of this definition).

“Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower Agent in its Committed Loan Notice or such other period that is twelve months or less requested by the Borrower Agent and consented to by all the Appropriate Lenders; provided that:

(a)           any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b)           any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c)           no Interest Period shall extend beyond the Maturity Date of the Facility under which such Loan was made.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person.  For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IP Rights” has the meaning specified in Section 5.17.

“IRS” means the United States Internal Revenue Service.

“ISP” means, with respect to any Letter of Credit, the “International Standby Practices 1998” published by the Institute of International Banking Law & Practice, Inc. (or such later version thereof as may be in effect at the time of issuance).

“Issuer Documents” means with respect to any Letter of Credit, the Letter of Credit Application, and any other document, agreement and instrument entered into by the L/C Issuer and either Borrower (or any Subsidiary) or in favor of the L/C Issuer and relating to such Letter of Credit.

18

“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities (including Seismic Compliance Laws, Health Care Laws, regulations and permits), including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“L/C Advance” means, with respect to each Revolving Credit Lender, such Lender’s funding of its participation in any L/C Borrowing in accordance with its Applicable Revolving Credit Percentage.

“L/C Borrowing” means an extension of credit resulting from a drawing under any Letter of Credit which has not been reimbursed on the date when made or refinanced as a Revolving Credit Borrowing.

“L/C Credit Extension” means, with respect to any Letter of Credit, the issuance thereof or extension of the expiry date thereof, or the increase of the amount thereof.

“L/C Issuer” means Bank of America in its capacity as issuer of Letters of Credit hereunder, or any successor issuer of Letters of Credit hereunder.

“L/C Obligations” means, as at any date of determination, the aggregate amount available to be drawn under all outstanding Letters of Credit plus the aggregate of all Unreimbursed Amounts, including all L/C Borrowings.  For purposes of computing the amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06.  For all purposes of this Agreement, if on any date of determination a Letter of Credit has expired by its terms but any amount may still be drawn thereunder by reason of the operation of Rule 3.14 of the ISP, such Letter of Credit shall be deemed to be “outstanding” in the amount so remaining available to be drawn.

“Lender” has the meaning specified in the introductory paragraph hereto and, as the context requires, includes the Swing Line Lender.

“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower Agent and the Administrative Agent.

“Letter of Credit” means any standby letter of credit issued hereunder.

“Letter of Credit Application” means an application and agreement for the issuance or amendment of a Letter of Credit in the form from time to time in use by the L/C Issuer.

“Letter of Credit Expiration Date” means the day that is seven days prior to the Maturity Date then in effect for the Revolving Credit Facility (or, if such day is not a Business Day, the next preceding Business Day).

19

“Letter of Credit Fee” has the meaning specified in Section 2.03(i).

“Letter of Credit Sublimit” means an amount equal to $5,000,000.  The Letter of Credit Sublimit is part of, and not in addition to, the Revolving Credit Facility.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

“Loan” means an extension of credit by a Lender to the Borrowers under Article II in the form of a Term Loan, a Revolving Credit Loan or a Swing Line Loan.

“Loan Documents” means, collectively, (a) this Agreement, (b) the Notes, (c) the Guaranty, (d) the Collateral Documents, (e) the Fee Letter, (f) each Issuer Document, (g) each Secured Hedge Agreement, (h) each Secured Cash Management Agreement and (i) the Terner Pledge; provided that for purposes of the definition of “Material Adverse Effect” and Articles IV through IX, “Loan Documents” shall not include Secured Hedge Agreements or Secured Cash Management Agreements.

“Loan Parties” means, collectively, each Borrower and each Guarantor.

“Management Agreements” means, the agreements identified as management agreements on Schedule 5.07.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, assets, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations under any Loan Document or any Second Lien Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

 “Material Contract” means, with respect to any Person, each contract to which such Person is a party that is material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person; and, in the case of the Borrowers and their Subsidiaries, “Material Contracts” shall include, among other contracts, all Management Agreements and all Capitated Contracts.

“Maturity Date” means (a) with respect to the Revolving Credit Facility, August 8, 2012 and (b) with respect to the Term Facility, August 8, 2014; provided, however, that, in each case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

20

“Measurement Period” means, at any date of determination, the most recently completed four fiscal quarters of Holdings or, if fewer than four consecutive fiscal quarters of Holdings have been completed since the Closing Date, the fiscal quarters of Holdings that have been completed since the Closing Date.

“Medicaid” means that government-sponsored entitlement program under Title XIX, P.L. 89-97 of the Social Security Act, which provides federal grants to states for medical assistance based on specific eligibility criteria, as set forth at Section 1396, et seq. of Title 42 of the United States Code.

“Medicare” means that government-sponsored insurance program under Title XVIII, P.L. 89-97, of the Social Security Act, which provides for a health insurance system for eligible elderly and disabled individuals, as set forth at Section 1395, et seq. of Title 42 of the United States Code.

“Membership” means, as to any Loan Party as of the end of any calendar month, the number of Persons who are subject to Capitated Contracts with such Loan Party.

“Merger” means the merger of the Company with and into Acquisition Co. as contemplated under the terms of the Merger Agreement.

“Merger Agreement” means that certain Agreement and Plan of Reorganization dated as of July 25, 2007 by and among the Company, Samuel S. Lee, The David & Alexa Topper Family Trust, U/D/T September 29, 1997, Holdings and Acquisition Co.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Mortgage” has the meaning specified in Section 4.01(a)(vi).

“Mortgage Policy” has the meaning specified in Section 4.01(a)(vi)(B).

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which either Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Cash Proceeds” means, with respect to any Disposition by either Borrower or any of their respective Subsidiaries or any Extraordinary Receipt received or paid to the account of either Borrower or any of their respective Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents or the Second Lien Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by either Borrower or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith;

21

provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds.

“Note” means a Term Note or a Revolving Credit Note, as the context may require.

“NPL” means the National Priorities List under CERCLA.

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“Obligor” means any Person that is obligated to make payment with respect to any Capitated Contract or other account receivable.

“Offset” means any amount, including any overpayment made to a Loan Party or an Affiliate, with respect to any Obligor that is to be repaid by offset against amounts then due to such Loan Party by such Obligor.  Offsets shall include any amounts constituting penalties or assessments due to any state or federal tax authorities, amounts deemed by any Obligor to be recoupments, inter-agency or inter-creditor offsets and recoupments and any other amounts withheld or paid to any person or entity other than the Administrative Agent to offset against any purported liability of any Loan Party.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Outstanding Amount” means (a) with respect to Term Loans, Revolving Credit Loans and Swing Line Loans on any date, the aggregate outstanding principal amount thereof after giving effect to any borrowings and prepayments or repayments of Term Loans, Revolving

22

Credit Loans and Swing Line Loans, as the case may be, occurring on such date; and (b) with respect to any L/C Obligations on any date, the amount of such L/C Obligations on such date after giving effect to any L/C Credit Extension occurring on such date and any other changes in the aggregate amount of the L/C Obligations as of such date, including as a result of any reimbursements by either Borrower of Unreimbursed Amounts.

“Participant” has the meaning specified in Section 10.06(d).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by either Borrower or any ERISA Affiliate or to which either Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“Permits” means any permit, approval, authorization, license, registration, certification, certificate of authority, variance, permission, franchise, qualification, order, filing or consent required from a Governmental Authority or other Person under an applicable requirement of Law.

“Permitted Encumbrances” has the meaning specified in the Mortgages.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“PHR” means Pinnacle Health Resources, a California corporation.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by either Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Platform” has the meaning specified in Section 6.02.

“PMG” means Prospect Medical Group, Inc., a California professional corporation.

“PMG Loan Parties” means PMG, Prospect Health Source Medical Group, Inc., Prospect Professional Care Medical Group, Inc., Nuestra Familia Medical Group, Inc., APAC Medical Group, Inc., Prospect NWOC Medical Group, Inc., Sierra Primary Care Medical Group, Inc., StarCare Medical Group, Inc., Pegasus Medical Group, Inc., Antelope Valley Medical Associates, Inc., Santa Ana/Tustin Physicians Group, Inc., AMVI/Prospect, Genesis HealthCare of Southern California, A Medical Group, Inc., Pomona Valley Medical Group, Inc., Upland Medical Group, A Professional Medical Corporation, Prospect Physician Associates, Inc. and each future direct or indirect subsidiary of PMG required to be joined as a Guarantor pursuant to Section 6.12.

23

“PMS” means Prospect Medical Systems, Inc., a Delaware corporation.

“ProMed” means ProMed Health Services Company, a California corporation.

“Public Lender” has the meaning specified in Section 6.02.

“Real Property” means, collectively, all real property together with all buildings and improvements thereon and all appurtenances and rights pertaining thereto, currently or formerly held by any of the Loan Parties that is or was used or held for use in the operation of the Business.

“Register” has the meaning specified in Section 10.06(c).

“Related Documents” means the Merger Agreement, the documents effecting the Merger, and Assignable Option Agreement, and the Management Agreements (including any Management Agreement with any seller under the Merger Agreement).

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

“Request for Credit Extension” means (a) with respect to a Borrowing, conversion or continuation of Term Loans or Revolving Credit Loans, a Committed Loan Notice, (b) with respect to an L/C Credit Extension, a Letter of Credit Application, and (c) with respect to a Swing Line Loan, a Swing Line Loan Notice.

“Required Lenders” means, as of any date of determination, Lenders holding more than 50% of the sum of the (a) Total Outstandings (with the aggregate amount of each Revolving Credit Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Revolving Credit Lender for purposes of this definition) and (b) aggregate unused Revolving Credit Commitments; provided that the unused Revolving Credit Commitment of, and the portion of the Total Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Required Revolving Lenders” means, as of any date of determination, Revolving Credit Lenders holding more than 50% of the sum of the (a) Total Revolving Credit Outstandings (with the aggregate amount of each Revolving Credit Lender’s risk participation and funded participation in L/C Obligations and Swing Line Loans being deemed “held” by such Revolving Credit Lender for purposes of this definition) and (b) aggregate unused Revolving Credit Commitments; provided that the unused Revolving Credit Commitment of, and the portion of the Total Revolving Credit Outstandings held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Revolving Lenders.

24

“Required Term Lenders” means, as of any date of determination, Term Lenders holding more than 50% of the Term Facility on such date; provided that the portion of the Term Facility held by any Defaulting Lender shall be excluded for purposes of making a determination of Required Term Lenders.

“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent.  Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to any Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment.

“Revolving Credit Borrowing” means a borrowing consisting of simultaneous Revolving Credit Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Revolving Credit Lenders pursuant to Section 2.01(b).

“Revolving Credit Commitment” means, as to each Revolving Credit Lender, its obligation to (a) make Revolving Credit Loans to the Borrowers pursuant to Section 2.01(b), (b) purchase participations in L/C Obligations, and (c) purchase participations in Swing Line Loans, in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Revolving Credit Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

“Revolving Credit Facility” means, at any time, the aggregate amount of the Revolving Credit Lenders’ Revolving Credit Commitments at such time.

“Revolving Credit Lender” means, at any time, any Lender that has a Revolving Credit Commitment at such time.

“Revolving Credit Loan” has the meaning specified in Section 2.01(b).

“Revolving Credit Note” means a promissory note made by the Borrowers in favor of a Revolving Credit Lender evidencing Revolving Credit Loans or Swing Line Loans, as the case may be, made by such Revolving Credit Lender, substantially in the form of Exhibit C-2.

25

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“Seismic Compliance Laws” means all Federal, state and local statutes (including California State Senate Bill 1953), rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities related to seismic evaluation, retrofit requirements, and disaster preparedness for hospitals (including any requirements to assure the provision of services to the public and continuity of care, structural soundness, maintenance of building contents, and integrity of nonstructural systems).

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Second Lien Administrative Agent” means Bank of America, N.A., in its capacity as the administrative agent under the Second Lien Credit Agreement, and its successors in such capacity.

“Second Lien Credit Agreement” means that certain Second Lien Credit Agreement of even date herewith by and among the Borrowers, the Second Lien Lenders, and the Second Lien Administrative Agent, as the same may be amended, restated, supplemented or modified from time to time in accordance with Section 7.16.

“Second Lien Lenders” means the “Lenders” as defined in the Second Lien Credit Agreement.

“Second Lien Loan Documents” means the “Loan Documents” as defined in the Second Lien Credit Agreement.

“Second Lien Obligations” means the “Obligations” as defined in the Second Lien Credit Agreement.

“Second Lien Term Loan” means the “Term Loan” as defined in the Second Lien Credit Agreement.

“Secured Cash Management Agreement” means any Cash Management Agreement that is entered into by and between either Borrower and any Cash Management Bank.

“Secured Hedge Agreement” means any interest rate Swap Contract required or permitted under Article VI or VII that is entered into by and between either Borrower and any Hedge Bank.

“Secured Parties” means, collectively, the Administrative Agent, the Lenders, the L/C Issuer, the Hedge Banks, the Cash Management Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

“Social Security Act” means the Social Security Act of 1965.

26

“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business.  The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“SMM” means Sierra Medical Management, Inc., a Delaware corporation.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified or the context otherwise requires, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Holdings and shall include the PMG Loan Parties; provided, however, that the parties agree that Brotman Medical Center, Inc., a California corporation, in which Holdings’ Subsidiary, Prospect Hospital Advisory Services, Inc., holds less than a majority or the shares, is not considered a Subsidiary.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out

27

and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Swing Line Borrowing” means a borrowing of a Swing Line Loan pursuant to Section 2.04.

“Swing Line Lender” means Bank of America in its capacity as provider of Swing Line Loans, or any successor swing line lender hereunder.

“Swing Line Loan” has the meaning specified in Section 2.04(a).

“Swing Line Loan Notice” means a notice of a Swing Line Borrowing pursuant to Section 2.04(b), which, if in writing, shall be substantially in the form of Exhibit B.

“Swing Line Sublimit” means an amount equal to the lesser of (a) $5,000,000 and (b) the Revolving Credit Facility.  The Swing Line Sublimit is part of, and not in addition to, the Revolving Credit Facility.

“Synthetic Debt” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise included in the definition of “Indebtedness” or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Term Borrowing” means a borrowing consisting of Term Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Term Lenders pursuant to Section 2.01(a).

“Term Commitment” means, as to each Term  Lender, its obligation to make Term Loans to the Borrowers pursuant to Section 2.01(a) in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Term Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Term Lender becomes a party hereto, as

28

applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

“Term Facility” means, at any time, (a) on or prior to the Closing Date, the aggregate amount of the Term  Commitments at such time and (b) thereafter, the aggregate principal amount of the Term Loans of all Term  Lenders outstanding at such time.

“Term Lender” means at any time, (a) on or prior to the Closing Date, any Lender that has a Term Commitment at such time and (b) at any time after the Closing Date, any Lender that holds Term Loans at such time.

“Term Loan” means an advance made by any Term Lender under the Term Facility.

“Term Note” means a promissory note made by the Borrowers in favor of a Term  Lender, evidencing Term Loans made by such Term Lender, substantially in the form of Exhibit C-1.

“Terner Pledge” means that certain First Lien Pledge Agreement dated as of the Closing Date by Dr. Terner in favor of the Administrative Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time.

“Third Party Payor” means Medicare, Medicaid, TRICARE, Blue Cross and/or Blue Shield, state government insurers, private insurers and any other person or entity which presently or in the future maintains Third Party Payor Programs.

“Third Party Payor Programs” means all third party payor programs in which any of the Loan Parties or their respective Subsidiaries participates (including, without limitation, Medicare, Medicaid, TRICARE or any other federal or state health care programs, as well as Blue Cross and/or Blue Shield, managed care plans, or any other private insurance programs)

“Threshold Amount” means $3,000,000.

“Total Revolving Credit Outstandings” means the aggregate Outstanding Amount of all Revolving Credit Loans, Swing Line Loans and L/C Obligations.

“Total Outstandings” means the aggregate Outstanding Amount of all Loans and all L/C Obligations.

“Transaction”means, collectively, (a) the consummation of the Merger, (b) the entering into by the Loan Parties and their applicable Subsidiaries of the Loan Documents, the Second Lien Loan Documents and the Related Documents to which they are or are intended to be a party, (c) the refinancing of certain outstanding Indebtedness of the Borrowers and their respective Subsidiaries evidenced by the Existing Credit Agreements (and related documents) and the termination of all commitments with respect thereto and (d) the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

29

“Type” means, with respect to a Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

“UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

“Unreimbursed Amount” has the meaning specified in Section 2.03(c)(i).

“U.S. Loan Party” means any Loan Party that is organized under the laws of one of the states of the United States of America and that is not a CFC.

1.02         Other Interpretive Provisions.  With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)   The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and

30

all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b)   In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)   Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03         Accounting Terms.

(a)           Generally.  All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

(b)           Changes in GAAP.  If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower Agent or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

(c)           Consolidation of Variable Interest Entities.  All references herein to consolidated financial statements of Holdings and its Subsidiaries or to the determination of any amount for Holdings and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that Holdings is required to consolidate pursuant to FASB Interpretation No. 46 – Consolidation of Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable interest entity were a Subsidiary as defined herein.

1.04         Rounding.  Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

1.05         Times of Day.  Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).

31

1.06         Letter of Credit Amounts.  Unless otherwise specified herein, the amount of a Letter of Credit at any time shall be deemed to be the stated amount of such Letter of Credit in effect at such time; provided, however, that with respect to any Letter of Credit that, by its terms or the terms of any Issuer Document related thereto, provides for one or more automatic increases in the stated amount thereof, the amount of such Letter of Credit shall be deemed to be the maximum stated amount of such Letter of Credit after giving effect to all such increases, whether or not such maximum stated amount is in effect at such time.

1.07         Currency Equivalents Generally.  Any amount specified in this Agreement (other than in Articles II and X) or any of the other Loan Documents to be in Dollars shall also include the equivalent of such amount in any currency other than Dollars, such equivalent amount thereof in the applicable currency to be determined by the Administrative Agent at such time on the basis of the Spot Rate (as defined below) for the purchase of such currency with Dollars.  For purposes of this Section 1.07, the “Spot Rate” for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date of such determination; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.

ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS

2.01         The Loans.

(a)           The Term Borrowing.  Subject to the terms and conditions set forth herein, each Term  Lender severally agrees to make a single loan to the Borrowers on the Closing Date in an amount not to exceed such Term Lender’s Term Commitment.  The Term  Borrowing shall consist of Term Loans made simultaneously by the Term Lenders in accordance with their respective Term Commitments.  Amounts borrowed under this Section 2.01(a) and repaid or prepaid may not be reborrowed.  Term Loans may be Base Rate Loans or Eurodollar Rate Loans as further provided herein.

(b)           The Revolving Credit Borrowings.  Subject to the terms and conditions set forth herein, each Revolving Credit Lender severally agrees to make loans (each such loan, a “Revolving Credit Loan”) to the Borrowers from time to time, on any Business Day during the Availability Period, in an aggregate amount not to exceed at any time outstanding the amount of such Lender’s Revolving Credit Commitment; provided, however, that after giving effect to any Revolving Credit Borrowing, (i) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility, and (ii) the aggregate Outstanding Amount of the Revolving Credit Loans of any Lender, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Revolving Credit Lender’s Revolving Credit Commitment.  Within the limits of each Revolving Credit Lender’s Revolving Credit Commitment, and subject to the

32

other terms and conditions hereof, the Borrowers may borrow under this Section 2.01(b), prepay under Section 2.05, and reborrow under this Section 2.01(b).  Revolving Credit Loans may be Base Rate Loans or Eurodollar Rate Loans, as further provided herein.

2.02         Borrowings, Conversions and Continuations of Loans.

(a)  Each Term Borrowing, each Revolving Credit Borrowing, each conversion of Term Loans or Revolving Credit Loans from one Type to the other, and each continuation of Eurodollar Rate Loans shall be made upon the Borrower Agent’s irrevocable notice to the Administrative Agent, which may be given by telephone.  Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans, and (ii) on the requested date of any Borrowing of Base Rate Loans; provided, however, that if the Borrower Agent wishes to request Eurodollar Rate Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of “Interest Period,” the applicable notice must be received by the Administrative Agent not later than 11:00 a.m. four Business Days prior to the requested date of such Borrowing, conversion or continuation, whereupon the Administrative Agent shall give prompt notice to the Appropriate Lenders of such request and determine whether the requested Interest Period is acceptable to all of them.  Not later than 11:00 a.m., three Business Days before the requested date of such Borrowing, conversion or continuation, the Administrative Agent shall notify the Borrower Agent (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders.  Each telephonic notice by the Borrower Agent pursuant to this Section 2.02(a) must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower Agent.  Each Borrowing of, conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.  Except as provided in Sections 2.03(c) and 2.04(c), each Borrowing of or conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.  Each Committed Loan Notice  (whether telephonic or written) shall specify (i) whether the Borrowers are requesting a Term Borrowing, a Revolving Credit Borrowing, a conversion of Term Loans or Revolving Credit Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the Borrowing, conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Loans to be borrowed, converted or continued, (iv) the Type of Loans to be borrowed or to which existing Term Loans or Revolving Credit Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto.  If the Borrower Agent fails to specify a Type of Loan in a Committed Loan Notice or if the Borrower Agent fails to give a timely notice requesting a conversion or continuation, then the applicable Term Loans or Revolving Credit Loans shall be made as, or converted to, Base Rate Loans.  Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans.  If the Borrower Agent requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, the Borrowers will be deemed to have specified an Interest Period of one month.  Notwithstanding anything to the contrary herein, a Swing Line Loan may not be converted to a Eurodollar Rate Loan.

33

(b)           Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage under the applicable Facility of the applicable Term Loans or Revolving Credit Loans, and if no timely notice of a conversion or continuation is provided by the Borrower Agent, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a).  In the case of a Term Borrowing or a Revolving Credit Borrowing, each Appropriate Lender shall make the amount of its Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Business Day specified in the applicable Committed Loan Notice.  Upon satisfaction of the applicable conditions set forth in Section 4.02 (and, if such Borrowing is the initial Credit Extension, Section 4.01), the Administrative Agent shall make all funds so received available to the Borrowers in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrowers on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds, in each case in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower Agent; provided, however, that if, on the date a Committed Loan Notice with respect to a Revolving Credit Borrowing is given by the Borrower Agent, there are L/C Borrowings outstanding, then the proceeds of such Revolving Credit Borrowing, first, shall be applied to the payment in full of any such L/C Borrowings, and second, shall be made available to the Borrowers as provided above.

(c)           Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan.  During the existence of a Default, no Loans may be requested as, converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

(d)           The Administrative Agent shall promptly notify the Borrower Agent and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate.  At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower Agent and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

(e)           After giving effect to all Term Borrowings, all conversions of Term Loans from one Type to the other, and all continuations of Term Loans as the same Type, there shall not be more than 4 Interest Periods in effect in respect of the Term Facility.  After giving effect to all Revolving Credit Borrowings, all conversions of Revolving Credit Loans from one Type to the other, and all continuations of Revolving Credit Loans as the same Type, there shall not be more than 4 Interest Periods in effect in respect of the Revolving Credit Facility.

2.03         Letters of Credit.

(a)  The Letter of Credit Commitment.  (i)  Subject to the terms and conditions set forth herein, (A) the L/C Issuer agrees, in reliance upon the agreements of the Revolving Credit Lenders set forth in this Section 2.03, (1) from time to time on any Business Day during the period from the Closing Date until the Letter of Credit Expiration Date, to issue Letters of Credit for the account of the Borrowers or any of their respective Subsidiaries, and to amend or extend Letters of Credit previously issued by it, in accordance with Section 2.03(b), and (2) to honor

34

drawings under the Letters of Credit; and (B) the Revolving Credit Lenders severally agree to participate in Letters of Credit issued for the account of either of the Borrowers or any of their respective Subsidiaries and any drawings thereunder; provided that after giving effect to any L/C Credit Extension with respect to any Letter of Credit, (x) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility, (y) the aggregate Outstanding Amount of the Revolving Credit Loans of any Revolving Credit Lender, plus such Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations, plus such Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans shall not exceed such Lender’s Revolving Credit Commitment, and (z) the Outstanding Amount of the L/C Obligations shall not exceed the Letter of Credit Sublimit.  Each request by the Borrower Agent for the issuance or amendment of a Letter of Credit shall be deemed to be a representation by the Borrowers that the L/C Credit Extension so requested complies with the conditions set forth in the proviso to the preceding sentence.  Within the foregoing limits, and subject to the terms and conditions hereof, the Borrowers’ ability to obtain Letters of Credit shall be fully revolving, and accordingly the Borrowers may, during the foregoing period, obtain Letters of Credit to replace Letters of Credit that have expired or that have been drawn upon and reimbursed.

(ii)           The L/C Issuer shall not issue any Letter of Credit if:

(A)                  subject to Section 2.03(b)(iii), the expiry date of such requested Letter of Credit would occur more than twelve months after the date of issuance or last extension, unless the Required Revolving Lenders have approved such expiry date; or

(B)                   the expiry date of such requested Letter of Credit would occur after the Letter of Credit Expiration Date, unless all the Revolving Credit Lenders have approved such expiry date.

(iii)          The L/C Issuer shall not be under any obligation to issue any Letter of Credit if:

(A)                  any order, judgment or decree of any Governmental Authority or arbitrator shall by its terms purport to enjoin or restrain the L/C Issuer from issuing such Letter of Credit, or any Law applicable to the L/C Issuer or any request or directive (whether or not having the force of law) from any Governmental Authority with jurisdiction over the L/C Issuer shall prohibit, or request that the L/C Issuer refrain from, the issuance of letters of credit generally or such Letter of Credit in particular or shall impose upon the L/C Issuer with respect to such Letter of Credit any restriction, reserve or capital requirement (for which the L/C Issuer is not otherwise compensated hereunder) not in effect on the Closing Date, or shall impose upon the L/C Issuer any unreimbursed loss, cost or expense which was not applicable on the Closing Date and which the L/C Issuer in good faith deems material to it;

(B)                   the issuance of such Letter of Credit would violate one or more policies of the L/C Issuer applicable to letters of credit generally;

35

(C)                   except as otherwise agreed by the Administrative Agent and the L/C Issuer, such Letter of Credit is in an initial stated amount less than $50,000;

(D)                  such Letter of Credit is to be denominated in a currency other than Dollars;

(E)                   such Letter of Credit contains any provisions for automatic reinstatement of the stated amount after any drawing thereunder; or

(F)                   a default of any Lender’s obligations to fund under Section 2.03(c) exists or any Lender is at such time a Defaulting Lender hereunder, unless the L/C Issuer has entered into satisfactory arrangements with the Borrowers or such Lender to eliminate the L/C Issuer’s risk with respect to such Lender.

(iv)          The L/C Issuer shall not amend any Letter of Credit if the L/C Issuer would not be permitted at such time to issue such Letter of Credit in its amended form under the terms hereof.

(v)           The L/C Issuer shall be under no obligation to amend any Letter of Credit if (A) the L/C Issuer would have no obligation at such time to issue such Letter of Credit in its amended form under the terms hereof, or (B) the beneficiary of such Letter of Credit does not accept the proposed amendment to such Letter of Credit.

(vi)          The L/C Issuer shall act on behalf of the Revolving Credit Lenders with respect to any Letters of Credit issued by it and the documents associated therewith, and the L/C Issuer shall have all of the benefits and immunities (A) provided to the Administrative Agent in Article IX with respect to any acts taken or omissions suffered by the L/C Issuer in connection with Letters of Credit issued by it or proposed to be issued by it and Issuer Documents pertaining to such Letters of Credit as fully as if the term “Administrative Agent” as used in Article IX included the L/C Issuer with respect to such acts or omissions, and (B) as additionally provided herein with respect to the L/C Issuer.

(b)           Procedures for Issuance and Amendment of Letters of Credit; Auto-Extension Letters of Credit.

(i)            Each Letter of Credit shall be issued or amended, as the case may be, upon the request of the Borrower Agent delivered to the L/C Issuer (with a copy to the Administrative Agent) in the form of a Letter of Credit Application, appropriately completed and signed by a Responsible Officer of the Borrower Agent.  Such Letter of Credit Application must be received by the L/C Issuer and the Administrative Agent not later than 11:00 a.m. at least two Business Days (or such later date and time as the Administrative Agent and the L/C Issuer may agree in a particular instance in their sole discretion) prior to the proposed issuance date or date of amendment, as the case may be.  In the case of a request for an initial issuance of a Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer:  (A) the proposed issuance date of the requested Letter of Credit (which shall be a Business Day); (B) the amount thereof; (C) the expiry date thereof; (D) the applicable Borrower; (E) the

36

name and address of the beneficiary thereof; (F) the documents to be presented by such beneficiary in case of any drawing thereunder; (G) the full text of any certificate to be presented by such beneficiary in case of any drawing thereunder; (H) the purpose and nature of the requested Letter of Credit; and (I) such other matters as the L/C Issuer may require.  In the case of a request for an amendment of any outstanding Letter of Credit, such Letter of Credit Application shall specify in form and detail satisfactory to the L/C Issuer (1) the Letter of Credit to be amended; (2) the proposed date of amendment thereof (which shall be a Business Day); (3) the nature of the proposed amendment; and (4) such other matters as the L/C Issuer may require.  Additionally, the Borrower Agent shall furnish to the L/C Issuer and the Administrative Agent such other documents and information pertaining to such requested Letter of Credit issuance or amendment, including any Issuer Documents, as the L/C Issuer or the Administrative Agent may require.

(ii)           Promptly after receipt of any Letter of Credit Application, the L/C Issuer will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has received a copy of such Letter of Credit Application from the Borrower Agent and, if not, the L/C Issuer will provide the Administrative Agent with a copy thereof.  Unless the L/C Issuer has received written notice from any Revolving Credit Lender, the Administrative Agent or any Loan Party, at least one Business Day prior to the requested date of issuance or amendment of the applicable Letter of Credit, that one or more applicable conditions contained in Article IV shall not then be satisfied, then, subject to the terms and conditions hereof, the L/C Issuer shall, on the requested date, issue a Letter of Credit for the account of the applicable Borrower (or the applicable Subsidiary) or enter into the applicable amendment, as the case may be, in each case in accordance with the L/C Issuer’s usual and customary business practices.  Immediately upon the issuance of each Letter of Credit, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the L/C Issuer a risk participation in such Letter of Credit in an amount equal to the product of such Revolving Credit Lender’s Applicable Revolving Credit Percentage times the amount of such Letter of Credit.

(iii)          If the Borrower Agent so requests in any applicable Letter of Credit Application, the L/C Issuer may, in its sole and absolute discretion, agree to issue a Letter of Credit that has automatic extension provisions (each, an “Auto-Extension Letter of Credit”); provided that any such Auto-Extension Letter of Credit must permit the L/C Issuer to prevent any such extension at least once in each twelve-month period (commencing with the date of issuance of such Letter of Credit) by giving prior notice to the beneficiary thereof not later than a day (the “Non-Extension Notice Date”) in each such twelve-month period to be agreed upon at the time such Letter of Credit is issued.  Unless otherwise directed by the L/C Issuer, the Borrower Agent shall not be required to make a specific request to the L/C Issuer for any such extension.  Once an Auto-Extension Letter of Credit has been issued, the Revolving Credit Lenders shall be deemed to have authorized (but may not require) the L/C Issuer to permit the extension of such Letter of Credit at any time to an expiry date not later than the Letter of Credit Expiration Date; provided, however, that the L/C Issuer shall not permit any such extension if (A) the L/C Issuer has determined that it would not be permitted, or would have no obligation

37

at such time to issue such Letter of Credit in its revised form (as extended) under the terms hereof (by reason of the provisions of clause (ii) or (iii) of Section 2.03(a) or otherwise), or (B) it has received notice (which may be by telephone or in writing) on or before the day that is seven Business Days before the Non-Extension Notice Date (1) from the Administrative Agent that the Required Revolving Lenders have elected not to permit such extension or (2) from the Administrative Agent, any Revolving Credit Lender or the Borrower Agent that one or more of the applicable conditions specified in Section 4.02 is not then satisfied, and in each such case directing the L/C Issuer not to permit such extension.

(iv)          Promptly after its delivery of any Letter of Credit or any amendment to a Letter of Credit to an advising bank with respect thereto or to the beneficiary thereof, the L/C Issuer will also deliver to the Borrower Agent and the Administrative Agent a true and complete copy of such Letter of Credit or amendment.

(c)           Drawings and Reimbursements; Funding of Participations.

(i)            Upon receipt from the beneficiary of any Letter of Credit of any notice of a drawing under such Letter of Credit, the L/C Issuer shall notify the Borrower Agent and the Administrative Agent thereof.  Not later than 11:00 a.m. on the date of any payment by the L/C Issuer under a Letter of Credit (each such date, an “Honor Date”), the applicable Borrower shall reimburse the L/C Issuer through the Administrative Agent in an amount equal to the amount of such drawing.  If such Borrower fails to so reimburse the L/C Issuer by such time, the Administrative Agent shall promptly notify each Revolving Credit Lender of the Honor Date, the amount of the unreimbursed drawing (the “Unreimbursed Amount”), and the amount of such Revolving Credit Lender’s Applicable Revolving Credit Percentage thereof.  In such event, the applicable Borrower shall be deemed to have requested a Revolving Credit Borrowing of Base Rate Loans to be disbursed on the Honor Date in an amount equal to the Unreimbursed Amount, without regard to the minimum and multiples specified in Section 2.02 for the principal amount of Base Rate Loans, but subject to the amount of the unutilized portion of the Revolving Credit Commitments and the conditions set forth in Section 4.02 (other than the delivery of a Committed Loan Notice).  Any notice given by the L/C Issuer or the Administrative Agent pursuant to this Section 2.03(c)(i) may be given by telephone if immediately confirmed in writing; provided that the lack of such an immediate confirmation shall not affect the conclusiveness or binding effect of such notice.

(ii)           Each Revolving Credit Lender shall upon any notice pursuant to Section 2.03(c)(i) make funds available to the Administrative Agent for the account of the L/C Issuer at the Administrative Agent’s Office in an amount equal to its Applicable Revolving Credit Percentage of the Unreimbursed Amount not later than 1:00 p.m. on the Business Day specified in such notice by the Administrative Agent, whereupon, subject to the provisions of Section 2.03(c)(iii), each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the Borrowers in such amount.  The Administrative Agent shall remit the funds so received to the L/C Issuer.

38

(iii)          With respect to any Unreimbursed Amount that is not fully refinanced by a Revolving Credit Borrowing of Base Rate Loans because the conditions set forth in Section 4.02 cannot be satisfied or for any other reason, the applicable Borrower shall be deemed to have incurred from the L/C Issuer an L/C Borrowing in the amount of the Unreimbursed Amount that is not so refinanced, which L/C Borrowing shall be due and payable on demand (together with interest) and shall bear interest at the Default Rate.  In such event, each Revolving Credit Lender’s payment to the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(ii) shall be deemed payment in respect of its participation in such L/C Borrowing and shall constitute an L/C Advance from such Lender in satisfaction of its participation obligation under this Section 2.03.

(iv)          Until each Revolving Credit Lender funds its Revolving Credit Loan or L/C Advance pursuant to this Section 2.03(c) to reimburse the L/C Issuer for any amount drawn under any Letter of Credit, interest in respect of such Lender’s Applicable Revolving Credit Percentage of such amount shall be solely for the account of the L/C Issuer.

(v)           Each Revolving Credit Lender’s obligation to make Revolving Credit Loans or L/C Advances to reimburse the L/C Issuer for amounts drawn under Letters of Credit, as contemplated by this Section 2.03(c), shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the L/C Issuer, any Borrower or any other Person for any reason whatsoever; (B) the occurrence or continuance of a Default; or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Revolving Credit Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.03(c) is subject to the conditions set forth in Section 4.02 (other than delivery by the Borrower Agent of a Committed Loan Notice ).  No such making of an L/C Advance shall relieve or otherwise impair the obligation of each Borrower to reimburse the L/C Issuer for the amount of any payment made by the L/C Issuer under any Letter of Credit, together with interest as provided herein.

(vi)          If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the L/C Issuer any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.03(c) by the time specified in Section 2.03(c)(ii), the L/C Issuer shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the L/C Issuer at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the L/C Issuer in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the L/C Issuer in connection with the foregoing.  If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or L/C Advance in respect of the relevant L/C Borrowing, as the case may be.  A certificate of the L/C Issuer submitted to any Revolving Credit Lender

39

(through the Administrative Agent) with respect to any amounts owing under this Section 2.03(c)(vi) shall be conclusive absent manifest error.

(d)           Repayment of Participations.

(i)            At any time after the L/C Issuer has made a payment under any Letter of Credit and has received from any Revolving Credit Lender such Lender’s L/C Advance in respect of such payment in accordance with Section 2.03(c), if the Administrative Agent receives for the account of the L/C Issuer any payment in respect of the related Unreimbursed Amount or interest thereon (whether directly from a Borrower or otherwise, including proceeds of Cash Collateral applied thereto by the Administrative Agent), the Administrative Agent will distribute to such Lender its Applicable Revolving Credit Percentage thereof in the same funds as those received by the Administrative Agent.

(ii)           If any payment received by the Administrative Agent for the account of the L/C Issuer pursuant to Section 2.03(c)(i) is required to be returned under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the L/C Issuer in its discretion), each Revolving Credit Lender shall pay to the Administrative Agent for the account of the L/C Issuer its Applicable Revolving Credit Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned by such Lender, at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(e)           Obligations Absolute.  The obligation of the Borrowers to reimburse the L/C Issuer for each drawing under each Letter of Credit and to repay each L/C Borrowing shall be joint and several, absolute, unconditional and irrevocable, and shall be paid strictly in accordance with the terms of this Agreement under all circumstances, including the following:

(i)            any lack of validity or enforceability of such Letter of Credit, this Agreement, or any other Loan Document;

(ii)           the existence of any claim, counterclaim, setoff, defense or other right that either Borrower or any of their respective Subsidiaries may have at any time against any beneficiary or any transferee of such Letter of Credit (or any Person for whom any such beneficiary or any such transferee may be acting), the L/C Issuer or any other Person, whether in connection with this Agreement, the transactions contemplated hereby or by such Letter of Credit or any agreement or instrument relating thereto, or any unrelated transaction;

(iii)          any draft, demand, certificate or other document presented under such Letter of Credit proving to be forged, fraudulent, invalid or insufficient in any respect or any statement therein being untrue or inaccurate in any respect; or any loss or delay in the transmission or otherwise of any document required in order to make a drawing under such Letter of Credit;

40

(iv)          any payment by the L/C Issuer under such Letter of Credit against presentation of a draft or certificate that does not strictly comply with the terms of such Letter of Credit; or any payment made by the L/C Issuer under such Letter of Credit to any Person purporting to be a trustee in bankruptcy, debtor-in-possession, assignee for the benefit of creditors, liquidator, receiver or other representative of or successor to any beneficiary or any transferee of such Letter of Credit, including any arising in connection with any proceeding under any Debtor Relief Law; or

(v)           any other circumstance or happening whatsoever, whether or not similar to any of the foregoing, including any other circumstance that might otherwise constitute a defense available to, or a discharge of, either Borrower or any of their respective Subsidiaries.

The Borrower Agent shall promptly examine a copy of each Letter of Credit and each amendment thereto that is delivered to it and, in the event of any claim of noncompliance with the Borrower Agent’s instructions or other irregularity, the Borrower Agent will immediately notify the L/C Issuer.  Each Borrower shall be conclusively deemed to have waived any such claim against the L/C Issuer and its correspondents unless such notice is given as aforesaid.

(f)            Role of L/C Issuer.  Each Lender and each Borrower agree that, in paying any drawing under a Letter of Credit, the L/C Issuer shall not have any responsibility to obtain any document (other than any sight draft, certificates and documents expressly required by the Letter of Credit) or to ascertain or inquire as to the validity or accuracy of any such document or the authority of the Person executing or delivering any such document.  None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable to any Lender for (i) any action taken or omitted in connection herewith at the request or with the approval of the Revolving Credit Lenders or the Required Revolving Lenders, as applicable; (ii) any action taken or omitted in the absence of gross negligence or willful misconduct; or (iii) the due execution, effectiveness, validity or enforceability of any document or instrument related to any Letter of Credit or Issuer Document.  Each Borrower hereby assumes all risks of the acts or omissions of any beneficiary or transferee with respect to its use of any Letter of Credit; provided, however, that this assumption is not intended to, and shall not, preclude each Borrower’s pursuing such rights and remedies as it may have against the beneficiary or transferee at law or under any other agreement.  None of the L/C Issuer, the Administrative Agent, any of their respective Related Parties nor any correspondent, participant or assignee of the L/C Issuer shall be liable or responsible for any of the matters described in clauses (i) through (v) of Section 2.03(e); provided, however, that anything in such clauses to the contrary notwithstanding, the applicable Borrower may have a claim against the L/C Issuer, and the L/C Issuer may be liable to such Borrower, to the extent, but only to the extent, of any direct, as opposed to consequential or exemplary, damages suffered by the applicable Borrower which such Borrower proves were caused by the L/C Issuer’s willful misconduct or gross negligence or the L/C Issuer’s willful failure to pay under any Letter of Credit after the presentation to it by the beneficiary of a sight draft and certificate(s) strictly complying with the terms and conditions of a Letter of Credit.  In furtherance and not in limitation of the foregoing, the L/C Issuer may accept documents that appear on their face to be in order, without responsibility for further investigation, regardless of

41

any notice or information to the contrary, and the L/C Issuer shall not be responsible for the validity or sufficiency of any instrument transferring or assigning or purporting to transfer or assign a Letter of Credit or the rights or benefits thereunder or proceeds thereof, in whole or in part, which may prove to be invalid or ineffective for any reason.

(g)           Cash Collateral.  Upon the request of the Administrative Agent, (i) if the L/C Issuer has honored any full or partial drawing request under any Letter of Credit and such drawing has resulted in an L/C Borrowing, or (ii) if, as of the Letter of Credit Expiration Date, any L/C Obligation for any reason remains outstanding, the Borrowers shall, in each case, immediately Cash Collateralize the then Outstanding Amount of all L/C Obligations.  Sections 2.05 and 8.02(c) set forth certain additional requirements to deliver Cash Collateral hereunder.  For purposes of this Section 2.03, Section 2.05 and Section 8.02(c), “Cash Collateralize” means to pledge and deposit with or deliver to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, as collateral for the L/C Obligations, cash or deposit account balances pursuant to documentation in form and substance satisfactory to the Administrative Agent and the L/C Issuer (which documents are hereby consented to by the Lenders).  Derivatives of such term have corresponding meanings.  Each Borrower hereby grants to the Administrative Agent, for the benefit of the L/C Issuer and the Lenders, a security interest in all such cash, deposit accounts and all balances therein and all proceeds of the foregoing.  Cash Collateral shall be maintained in blocked, non-interest bearing deposit accounts at Bank of America.  If at any time the Administrative Agent determines that any funds held as Cash Collateral are subject to any right or claim of any Person other than the Administrative Agent or that the total amount of such funds is less than the aggregate Outstanding Amount of all L/C Obligations, the Borrowers will, forthwith upon demand by the Administrative Agent to either Borrower, pay to the Administrative Agent, as additional funds to be deposited as Cash Collateral, an amount equal to the excess of (x) such aggregate Outstanding Amount over (y) the total amount of funds, if any, then held as Cash Collateral that the Administrative Agent determines to be free and clear of any such right and claim.  Upon the drawing of any Letter of Credit for which funds are on deposit as Cash Collateral, such funds shall be applied, to the extent permitted under applicable Laws, to reimburse the L/C Issuer.

(h)           Applicability of ISP.  Unless otherwise expressly agreed by the L/C Issuer and the Borrowers when a Letter of Credit is issued, the rules of the ISP shall apply to each standby Letter of Credit.

(i)            Letter of Credit Fees.  The Borrowers shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable Revolving Credit Percentage a Letter of Credit fee (the “Letter of Credit Fee”) for each Letter of Credit equal to the Applicable Rate times the daily amount available to be drawn under such Letter of Credit.  For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06.  Letter of Credit Fees shall be (i) due and payable on the first Business Day after the end of each March, June, September and December, commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand and (ii) computed on a quarterly basis in arrears.  If there is any change in the Applicable Rate during any quarter, the daily amount available to be drawn under each Letter of Credit shall be computed and multiplied by the Applicable Rate separately for each period

42

during such quarter that such Applicable Rate was in effect.  Notwithstanding anything to the contrary contained herein, upon the request of the Required Revolving Lenders, while any Event of Default exists, all Letter of Credit Fees shall accrue at the Default Rate.

(j)            Fronting Fee and Documentary and Processing Charges Payable to L/C Issuer.  The Borrowers shall pay directly to the L/C Issuer for its own account a fronting fee with respect to each Letter of Credit, at a rate of 0.125%, computed on the daily amount available to be drawn under such Letter of Credit on a quarterly basis in arrears.  Such fronting fee shall be due and payable on the tenth Business Day after the end of each March, June, September and December in respect of the most recently-ended quarterly period (or portion thereof, in the case of the first payment), commencing with the first such date to occur after the issuance of such Letter of Credit, on the Letter of Credit Expiration Date and thereafter on demand.  For purposes of computing the daily amount available to be drawn under any Letter of Credit, the amount of such Letter of Credit shall be determined in accordance with Section 1.06.  In addition, the Borrowers shall pay directly to the L/C Issuer for its own account the customary issuance, presentation, amendment and other processing fees, and other standard costs and charges, of the L/C Issuer relating to letters of credit as from time to time in effect.  Such customary fees and standard costs and charges are due and payable on demand and are nonrefundable.

(k)           Conflict with Issuer Documents.  In the event of any conflict between the terms hereof and the terms of any Issuer Document, the terms hereof shall control.

(l)            Letters of Credit Issued for Subsidiaries.  Notwithstanding that a Letter of Credit issued or outstanding hereunder is in support of any obligations of, or is for the account of, a Subsidiary, the Borrowers shall be jointly and severally obligated to reimburse the L/C Issuer hereunder for any and all drawings under such Letter of Credit.  Each Borrower hereby acknowledges that the issuance of Letters of Credit for the account of any of their respective Subsidiaries inures to the benefit of the Borrowers, and that the Borrowers’ business derives substantial benefits from the businesses of such Subsidiaries.

2.04         Swing Line Loans.

(a)  The Swing Line.  Subject to the terms and conditions set forth herein, the Swing Line Lender agrees, in reliance upon the agreements of the other Lenders set forth in this Section 2.04, to make loans (each such loan, a “Swing Line Loan”) to the Borrowers from time to time on any Business Day during the Availability Period in an aggregate amount not to exceed at any time outstanding the amount of the Swing Line Sublimit, notwithstanding the fact that such Swing Line Loans, when aggregated with the Applicable Revolving Credit Percentage of the Outstanding Amount of Revolving Credit Loans and L/C Obligations of the Lender acting as Swing Line Lender, may exceed the amount of such Lender’s Revolving Credit Commitment; provided, however, that after giving effect to any Swing Line Loan, (i) the Total Revolving Credit Outstandings shall not exceed the Revolving Credit Facility at such time, and (ii) the aggregate Outstanding Amount of the Revolving Credit Loans of any Revolving Credit Lender at such time, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all L/C Obligations at such time, plus such Revolving Credit Lender’s Applicable Revolving Credit Percentage of the Outstanding Amount of all Swing Line Loans at such time shall not exceed such Lender’s Revolving Credit Commitment, and provided further

43

that neither Borrower shall use the proceeds of any Swing Line Loan to refinance any outstanding Swing Line Loan.  Within the foregoing limits, and subject to the other terms and conditions hereof, the Borrowers may borrow under this Section 2.04, prepay under Section 2.05, and reborrow under this Section 2.04.  Each Swing Line Loan shall bear interest only at a rate based on the Base Rate.  Immediately upon the making of a Swing Line Loan, each Revolving Credit Lender shall be deemed to, and hereby irrevocably and unconditionally agrees to, purchase from the Swing Line Lender a risk participation in such Swing Line Loan in an amount equal to the product of such Revolving Credit Lender’s Applicable Revolving Credit Percentage times the amount of such Swing Line Loan.

(b)           Borrowing Procedures.  Each Swing Line Borrowing shall be made upon the Borrower Agent’s irrevocable notice to the Swing Line Lender and the Administrative Agent, which may be given by telephone.  Each such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the requested borrowing date, and shall specify (i) the amount to be borrowed, which shall be a minimum of $500,000, (ii) the applicable Borrower, and (iii) the requested borrowing date, which shall be a Business Day.  Each such telephonic notice must be confirmed promptly by delivery to the Swing Line Lender and the Administrative Agent of a written Swing Line Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower Agent.  Promptly after receipt by the Swing Line Lender of any telephonic Swing Line Loan Notice, the Swing Line Lender will confirm with the Administrative Agent (by telephone or in writing) that the Administrative Agent has also received such Swing Line Loan Notice and, if not, the Swing Line Lender will notify the Administrative Agent (by telephone or in writing) of the contents thereof.  Unless the Swing Line Lender has received notice (by telephone or in writing) from the Administrative Agent (including at the request of any Revolving Credit Lender) prior to 2:00 p.m. on the date of the proposed Swing Line Borrowing (A) directing the Swing Line Lender not to make such Swing Line Loan as a result of the limitations set forth in the first proviso to the first sentence of Section 2.04(a), or (B) that one or more of the applicable conditions specified in Article IV is not then satisfied, then, subject to the terms and conditions hereof, the Swing Line Lender will, not later than 3:00 p.m. on the borrowing date specified in such Swing Line Loan Notice, make the amount of its Swing Line Loan available to the applicable Borrower at its office by crediting the account of the applicable Borrower on the books of the Swing Line Lender in immediately available funds.

(c)           Refinancing of Swing Line Loans.

The Swing Line Lender at any time in its sole and absolute discretion may request, on behalf of the Borrowers (each of which hereby irrevocably authorizes the Swing Line Lender to so request on its behalf), that each Revolving Credit Lender make a Base Rate Loan in an amount equal to such Lender’s Applicable Revolving Credit Percentage of the amount of Swing Line Loans then outstanding.  Such request shall be made in writing (which written request shall be deemed to be a Committed Loan Notice for purposes hereof) and in accordance with the requirements of Section 2.02, without regard to the minimum and multiples specified therein for the principal amount of Base Rate Loans, but subject to the unutilized portion of the Revolving Credit Facility and the conditions set forth in Section 4.02.  The Swing Line Lender shall furnish the Borrower Agent with a copy of the applicable Committed Loan Notice promptly after delivering such notice to

44

the Administrative Agent.  Each Revolving Credit Lender shall make an amount equal to its Applicable Revolving Credit Percentage of the amount specified in such Committed Loan Notice available to the Administrative Agent in immediately available funds for the account of the Swing Line Lender at the Administrative Agent’s Office not later than 1:00 p.m. on the day specified in such Committed Loan Notice, whereupon, subject to Section 2.04(c)(ii), each Revolving Credit Lender that so makes funds available shall be deemed to have made a Base Rate Loan to the applicable Borrower in such amount.  The Administrative Agent shall remit the funds so received to the Swing Line Lender.

(i)            If for any reason any Swing Line Loan cannot be refinanced by such a Revolving Credit  Borrowing in accordance with Section 2.04(c)(i), the request for Base Rate Loans submitted by the Swing Line Lender as set forth herein shall be deemed to be a request by the Swing Line Lender that each of the Revolving Credit Lenders fund its risk participation in the relevant Swing Line Loan and each Revolving Credit Lender’s payment to the Administrative Agent for the account of the Swing Line Lender pursuant to Section 2.04(c)(i) shall be deemed payment in respect of such participation.

(ii)           If any Revolving Credit Lender fails to make available to the Administrative Agent for the account of the Swing Line Lender any amount required to be paid by such Lender pursuant to the foregoing provisions of this Section 2.04(c) by the time specified in Section 2.04(c)(i), the Swing Line Lender shall be entitled to recover from such Lender (acting through the Administrative Agent), on demand, such amount with interest thereon for the period from the date such payment is required to the date on which such payment is immediately available to the Swing Line Lender at a rate per annum equal to the greater of the Federal Funds Rate and a rate determined by the Swing Line Lender in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Swing Line Lender in connection with the foregoing.  If such Lender pays such amount (with interest and fees as aforesaid), the amount so paid shall constitute such Lender’s Committed Loan included in the relevant Committed Borrowing or funded participation in the relevant Swing Line Loan, as the case may be.  A certificate of the Swing Line Lender submitted to any Lender (through the Administrative Agent) with respect to any amounts owing under this clause (iii) shall be conclusive absent manifest error.

(iii)          Each Revolving Credit Lender’s obligation to make Revolving Credit Loans or to purchase and fund risk participations in Swing Line Loans pursuant to this Section 2.04(c) shall be absolute and unconditional and shall not be affected by any circumstance, including (A) any setoff, counterclaim, recoupment, defense or other right which such Lender may have against the Swing Line Lender, either Borrower or any other Person for any reason whatsoever, (B) the occurrence or continuance of a Default, or (C) any other occurrence, event or condition, whether or not similar to any of the foregoing; provided, however, that each Revolving Credit Lender’s obligation to make Revolving Credit Loans pursuant to this Section 2.04(c) is subject to the conditions set forth in Section 4.02.  No such funding of risk participations shall relieve or otherwise impair the obligation of the Borrowers to repay Swing Line Loans, together with interest as provided herein.

45

(d)           Repayment of Participations.

At any time after any Revolving Credit Lender has purchased and funded a risk participation in a Swing Line Loan, if the Swing Line Lender receives any payment on account of such Swing Line Loan, the Swing Line Lender will distribute to such Revolving Credit Lender its Applicable Revolving Credit Percentage thereof in the same funds as those received by the Swing Line Lender.

(i)            If any payment received by the Swing Line Lender in respect of principal or interest on any Swing Line Loan is required to be returned by the Swing Line Lender under any of the circumstances described in Section 10.05 (including pursuant to any settlement entered into by the Swing Line Lender in its discretion), each Revolving Credit Lender shall pay to the Swing Line Lender its Applicable Revolving Credit Percentage thereof on demand of the Administrative Agent, plus interest thereon from the date of such demand to the date such amount is returned, at a rate per annum equal to the Federal Funds Rate.  The Administrative Agent will make such demand upon the request of the Swing Line Lender.  The obligations of the Lenders under this clause shall survive the payment in full of the Obligations and the termination of this Agreement.

(e)           Interest for Account of Swing Line Lender.  The Swing Line Lender shall be responsible for invoicing the Borrowers for interest on the Swing Line Loans.  Until each Revolving Credit Lender funds its Base Rate Loan or risk participation pursuant to this Section 2.04 to refinance such Revolving Credit Lender’s Applicable Revolving Credit Percentage of any Swing Line Loan, interest in respect of such Applicable Revolving Credit Percentage shall be solely for the account of the Swing Line Lender.

(f)            Payments Directly to Swing Line Lender.  The Borrowers shall make all payments of principal and interest in respect of the Swing Line Loans directly to the Swing Line Lender.

2.05         Prepayments.

(a)  Optional.

(i)            Generally.              Subject to Section 2.05(a)(ii) and the last two sentences of this Section 2.05(a)(i), the Borrowers may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay the Term Loan and Revolving Credit Loans in whole or in part; provided that (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. (1) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (2) on the date of prepayment of Base Rate Loans; (B) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (C) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding.  Each such notice shall specify the date and amount of such prepayment and the Type(s) of Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Loans.  The Administrative Agent will promptly notify each

46

Lender of its receipt of each such notice, and of the amount of such Lender’s ratable portion of such prepayment (based on such Lender’s Applicable Percentage in respect of the relevant Facility).  If such notice is given by the Borrower Agent, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.  Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.  Each prepayment of the outstanding Term Loans pursuant to this Section 2.05(a) shall be applied to the principal repayment installments thereof in inverse order of maturity, and each such prepayment shall be paid to the Lenders in accordance with their respective Applicable Percentages in respect of each of the relevant Facilities.

(ii)           Prepayment Premiums.

(A)       Notwithstanding anything herein to the contrary, all prepayments of the Term Loan that are made in accordance with this Section 2.05(a) prior to the first anniversary of the Closing Date shall be subject to a prepayment premium equal to the present value, as determined by Holdings and certified by a Responsible Officer of Holdings to the Administrative Agent, of (1) all required interest payments due on such Term Loans from the date of prepayment through and including the first anniversary of the Closing Date (excluding accrued interest) (assuming that the interest rate applicable to all such interest is the swap rate at the close of business on the third Business Day prior to the date of such prepayment with the termination date nearest to the first anniversary of the Closing Date plus the Applicable Rate for Eurodollar Rate Loans) plus (2) the prepayment premium that would be due pursuant to Section 2.05(a)(ii)(B) if such prepayment were made on the day after the first anniversary of the Closing Date, in each case discounted to the date of prepayment on a quarterly basis (assuming a 360-day year and actual days elapsed) at a rate equal to the sum of such swap rate plus 0.50%.

(B)        Notwithstanding anything herein to the contrary, all prepayments of the Term Loan that are made in accordance with this Section 2.05(a) prior to the second anniversary of the Closing Date, but on or after the first anniversary of the Closing Date, shall be subject to an additional premium equal to the amount of such prepayment multiplied by 1%, with respect to each such prepayment made prior to the second anniversary of the Closing Date.  On or after the second anniversary of the Closing Date, no premiums or penalties shall be payable pursuant to this Section 2.05(a)(ii) in connection with any prepayments of the Term Loan.

Swing Line Loans.             The Borrowers may, upon notice to the Swing Line Lender (with a copy to the Administrative Agent), at any time or from time to time, voluntarily prepay Swing Line Loans in whole or in part without premium or penalty; provided that (A) such notice must be received by the Swing Line Lender and the Administrative Agent not later than 1:00 p.m. on the date of the prepayment, and (B) any such prepayment shall be in a minimum principal amount of $100,000.  Each such notice shall specify the date and

47

amount of such prepayment.  If such notice is given by the Borrower Agent, the applicable Borrower shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.

(b)           Mandatory.

(i)            Within five Business Days after financial statements have been delivered pursuant to Section 6.01(a) and the related Compliance Certificate has been delivered pursuant to Section 6.02(b), the Borrowers shall prepay an aggregate principal amount of Loans equal to the excess (if any) of (A) 50% of Excess Cash Flow for the fiscal year covered by such financial statements over (B) the aggregate principal amount of Term Loans prepaid pursuant to Section 2.05(a)(i) (such prepayments to be applied as set forth in clause (v) below).

(ii)           If any Borrower or any of its Subsidiaries Disposes of any property (other than any Disposition of any property permitted by Sections 7.05(b), (c), (d) or (e)) which results in the realization by such Person of Net Cash Proceeds, the Borrowers shall prepay an aggregate principal amount of Loans equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person (such prepayments to be applied as set forth in clause (v) below); provided, however, that, with respect to any Net Cash Proceeds realized under a Disposition described in this Section 2.05(b)(ii), at the election of the Borrowers (as notified by the Borrower Agent to the Administrative Agent on or prior to the date of such Disposition), and so long as no Default shall have occurred and be continuing, the Borrowers or such Subsidiary may reinvest all or any portion of such Net Cash Proceeds in operating assets so long as within 270 days after the receipt of such Net Cash Proceeds, such purchase shall have been consummated (as certified by the Borrowers in writing to the Administrative Agent); and provided further, however, that any Net Cash Proceeds not subject to such definitive agreement or so reinvested shall be immediately applied to the prepayment of the Loans as set forth in this Section 2.05(b)(ii).

(iii)          Upon the incurrence or issuance by either Borrower or any of their respective Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.02), the Borrowers shall prepay an aggregate principal amount of Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by either Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (v) below).

(iv)          Upon any Extraordinary Receipt received by or paid to or for the account of either Borrower or any of their Subsidiaries, and not otherwise included in clause (ii) or (iii) of this Section 2.05(b), the Borrower shall prepay an aggregate principal amount of Loans equal to 50% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by such Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (v) below); provided, however, that with respect to any proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments, at the election of the applicable Borrower (as notified by the Borrower Agent to the Administrative Agent on or prior to the date of receipt of such insurance proceeds,

48

condemnation awards or indemnity payments), and so long as no Default shall have occurred and be continuing, the applicable Borrower or such Subsidiary may apply within 270 days after the receipt of such cash proceeds to replace or repair the equipment, fixed assets or real property in respect of which such cash proceeds were received; and provided, further, however, that any cash proceeds not so applied shall be immediately applied to the prepayment of the Loans as set forth in this Section 2.05(b)(iv).

Each prepayment of Loans pursuant to the foregoing provisions of this Section 2.05(b) shall be applied first to the Term Facility and to the principal repayment installments thereof in inverse order of maturity, second to the extent of any excess, to repay the Revolving Credit Loans (without a corresponding permanent reduction in the Revolving Credit Commitment), and third, to the extent of any excess, to reduce the outstanding principal balance of the Second Lien Term Loan as required pursuant to Section 2.05 of the Second Lien Credit Agreement.  Notwithstanding the foregoing, regardless of whether there are amounts outstanding under the Revolving Credit Facility, each Term Lender having outstanding Term Loans may elect to decline its Applicable Percentage of any mandatory prepayment by notifying the Administrative Agent within three days of receipt of the notice of such prepayment.  All mandatory prepayments declined in accordance with the foregoing shall be re-offered to those Term Lenders under this Agreement who have initially accepted such prepayment (such re-offer to be made to each such Term Lender based on the percentage which such Lender’s Term Loans represents of the aggregate Term Loans of all such Term Lenders who have initially accepted such prepayment).  In the event of such a re-offer, the relevant Term Lenders may elect to decline, by notice to the Administrative Agent within two days of such re-offering, all of the amount of such prepayment that is re-offered to them, in which case the aggregate amount of the prepayment that would have been applied to prepay such Term Loans pursuant to such re-offer but was so declined shall be applied first to repay the Revolving Credit Loans (without a corresponding permanent reduction in the Revolving Credit Commitment), second to the extent of any excess, to reduce the outstanding principal balance of the Second Lien Term Loan as required pursuant to Section 2.05 of the Second Lien Credit Agreement, and third, to the extent of any remaining funds, to the Borrowers.  Any Term Lender that does not promptly notify the Administrative Agent in accordance with the foregoing that it is declining a mandatory prepayment shall automatically be deemed to have accepted such prepayment and any re-offer in respect thereof.

(v)           If for any reason the Total Revolving Credit Outstandings at any time exceed the Revolving Credit Facility at such time, the Borrowers shall immediately prepay Revolving Credit Loans, Swing Line Loans and L/C Borrowings and/or Cash Collateralize the L/C Obligations (other than the L/C Borrowings) in an aggregate amount equal to such excess.

2.06         Termination or Reduction of Commitments.

(a)  Optional.  The Borrowers may, upon notice to the Administrative Agent, terminate the Revolving Credit Facility, the Letter of Credit Sublimit or the Swing Line Sublimit, or from time to time permanently reduce the Revolving Credit Facility, the Letter of Credit

49

Sublimit or the Swing Line Sublimit; provided that (i) any such notice shall be received by the Administrative Agent not later than 11:00 a.m. five Business Days prior to the date of termination or reduction, (ii) any such partial reduction shall be in an aggregate amount of $5,000,000 or any whole multiple of $1,000,000 in excess thereof and (iii) the Borrowers shall not terminate or reduce (A) the Revolving Credit Facility if, after giving effect thereto and to any concurrent prepayments hereunder, the Total Revolving Credit Outstandings would exceed the Revolving Credit Facility, (B) the Letter of Credit Sublimit if, after giving effect thereto, the Outstanding Amount of L/C Obligations not fully Cash Collateralized hereunder would exceed the Letter of Credit Sublimit, or (C) the Swing Line Sublimit if, after giving effect thereto and to any concurrent prepayments hereunder, the Outstanding Amount of Swing Line Loans would exceed the Letter of Credit Sublimit.

(b)           Mandatory.

(i)            The aggregate Term  Commitments shall be automatically and permanently reduced to zero on the date of the Term Borrowing.

(ii)           If after giving effect to any reduction or termination of Revolving Credit Commitments under this Section 2.06, the Letter of Credit Sublimit or the Swing Line Sublimit exceeds the Revolving Credit Facility at such time, the Letter of Credit Sublimit or the Swing Line Sublimit, as the case may be, shall be automatically reduced by the amount of such excess.

(c)           Application of Commitment Reductions; Payment of Fees.  The Administrative Agent will promptly notify the Lenders of any termination or reduction of the Letter of Credit Sublimit, Swing Line Sublimit or the Revolving Credit Commitment under this Section 2.06.  Upon any reduction of the Revolving Credit Commitments, the Revolving Credit Commitment of each Revolving Credit Lender shall be reduced by such Lender’s Applicable Revolving Credit Percentage of such reduction amount.  All fees in respect of the Revolving Credit Facility accrued until the effective date of any termination of the Revolving Credit Facility shall be paid on the effective date of such termination.

2.07         Repayment of Loans.

(a)           Term Loans.  The Borrowers, jointly and severally, shall repay to the Term Lenders the aggregate principal amount of all Term Loans outstanding on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, in equal quarterly installments of $1,250,000; provided, however, that the final principal repayment installment of the Term Loans shall be repaid on the Maturity Date for the Term Facility and in any event shall be in an amount equal to the aggregate principal amount of all Term Loans outstanding on such date.

(b)           Revolving Credit Loans.  The Borrowers, jointly and severally, shall repay to the Revolving Credit Lenders on the Maturity Date for the Revolving Credit Facility the aggregate principal amount of all Revolving Credit Loans outstanding on such date.

50

(c)           Swing Line Loans.  The Borrowers, jointly and severally, shall repay each Swing Line Loan on the earlier to occur of (i) the date ten Business Days after such Loan is made and (ii) the Maturity Date for the Revolving Credit Facility.

2.08         Interest.

(a)           Subject to the provisions of Section 2.08(b), (i) each Eurodollar Rate Loan under a Facility shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate for such Facility; (ii) each Base Rate Loan under a Facility shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for such Facility; and (iii) each Swing Line Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate for the Revolving Credit Facility.

(b)           (i)  If any amount of principal of any Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(ii)           If any amount (other than principal of any Loan) payable by either Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iii)          Upon the request of the Required Lenders, while any Event of Default exists, the Borrowers shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iv)          Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

(c)           Interest on each Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein.  Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.09         Fees.  In addition to certain fees described in Sections 2.03(i) and (j):

(a)           Commitment Fee.  The Borrowers, jointly and severally, shall pay to the Administrative Agent for the account of each Revolving Credit Lender in accordance with its Applicable Revolving Credit Percentage, a commitment fee equal to the Applicable Fee Rate times the actual daily amount by which the Revolving Credit Facility exceeds the sum of (i) the

51

Outstanding Amount of Revolving Credit Loans and (ii) the Outstanding Amount of L/C Obligations.  Swingline Loans shall not be considered utilization of the Revolving Credit Facility for purposes of this calculation.  The commitment fee shall accrue at all times during the Availability Period, including at any time during which one or more of the conditions in Article IV is not met, and shall be due and payable quarterly in arrears on the last Business Day of each March, June, September and December, commencing with the first such date to occur after the Closing Date, and on the last day of the Availability Period for the Revolving Credit Facility.  The commitment fee shall be calculated quarterly in arrears, and if there is any change in the Applicable Fee Rate during any quarter, the actual daily amount shall be computed and multiplied by the Applicable Fee Rate separately for each period during such quarter that such Applicable Fee Rate was in effect.

(b)           Other Fees.  (i)  The Borrowers, jointly and severally, shall pay to the Arranger and the Administrative Agent for their own respective accounts and for the accounts of the Lenders fees in the amounts and at the times specified in the Fee Letter (without duplication of any fees payable pursuant to the Second Lien Credit Agreement).  Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

(ii)           The Borrower shall pay to the Lenders such fees as shall have been separately agreed upon in writing in the amounts and at the times so specified.  Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

2.10         Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.

(a)  All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed.  All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).  Interest shall accrue on each Loan for the day on which the Loan is made, and shall not accrue on a Loan, or any portion thereof, for the day on which the Loan or such portion is paid, provided that any Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day.  Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

(b)           If, as a result of any restatement of or other adjustment to the financial statements of Holdings or for any other reason, either Borrower or the Lenders determine that (i) the Consolidated Leverage Ratio as calculated by the Borrowers as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Leverage Ratio would have resulted in higher pricing for such period, the Borrowers shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to either Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent, any Lender or the L/C Issuer), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period.  This

52

paragraph shall not limit the rights of the Administrative Agent, any Lender or the L/C Issuer, as the case may be, under Section 2.03(c)(iii), 2.03(i) or 2.08(b) or under Article VIII.  The Borrowers’ obligations under this paragraph shall survive the termination of the Aggregate Commitments and the repayment of all other Obligations hereunder.

2.11         Evidence of Debt.

(a)  The Credit Extensions made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business.  The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Credit Extensions made by the Lenders to the Borrowers and the interest and payments thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations.  In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.  Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Loans in addition to such accounts or records.  Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Loans and payments with respect thereto.

(b)           In addition to the accounts and records referred to in Section 2.11(a), each Lender and the Administrative Agent shall maintain in accordance with its usual practice accounts or records evidencing the purchases and sales by such Lender of participations in Letters of Credit and Swing Line Loans.  In the event of any conflict between the accounts and records maintained by the Administrative Agent and the accounts and records of any Lender in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.

2.12         Payments Generally; Administrative Agent’s Clawback.

(a)           General.  All payments to be made by either Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff.  Except as otherwise expressly provided herein, all payments by either Borrower hereunder shall be made to the Administrative Agent, for the account of the respective Lenders to which such payment is owed, at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein.  The Administrative Agent will promptly distribute to each Lender its Applicable Percentage in respect of the relevant Facility (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office.  All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.  If any payment to be made by the Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected on computing interest or fees, as the case may be.

53

(b)           Presumptions by Administrative Agent.

Funding by Lenders; Presumption by Administrative Agent.  Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Eurodollar Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender on the one hand and the Borrowers on the other severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to either Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans.  If the Borrowers and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrowers the amount of such interest paid by the Borrowers for such period.  If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Loan included in such Borrowing.  Any payment by the Borrowers shall be without prejudice to any claim the Borrowers may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(i)            Payments by Borrowers; Presumptions by Administrative Agent.  Unless the Administrative Agent shall have received notice from the Borrowers prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders or the L/C Issuer hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Appropriate Lenders or the L/C Issuer, as the case may be, the amount due.  In such event, if the Borrowers have not in fact made such payment, then each of the Appropriate Lenders or the L/C Issuer, as the case may be, severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender or the L/C Issuer, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

54

A notice of the Administrative Agent to any Lender or the Borrower Agent with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

(c)           Failure to Satisfy Conditions Precedent.  If any Lender makes available to the Administrative Agent funds for any Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrowers by the Administrative Agent because the conditions to the applicable Credit Extension set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(d)           Obligations of Lenders Several.  The obligations of the Lenders hereunder to make Term Loans and Revolving Credit Loans, to fund participations in Letters of Credit and Swing Line Loans and to make payments pursuant to Section 10.04(c) are several and not joint.  The failure of any Lender to make any Loan, to fund any such participation or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Loan, to purchase its participation or to make its payment under Section 10.04(c).

(e)           Funding Source.  Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Loan in any particular place or manner or to constitute a representation by any Lender that it has obtained or will obtain the funds for any Loan in any particular place or manner.

(f)            Insufficient Funds.  If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, L/C Borrowings, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal and L/C Borrowings then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal and L/C Borrowings then due to such parties.

2.13         Sharing of Payments by Lenders.  If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (a) Obligations in respect of any the Facilities due and payable to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of the Facilities due and payable to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations in respect of the Facilities due and payable to all Lenders hereunder and under the other Loan Documents at such time obtained by all the Lenders at such time or (b) Obligations in respect of any of the Facilities owing (but not due and payable) to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender at such time to (ii) the aggregate amount of the Obligations in respect of the Facilities owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time) of payment

55

on account of the Obligations in respect of the Facilities owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time obtained by all of the Lenders at such time then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Loans and subparticipations in L/C Obligations and Swing Line Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of Obligations in respect of the Facilities then due and payable to the Lenders or owing (but not due and payable) to the Lenders, as the case may be, provided that:

(i)            if any such participations or subparticipations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations or subparticipations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(ii)           the provisions of this Section shall not be construed to apply to (A) any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Loans or subparticipations in L/C Obligations or Swing Line Loans to any assignee or participant, other than to the Borrowers or any Subsidiary thereof (as to which the provisions of this Section shall apply).

Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrowers rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of the Borrowers in the amount of such participation.

2.14         Obligations Joint and Several.

(a)                           Nature of Obligations.  Each of the Borrowers shall be jointly and severally liable for the Obligations, however incurred.  References to the Borrowers with respect to the Obligations or any portion thereof shall mean each Borrower on a joint and several basis.

(b)                           Bankruptcy Limitations.  Notwithstanding anything to the contrary contained in this Agreement, it is the intention of each Borrower, the Administrative Agent and the Lenders that, in any proceeding involving the bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution or insolvency or any similar proceeding with respect to any Borrower or its assets, the amount of such Borrower’s obligations with respect to the Obligations shall be equal to, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of Applicable Insolvency Laws (as defined below) after giving effect to Section 2.14(c).  To that end, but only in the event and to the extent that after giving effect to Section 2.14(c), such Borrower’s obligations with respect to the Obligations or any payment made pursuant to such Obligations would, but for the operation of the first sentence of this Section 2.14(b), be subject to avoidance or recovery in any such proceeding under Applicable Insolvency Laws after giving effect to Section 2.14(c), the amount of such

56

Borrower’s obligations with respect to the Obligations shall be limited to the largest amount which, after giving effect thereto, would not, under Applicable Insolvency Laws, render such Borrower’s obligations with respect to the Obligations unenforceable or avoidable or otherwise subject to recovery under Applicable Insolvency Laws.  To the extent any payment actually made pursuant to the Obligations exceeds the limitation of the first sentence of this Section 2.14(b) and is otherwise subject to avoidance and recovery in any such proceeding under Applicable Insolvency Laws, the amount subject to avoidance shall in all events be limited to the amount by which such actual payment exceeds such limitation and the Obligations as limited by the first sentence of this Section 2.14(b) shall in all events remain in full force and effect and be fully enforceable against such Borrower.  The first sentence of this Section 2.14(b) is intended solely to preserve the rights of the Administrative Agent and the Lenders hereunder against such Borrower in such proceeding to the maximum extent permitted by Applicable Insolvency Laws and neither such Borrower nor any other Person shall have any right or claim under such sentence that would not otherwise be available under Applicable Insolvency Laws in such proceeding.  For the purposes of this Section 2.14(b), “Applicable Insolvency Laws” means all applicable laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws, whether foreign or domestic (including, without limitation, 11 U.S.C. Sections 544, 547, 548 and 550 and other “avoidance” provisions of Title 11 of the United States Code, as amended or supplemented).

(c)           Agreement for Contribution.  The Borrowers hereby agree among themselves that, if either Borrower shall make an Excess Payment (as defined below), such Borrower shall have a right of contribution from the other Borrower in an amount equal to such other Borrower’s Contribution Share (as defined below) of such Excess Payment.  The payment obligations of any Borrower under this Section 2.14(c) shall be subordinate and subject in right of payment to the Obligations until such time as the Obligations have been paid in full, and neither Borrower shall exercise any right or remedy under this Section 2.14(c) against the other Borrower until such Obligations have been paid in full.  For purposes of this Section 2.14(c), (i) “Excess Payment” shall mean the amount paid by any Borrower in excess of its Ratable Share of any Obligations; (ii) “Ratable Share” shall mean, for any Borrower in respect of any payment of Obligations, the ratio (expressed as a percentage) as of the date of such payment of Obligations of (A) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Borrower (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower hereunder) to (B) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Borrowers exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrowers hereunder) of the Borrowers; provided, however, that, for purposes of calculating the Ratable Shares of the Borrowers in respect of any payment of Obligations, any Borrower that became a Borrower subsequent to the date of any such payment shall be deemed to have been a Borrower on the date of such payment and the financial information for such Borrower as of the date such Borrower became a Borrower shall be utilized for such Borrower in connection with such payment; and (iii) “Contribution Share” shall mean, for any Borrower in respect of any Excess Payment made by any other Borrower, the ratio (expressed as a percentage) as of the date of such Excess Payment of (A) the amount by

57

which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Borrower (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower hereunder) to (B) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrowers) of the Borrower other than the maker of such Excess Payment.  Each Borrower recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution.  No Borrower shall have any right of subrogation, indemnity or reimbursement under applicable law in respect of any payment of Obligations (other than the contribution rights set forth in this Section 2.14(c)) against any other Borrower.  No Person other than a Lender or a Borrower may rely on the provisions of this Section 2.14(c).

2.15         PMG as Borrower Agent.  Holdings hereby irrevocably appoints and authorizes PMG, and PMG hereby accepts such appointment and agrees to act, as the Borrower Agent (a) to provide the Administrative Agent with all notices with respect to all Borrowings obtained for the benefit of the Borrowers and all other notices and instructions under this Agreement, (b) to take such action on behalf of the Borrowers as the Borrower Agent deems appropriate on its behalf to obtain Borrowings and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement and (c) to act as its agent for service of process and notices required to be delivered under this Agreement or the other Loan Documents, it being understood and agreed that receipt by the Borrower Agent of any summons, notice or other similar item shall be deemed effective receipt by the Borrowers and their Subsidiaries.

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY

3.01         Taxes.

(a)  Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if either Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent, any Lender or the L/C Issuer, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) the Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b)           Payment of Other Taxes by the Borrowers.  Without limiting the provisions of subsection (a) above, the Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

58

(c)           Indemnification by the Borrowers.  The Borrowers shall, jointly and severally, indemnify the Administrative Agent, each Lender and the L/C Issuer, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower Agent by a Lender or the L/C Issuer (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender or the L/C Issuer, shall be conclusive absent manifest error.

(d)           Evidence of Payments.  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by either Borrower to a Governmental Authority, the applicable Borrower shall deliver to the Administrative Agent the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)           Status of Lenders.  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which either Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower Agent (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower Agent or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if requested by the Borrower Agent or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower Agent or the Administrative Agent as will enable the Borrowers or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, if either Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower Agent and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower Agent or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i)            duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(ii)           duly completed copies of Internal Revenue Service Form W-8ECI,

59

(iii)          in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (A) a certificate to the effect that such Foreign Lender is not (1) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of either Borrower within the meaning of section 881(c)(3)(B) of the Code, or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (B) duly completed copies of  Internal Revenue Service Form W-8BEN, or

(iv)          any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrowers to determine the withholding or deduction required to be made.

(f)            Treatment of Certain Refunds.  If the Administrative Agent, any Lender or the L/C Issuer determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section, it shall pay to the Borrowers  an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent, such Lender or the L/C Issuer, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrowers, upon the request of the Administrative Agent, such Lender or the L/C Issuer, agree to repay the amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent, such Lender or the L/C Issuer if the Administrative Agent, such Lender or the L/C Issuer is required to repay such refund to such Governmental Authority.  This subsection shall not be construed to require the Administrative Agent, any Lender or the L/C Issuer to make available its tax returns (or any other information relating to its taxes that it deems confidential) to either Borrower or any other Person.

3.02         Illegality.  If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower Agent through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower Agent that the circumstances giving rise to such determination no longer exist.  Upon receipt of such notice, the Borrower Agent shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans.  Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.

60

3.03         Inability to Determine Rates.  If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Loan, the Administrative Agent will promptly so notify the Borrower Agent and each Lender.  Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice.  Upon receipt of such notice, the Borrower Agent may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.

3.04         Increased Costs; Reserves on Eurodollar Rate Loans.

(a)  Increased Costs Generally.  If any Change in Law shall:

(i)            impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e)) or the L/C Issuer;

(ii)           subject any Lender or the L/C Issuer to any tax of any kind whatsoever with respect to this Agreement, any Letter of Credit, any participation in a Letter of Credit or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender or the L/C Issuer in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender or the L/C Issuer); or

(iii)          impose on any Lender or the L/C Issuer or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender or any Letter of Credit or participation therein;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Loan), or to increase the cost to such Lender or the L/C Issuer of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender or the L/C Issuer hereunder (whether of principal, interest or any other amount) then, upon request of such Lender or the L/C Issuer, the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer, as the case may be, for such additional costs incurred or reduction suffered.

61

(b)           Capital Requirements.  If any Lender or the L/C Issuer determines that any Change in Law affecting such Lender or the L/C Issuer or any Lending Office of such Lender or such Lender’s or the L/C Issuer’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s or the L/C Issuer’s capital or on the capital of such Lender’s or the L/C Issuer’s holding company, if any, as a consequence of this Agreement, the Commitments of such Lender or the Loans made by, or participations in Letters of Credit held by, such Lender, or the Letters of Credit issued by the L/C Issuer, to a level below that which such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s or the L/C Issuer’s policies and the policies of such Lender’s or the L/C Issuer’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender or the L/C Issuer, as the case may be, such additional amount or amounts as will compensate such Lender or the L/C Issuer or such Lender’s or the L/C Issuer’s holding company for any such reduction suffered.

(c)           Certificates for Reimbursement.  A certificate of a Lender or the L/C Issuer setting forth the amount or amounts necessary to compensate such Lender or the L/C Issuer or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower Agent shall be conclusive absent manifest error.  The Borrowers shall pay such Lender or the L/C Issuer, as the case may be, the amount shown as due on any such certificate within 10 days after receipt thereof.

(d)           Delay in Requests.  Failure or delay on the part of any Lender or the L/C Issuer to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s or the L/C Issuer’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender or the L/C Issuer pursuant to the foregoing provisions of this Section for any increased costs incurred or reductions suffered more than nine months prior to the date that such Lender or the L/C Issuer, as the case may be, notifies the Borrower Agent of the Change in Law giving rise to such increased costs or reductions and of such Lender’s or the L/C Issuer’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

(e)           Reserves on Eurodollar Rate Loans.  The Borrowers shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Loan, provided the Borrower Agent shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender.  If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

62

3.05         Compensation for Losses.  Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a)   any continuation, conversion, payment or prepayment of any Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b)   any failure by either Borrower (for a reason other than the failure of such Lender to make a Loan) to prepay, borrow, continue or convert any Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower Agent; or

(c)   any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrowers (through the Borrower Agent) pursuant to Section 10.13;

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Loan or from fees payable to terminate the deposits from which such funds were obtained.  The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Loan by a matching deposit or other borrowing in the London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

3.06         Mitigation Obligations; Replacement of Lenders.

(a)           Designation of a Different Lending Office.  If any Lender requests compensation under Section 3.04, or either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b)           Replacement of Lenders.  If any Lender requests compensation under Section 3.04, or if either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrowers may replace such Lender in accordance with Section 10.13.

63

3.07         Survival.  All of the Borrowers’ obligations under this Article III shall survive termination of the Aggregate Commitments and repayment of all other Obligations hereunder.

ARTICLE IV
CONDITIONS PRECEDENT TO CREDIT EXTENSIONS

4.01         Conditions of Initial Credit Extension.  The obligation of the L/C Issuer and each Lender to make its initial Credit Extension hereunder is subject to satisfaction of the following conditions precedent:

(a)   The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

(i)            executed counterparts of this Agreement and the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrowers;

(ii)           a Note or Notes executed by the Borrowers in favor of each Lender requesting a Note;

(iii)          the Terner Pledge executed by Dr. Terner;

(iv)          the Amended and Restated Assignable Option Agreement duly executed by PMS, PMG and Dr. Terner;

(v)           a first lien security agreement (together with each other security agreement and security agreement supplement delivered pursuant to Section 6.12, in each case as amended, the “Collateral Agreement”), duly executed by each Loan Party, together with:

(A)          certificates representing all certificated pledged Equity Interests referred to therein accompanied by undated stock powers executed in blank and instruments evidencing pledged debt indorsed in blank,

(B)           the Administrative Agent shall have received the results of Lien searches (including a search as to judgments, pending litigation and tax matters), in form and substance reasonably satisfactory thereto, made against the Loan Parties and certain of the sellers under the Merger Agreement under the Uniform Commercial Code (or applicable judicial docket) as in effect in any state in which any of the assets of such Loan Party are located, indicating among other things that its assets are free and

64

clear of any Lien except Permitted Encumbrances and the other Liens permitted under the Loan Documents,

(C)           proper Financing Statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement, covering the Collateral described in the Collateral Agreement,

(D)          completed requests for information, dated on or before the date of the initial Credit Extension, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements,

(E)           evidence of the completion of all other actions, recordings and filings of or with respect to the Collateral Agreement that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created thereby,

(F)           the deposit account control agreements and the securities account control agreements as referred to in the Collateral Agreement and duly executed by the appropriate parties, in each case perfecting Liens against such accounts in accordance with the Collateral Agreement, and the Administrative Agent shall be satisfied with the Loan Parties’ cash management system with respect to Medicaid/Medicare receivables,

(G)           evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement has been taken (including receipt of duly executed payoff letters, UCC-3 termination statements and landlords’ and bailees’ waiver and consent agreements) and all filing and recording fees and taxes shall have been duly paid; and

(H)          to the extent applicable, intellectual property security agreements in recordable form and otherwise acceptable to the Administrative Agent and duly executed by each applicable Loan Party, together with evidence that all action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement has been taken;

(vi)          first lien deeds of trust, trust deeds, deeds to secure debt, and mortgages covering the properties listed on Schedule 4.01(a)(vi) (together with the Assignments of Leases and Rents referred to therein and each other mortgage delivered pursuant to Section 6.12, in each case as amended, the “Mortgages”), duly executed by the appropriate Loan Party, together with:

65

(A)evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to create a valid first and subsisting Lien on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties and that all filing, documentary, stamp, intangible and recording taxes and fees have been paid,

(B)fully paid American Land Title Association Lender’s Extended Coverage title insurance policies (the “Mortgage Policies”), with endorsements and in amounts acceptable to the Administrative Agent, issued, coinsured and reinsured by title insurers acceptable to the Administrative Agent, insuring the Mortgages to be valid first and subsisting Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Permitted Encumbrances and other Liens permitted under the Loan Documents, and providing for such other affirmative insurance (including endorsements for future advances under the Loan Documents, for mechanics’ and materialmen’s Liens and for zoning of the applicable property) and such coinsurance and direct access reinsurance as the Administrative Agent may deem necessary or desirable,

(C)property condition assessments as to the properties described in the Mortgages, from professional firms acceptable to the Administrative Agent,

(D)an environmental assessment report from an environmental consulting firm acceptable to the Lenders, which report (1) shall be addressed to the Administrative Agent and the Lenders or otherwise permit reliance by the Administrative Agent and the Lenders thereon, (2) shall identify existing and potential environmental concerns, (3) shall quantify related costs and liabilities, associated with any facilities of either Borrower or any of their respective Subsidiaries and (4) shall be satisfactory to the Lenders with respect to the nature and amount of any matters covered thereby and the Lenders shall be satisfied with the Borrowers’ plans with respect thereto,

(E)estoppel and consent agreements executed by each of the lessors of the leased real properties listed on Schedule 5.08(d)(i), together with legal descriptions sufficient for recording in the real property records of the applicable county; provided, however, that to the extent that any estoppel and consent agreements for the leased real properties listed on Schedule 5.08(d)(i) are not obtained prior to the Closing Date, the Borrowers shall use commercially reasonable efforts deliver such agreements and memoranda within 60 days following the Closing Date,

66

(F)evidence of the insurance required by the terms of the Mortgages, and

(G)evidence that all other action that the Administrative Agent may deem necessary or desirable in order to create valid first and subsisting Liens on the property described in the Mortgages has been taken;

(vii)such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

(viii)such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Borrower and each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(ix)a favorable opinion of Theodora Oringher Miller and Richman PC, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to such matters concerning the Loan Parties and the Loan Documents as the Administrative Agent or the Required Lenders may reasonably request;

(x)a favorable opinion of Strategic Law Partners, LLP, counsel for the Company and its Subsidiaries, delivered in connection with the Merger which opinion is either (A) addressed to the Administrative Agent and the Lenders or (B) accompanied by a reliance letter from such counsel addressed to the Administrative Agent and the Lenders that expressly states that the Administrative Agent and the Lenders may rely on such opinion;

(xi)evidence of the receipt of all Governmental Approvals (including all applicable healthcare and other applicable regulatory), shareholder and third party consents (including Hart-Scott-Rodino clearance) and approvals necessary or, in the opinion of the Administrative Agent, desirable in connection with the Transactions and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Borrowers and their Subsidiaries or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Administrative Agent could have such an effect;

67

(xii)a Business Associate Agreement duly executed by each Loan Party and AMVI/Prospect;

(xiii)a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the consummation by such Loan Party of the Transaction and the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

(xiv)evidence that the Borrowers have obtained corporate/corporate family ratings from Moody’s and S&P, as applicable, of at least B3/B-, respectively, and in each case, with a stable outlook or better;

(xv)a certificate signed by a Responsible Officer of each Borrower certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, (B) except as set forth on Schedule 4.01(a)(xv), that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and (C) a calculation as of the last day of the fiscal quarter of Holdings most recently ended prior to the Closing Date reflecting that the Consolidated Leverage Ratio of Holdings and its Subsidiaries (which ratio shall be calculated reflecting the Transactions contemplated hereby on a pro forma basis) is not greater than 3.5:1.0;

(xvi)pro forma consolidated financial statements of Holdings and its Subsidiaries as of as of the last day of the fiscal quarter of Holdings most recently ended prior to the Closing Date giving effect to all elements of the Transactions, and forecasts prepared by management of the Borrowers, each in form satisfactory to the Lenders, of balance sheets, income statements and cash flow statements on a monthly basis for the first year following the Closing Date and on an annual basis for each year thereafter during the term of this Agreement;

(xvii)the annual (or other audited) financial statements of each of (A) the Borrowers and their respective Subsidiaries and (B) the Company and its Subsidiaries for the fiscal years ended 2004, 2005, and 2006, and interim financial statements of each of (A) the Borrowers and their respective Subsidiaries and (B) the Company and its Subsidiaries dated of the end of the most recent fiscal quarter for which financial statements are available;

(xviii)evidence that all Loans will be in full compliance with the Federal Reserve’s margin regulations;

(xix)certificates attesting to the Solvency of each Loan Party before and after giving effect to the Transaction, from each Borrower’s chief financial officer;

68

(xx)the Lenders shall be satisfied with the amount, terms, conditions and holders of all intercompany indebtedness and all material indebtedness and other material liabilities owing to third parties to be outstanding on and after the Closing Date;

(xxi)evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect, together with the certificates of insurance, naming the Administrative Agent, on behalf of the Lenders, as an additional insured or loss payee, as the case may be, under all insurance policies maintained with respect to the assets and properties of the Loan Parties that constitutes Collateral;

(xxii)certified copies of each of the Related Documents, duly executed by the parties thereto, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall request;

(xxiii)certified copies of a certificate of merger or other confirmation satisfactory to the Lenders of the consummation of the Merger from the Secretary of State of the State of California;

(xxiv)a duly completed Compliance Certificate as of the last day of the fiscal quarter of Holdings ended March 31, 2007, signed by chief executive officer, chief financial officer, treasurer or controller of Holdings;

(xxv)evidence that each Existing Credit Agreement has been, or concurrently with the Closing Date is being, terminated and all Liens securing obligations under each Existing Credit Agreement have been, or concurrently with the Closing Date are being, released;

(xxvi)evidence that Holdings has received approval from the American Stock Exchange for the listing of common shares of Holdings stock thereon in connection with the conversion of the preferred equity issued to Samuel S. Lee and The David and Alexa Topper Family Trust U/D/T September 29, 1997;

(xxvii)a copy of each duly-executed Voting Agreement delivered in connection with the Merger Agreement;

(xxviii)duly executed counterparts to the Intercreditor Agreement; and

(xxix)such other assurances, certificates, documents, consents, reports, audits or opinions as the Administrative Agent, the L/C Issuer, the Swing Line Lender or any Lender reasonably may require.

(b)(i) All fees required to be paid to the Administrative Agent and the Arranger on or before the Closing Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before the Closing Date shall have been paid.

69

(c)Unless waived by the Administrative Agent, the Borrowers shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).

(d)(i) The final terms and conditions of each aspect of the Merger, including, without limitation, all tax aspects thereof, shall be satisfactory to the Lenders and the Merger shall have been consummated strictly in accordance with the terms of the Merger Agreement, without any waiver or amendment not consented to by the Lenders of any term, provision or condition set forth therein, and in compliance with all applicable requirements of Law; (ii) the Lenders shall be reasonably satisfied with the Merger Agreement (including all schedules and exhibits thereto) which shall provide for an aggregate purchase price not in excess of $144,000,000 (less the indebtedness of the Company), and all other agreements, instruments and documents relating to the Merger; (iii) and the Related Documents shall not have been altered, amended or otherwise changed or supplemented prior to the Closing Date or any condition therein waived without the prior written consent of the Lenders; and (iv) in connection with any and all judgment liens shown of record as a Lien against any real or personal property of any Loan Party, the Borrowers shall have provided the Administrative Agent either (A) evidence reasonably acceptable to the Administrative Agent that such judgment lien has been satisfied and that the applicable Loan Party has, or is diligently pursuing, a release of lien to be filed in all public records, with such release of lien to be so filed in any event no later than thirty (30) days after the Closing Date or (B) if the Lien has not been paid, or if the applicable Loan Party is unable to establish to the satisfaction of the Administrative Agent that such judgment lien has been paid and is no long of force and effect, the Borrowers have deposited funds with an escrow agent reasonably acceptable to the Administrative Agent in an amount sufficient to pay in full each such judgment lien and have delivered to the Administrative Agent a demand from the corresponding judgment creditor for each such outstanding judgment lien; and (iv) in connection with any and all state and federal tax liens shown of record as a Lien against any Loan Party’s personal or real property, the Borrowers shall have delivered to the Administrative Agent evidence acceptable to the Administrative Agent that each such tax lien has been satisfied and that the applicable Loan Party has, or is diligently pursuing, a release of lien to be filed in all public records, with such release of lien to be so filed in any event no later than thirty (30) days after the Closing Date.

(e)The Lenders shall have completed a due diligence investigation of the Borrowers, the Company and their respective Subsidiaries in scope, and with results, satisfactory to the Lenders, and shall have been given such access to the management, records, books of account, contracts and properties of the Borrowers, the Company, their respective Subsidiaries and shall have received such financial, business and other information regarding each of the foregoing Persons and businesses as they shall have requested, including information as to possible contingent liabilities, tax matters,

70

collective bargaining agreements and other arrangements with employees, and no changes or developments shall have occurred, and no new or additional information shall have been received or discovered by the Administrative Agent or the Lenders regarding the Borrowers, the Company and their respective Subsidiaries or the Transaction after May 23, 2007 that (A) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or (B) purports to adversely affect the Facilities or any other aspect of the Transaction, and nothing shall have come to the attention of the Lenders during the course of such due diligence investigation to lead them to believe (i) that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect, (ii) that, following the consummation of the Transaction, Holdings would not have good and marketable title to all material assets of the Company and its Subsidiaries reflected in the Information Memorandum or (iii) that the Transaction will have a Material Adverse Effect.

(f)The Lenders shall be satisfied with the pro forma capital and ownership structure and the shareholder arrangements of the Loan Parties and their Affiliates after giving effect to the Transactions, including, without limitation,  the respective charter and bylaws (or equivalent document/agreement) of each Loan Party and each agreement or instrument relating thereto.

(g)No action, suit, investigation or proceeding shall be pending or, to the knowledge of the Borrowers or the Company, or any Subsidiary thereof, threatened in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

(h)(i) the Second Lien Loan Documents shall be in form and substance satisfactory to the Administrative Agent and (ii) concurrent with the closing of the Facilities and the funding of the Term Loan, the Borrowers shall have borrowed $50,000,000 pursuant to, and in accordance with, the Second Lien Credit Agreement.

Without limiting the generality of the provisions of the last paragraph of Section 9.03, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

4.02Conditions to all Credit Extensions.  The obligation of each Lender to honor any Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type, or a continuation of Eurodollar Rate Loans) is subject to the following conditions precedent:

(a)The representations and warranties of the Borrowers contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the date of such Credit Extension, except to the extent that such representations and

71

warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date, and except that for purposes of this Section 4.02, the representations and warranties contained in Sections 5.05(a) and (b) shall be deemed to refer to the most recent statements furnished pursuant to Sections 6.01(a) and (b), respectively.

(b)No Default shall exist, or would result from such proposed Credit Extension or from the application of the proceeds thereof.

(c)The Administrative Agent and, if applicable, the L/C Issuer or the Swing Line Lender shall have received a Request for Credit Extension in accordance with the requirements hereof.

Each Request for Credit Extension (other than a Committed Loan Notice requesting only a conversion of Loans to the other Type or a continuation of Eurodollar Rate Loans) submitted by the Borrowers shall be deemed to be a representation and warranty that the conditions specified in Sections 4.02(a) and (b) have been satisfied on and as of the date of the applicable Credit Extension.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to the Administrative Agent and the Lenders that:

5.01Existence, Qualification and Power.  Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and Related Documents to which it is a party and consummate the Transaction, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.02Authorization; No Contravention.  The execution, delivery and performance by each Loan Party of each Loan Document and Related Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries (other than Liens arising under the Second Lien Loan Documents) or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

72

5.03Governmental Authorization; Other Consents.  No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document or Related Document, or for the consummation of the Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the first priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents.  All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.

5.04Binding Effect.  This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto.  This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

5.05Financial Statements; No Material Adverse Effect.  (a)  The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrowers and their respective Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrowers and their Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

(b)The unaudited consolidated balance sheet of Holdings and its Subsidiaries dated March 31, 2007, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.

(c)Except as set forth on Schedule 4.01(a)(xv), since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

(d)The consolidated and consolidating pro forma balance sheet of Holdings and its Subsidiaries as at March 31, 2007, and the related consolidated and consolidating pro forma statements of income and cash flows of the Borrowers and their Subsidiaries for the

73

twelve months then ended, certified by the chief financial officer or treasurer of the Borrowers, copies of which have been furnished to each Lender, fairly present the consolidated and consolidating pro forma financial condition of Holdings and its Subsidiaries as at such date and the consolidated and consolidating pro forma results of operations of Holdings and its Subsidiaries for the period ended on such date, in each case giving effect to the Transaction, all in accordance with GAAP.

(e)The consolidated and consolidating forecasted balance sheet, statements of income and cash flows of Holdings and its Subsidiaries delivered pursuant to Section 4.01 or Section 6.01(d) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrowers’ best estimate of its future financial condition and performance.

5.06Litigation.  There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of either Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against either Borrower or any of their respective Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Loan Document, or any Related Document, (b) except as disclosed on Schedule 5.06(b), purport to affect or pertain to the consummation of the Transaction or (c) except as specifically disclosed in Schedule 5.06(c), either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect.

5.07No Default.  Schedule 5.07 sets forth a complete and accurate list of all Material Contracts to which any Loan Party is a party.  Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08Ownership of Property; Liens; Investments.

(a)Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)Schedule 5.08(b) sets forth a complete and accurate list of all Liens on the property or assets of each Loan Party and each of its Subsidiaries, showing as of the date hereof the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto.  The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens set forth on Schedule 5.08(b), and as otherwise permitted by Section 7.01.

(c)Schedule 5.08(c) sets forth a complete and accurate list of all real property owned by each Loan Party and each of its Subsidiaries, showing as of the date hereof the street

74

address, county or other relevant jurisdiction, state, record owner and book and estimated fair value thereof.  Each Loan Party and each of its Subsidiaries has good, marketable and insurable fee simple title to the real property owned by such Loan Party or such Subsidiary, free and clear of all Liens, other than Liens created or permitted by the Loan Documents.

(d)(i)  Schedule 5.08(d)(i) sets forth a complete and accurate list of all leases of real property under which any Loan Party or any Subsidiary of a Loan Party is the lessee, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof.  Each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms.

(ii)Schedule 5.08(d)(ii) sets forth a complete and accurate list of all leases of real property under which any Loan Party or any Subsidiary of a Loan Party is the lessor, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof.  Each such lease is the legal, valid and binding obligation of the lessee thereof, enforceable in accordance with its terms.

(e)Schedule 5.08(e) sets forth a complete and accurate list of all Investments held by any Loan Party or any Subsidiary of a Loan Party on the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof.

5.09Environmental Compliance.

(a)(i) each of the Loan Parties and their respective Subsidiaries is in compliance with all Environmental Laws except where non-compliance would not, individually or in the aggregate, have a Material Adverse Effect; and (ii) all operations or activities upon, or any use, occupancy or operation of the Real Property, are in compliance with all Environmental Laws except where non-compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)No Loan Party has stored, manufactured, used, generated or dumped any Hazardous Materials on, in, under or upon any of the Real Property, except for uses and temporary storage of Hazardous Materials reasonably necessary to the customary operation of a general acute care hospital in material compliance with applicable Environmental Laws.

(c)None of the Real Property is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property.

(d)No Loan Party has ever received any written communication from a Governmental Authority or any other Person that alleges that such Loan Party is not in material compliance with Environmental Laws or is otherwise subject to liability relating to Environmental Laws;

(e)There is no claim pending or, to either Borrower’s knowledge, threatened against any Loan Party or any of the Real Property, and no material work, repairs, remedy, remediation, clean-up, construction or capital expenditures are required by any Environmental Laws with respect to the Real Property in order for the continued lawful use of the Real Property

75

operated by any Loan Party as of the Closing Date, as it has been and is currently used, subject to such exceptions that would not have a Material Adverse Effect;

(f)Each of the Loan Parties is in compliance with OSHA requirements respecting friable asbestos, if any, located on the Real Property, or any portion thereof, except where non-compliance would not have a Material Adverse Effect; and in this regard, each Loan Party has properly implemented an operations and maintenance training program where required for certain of its employees in the proper handling and removal of asbestos in compliance with OSHA requirements except where non-compliance would not have a Material Adverse Effect;

(g)There are no above or underground storage tanks located on or beneath the Real Property except as disclosed on Schedule 5.09.  All above or underground storage tanks currently operated on any of the Real Property by any Loan Party, if any, are in compliance with applicable Environmental Laws, except where non-compliance would not have a Material Adverse Effect.  For any underground storage tanks which were formerly located on any Real Property, and of which any Loan Party has knowledge, such tanks were removed or closed in place in compliance with applicable Environmental Laws except where non-compliance would not have a Material Adverse Effect, and any remediation work required as a result of any release, leakage or discharge of Hazardous Materials from such tanks or related lines has been fully completed in accordance with Environmental Laws and accepted by the applicable Governmental Authority, subject to such exceptions that would not have a Material Adverse Effect.

5.10Insurance.  The properties of the Borrowers and their respective Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrowers, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrowers or the applicable Subsidiary operates.

5.11Taxes.  Other than as set forth on Schedule 5.11, the Borrowers and their respective Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP.  There is no proposed tax assessment against any Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.  Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement.  The Merger will not be taxable to either Borrower or any of their respective Subsidiaries (including the Company) or AMVI/Prospect.

5.12ERISA Compliance.  (a)  Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws.  Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of each Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification.  Each Borrower and each

76

ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(b)There are no pending or, to the best knowledge of each Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)(i) Except as set forth on Schedule 5.12(c), no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

5.13Subsidiaries; Equity Interests; Loan Parties.  No Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those created under the Collateral Documents.  No Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13.  All of the outstanding Equity Interests in Holdings have been validly issued, are fully paid and non-assessable and Holdings’ authorized Equity Interests are set forth on Part (c) of Schedule 5.13.  Set forth on Part (d) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation.  The copy of the charter of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(viii) is a true and correct copy of each such document, each of which is valid and in full force and effect.

5.14Margin Regulations; Investment Company Act.

(a)Neither Borrower is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

77

(b)           None of the Borrowers, any Person Controlling either Borrower, or any Subsidiary of either Borrower is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

5.15         Disclosure.  The Borrowers have disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which they or any of their respective Subsidiaries or any other Loan Party is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

5.16         Compliance with Laws.  Each Loan Party and each Subsidiary thereof is in compliance in all respects with the requirements of all Laws (including all Health Care Laws and Seismic Compliance Laws (giving effect to any extensions or exemptions then in existence), all applicable Medicare and Medicaid rules and regulations, and to the extent applicable, the California Department of Managed Care financial solvency regulations) and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.  There is no basis for (a) any Offsets asserted or threatened to be asserted against any Loan Party by any Obligor (including but not limited to amounts due to Medicare or the IRS), or (b) any overdue or delinquent liabilities or Indebtedness which could give rise to a right of a federal Governmental Authority or any other Person to offset or levy with respect to such liabilities or Indebtedness against any accounts receivable of a Loan Party or payments due thereon.  No condition exists and no event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any governmental consent or permit applicable to any Loan Party or any facility owned or operated by it.

5.17         Intellectual Property; Licenses, Etc.  Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person.  To the best knowledge of each Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any of its Subsidiaries infringes upon any rights held by any other Person.  No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of each Borrower,

78

threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.18         Solvency.  Each Loan Party is, individually and together with its Subsidiaries on a consolidated basis, Solvent.

5.19         Casualty, Etc.  Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.20         Health Care Matters.

(a)           Compliance with Health Care Laws; Permits.  Without limiting the generality of Section 5.16, each Loan Party and each of its Subsidiaries, and any Person acting on their behalf, is in compliance in all material respects with all Health Care Laws applicable to it, its products and its properties or other assets or its business or operation, including its provision of professional services.  Each Loan Party and each of its Subsidiaries, and any Person acting on their behalf, has in effect all material Permits, including, without limitation, all material Permits necessary for it to own, lease or operate its properties and other assets and to carry on its business and operations, including its provision of professional services, as presently conducted.  All such material Permits are in full force and effect and there has occurred no default under, or violation of, any such material Permit.  No action, demand, or investigation by any Governmental Authority and no suit, action or proceeding by any other person, in each case with respect to each Loan Party, any of its Subsidiaries, any Person acting on their behalf, or any of their respective properties, other assets or provision of professional services under any requirements of Law, is pending or, to the knowledge of any Loan Party or its Subsidiaries, threatened.

(b)           Filings.  All reports, documents, claims, notices or approvals required to be filed, obtained, maintained or furnished to any Governmental Authority have been so filed, obtained, maintained or furnished, and all such reports, documents, claims and notices were complete and correct in all material respects on the date filed (or were corrected in or supplemented by a subsequent filing).

(c)           Material Statements.  No Loan Party nor any of its Subsidiaries, nor any officer, affiliate, employee or agent of any Loan Party or any of its Subsidiaries, has made an untrue statement of a material fact or fraudulent statement to any Governmental Authority, failed to disclose a material fact required to any Governmental Authority, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to constitute a violation of any Health Care Law.  No Loan Party nor any of its Subsidiaries, nor any officer, affiliate or employee of any Loan Party, nor to any Loan Party’s knowledge, any agent of any Loan Party or any of its Subsidiaries, has made any untrue statement of fact regarding claims incurred but not reported.

79

(d)           Billing.  Each Loan Party, each of its Subsidiaries and each contracting physician of a Loan Party or Subsidiary (to the extent required) has the requisite provider number or other Permit to bill the Medicare program (to the extent such entity participates in the Medicare program), the respective Medicaid program in the state or states in which such entity operates, and all other Third Party Payor Programs, including but not limited to Capitated Contracts with managed care organizations, that each Loan Party and each of its Subsidiaries currently bill.  There is no investigation, audit, claim review, or other action pending, or to the knowledge of any Loan Party or its Subsidiaries, threatened which could result in a revocation, suspension, termination, probation, restriction, limitation, or non-renewal of any Third Party Payor provider number or result in any Loan Party’s or any Subsidiaries’ exclusion from any Third Party Payor Program.  No Loan Party nor each of its Subsidiaries has billed or received any payment or reimbursement in excess of amounts allowed by any Health Care Law or other Law.

(e)           Proceedings.  There are no facts, circumstances or conditions that would reasonably be expected to form the basis for any material investigation, suit, claim, audit, action (legal or regulatory) or proceeding (legal or regulatory) by a Governmental Authority against or affecting any Loan Party or any of its Subsidiaries relating to any of the Health Care Laws.

(f)            Prohibited Transactions.  Neither the Loan Parties nor any Subsidiary nor any Person acting on behalf of the Loan Parties or any Subsidiary is a party to any contract, lease agreement or other arrangement (including any joint venture or consulting agreement) with any physician, health care facility, hospital, nursing facility, home health agency or other person who is in a position to make or influence referrals to or otherwise generate business to provide services, lease space, lease equipment or engage in any other venture or activity, other than agreements which are in compliance with all applicable Health Care Laws.  Neither the Loan Parties nor any Subsidiary, nor any person acting on behalf of the Loan Parties or any Subsidiary, directly or indirectly:  (1) offered, paid or received any remuneration, in cash or in kind, to, or made any financial arrangements with, any past, present or potential patient, supplier, medical staff member, referral source, contractor or Third Party Payor of the Loan Parties and/or any Subsidiary in order to illegally obtain or refer business or receive payments from such person; (2) given, received or agreed to give or receive, or is aware that there has been made or that there is any illegal agreement to make or receive, any illegal gift or gratuitous payment of any kind, nature or description (whether in money, property or services) to any past, present or potential patient, supplier, contractor, Third Party Payor or any other person; (3) made or agreed to make, or is aware that there has been made or that there is any agreement to make, any contribution, payment or gift of funds or property to, or for the private use of, any governmental official, employee or agent where either the contribution, payment or gift or the purpose of such contribution, payment or gift is or was illegal under the laws of any government entity having jurisdiction over such payment, contribution or gift; (4) established or maintained any unrecorded fund or asset for any purpose or made any misleading, false or artificial entries on any of its books or records for any reason; or (5) made, or agreed to make, or is aware that there has been made or that there is any agreement to make, any payment to any person with the intention or understanding that any part of such payment would be used or was given for any purpose other than that described in the documents supporting such payment.

80

(g)           Medicare/Medicaid.  There are no Medicare or Medicaid termination proceedings underway with respect to any of the Loan Parties, each entity meets the Medicare conditions of participation and no employee or independent contractor to any of the Loan Parties has been excluded from participating in Medicare or Medicaid or any similar federal programs.

(h)           Compliance.  Each Loan Party possesses and implements all requisite policies and procedures to ensure that all aspects of Loan Parties’ operations, their employees, and all healthcare providers under contract with any Loan Party, comply with all applicable Health Care Laws.

5.21         Labor Matters.   Except as set forth on Schedule 5.21, there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and neither the Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years.

5.22         Collateral Documents.   The provisions of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable first priority Lien (subject to Liens permitted by Section 7.01(a)-(i) and (k)) on all right, title and interest of the respective Loan Parties in the Collateral described therein.  Except for filings completed prior to the Closing Date and as contemplated hereby and by the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens.

ARTICLE VI
AFFIRMATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, each Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.11) cause each of its respective Subsidiaries to:

6.01         Financial Statements.  Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

(a)   as soon as available, but in any event within 120 days after the end of each fiscal year of Holdings (commencing with the fiscal year ended September 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit,

81

and together with any letters from such accountants to the board of directors or management of Holdings;

(b)   as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings (commencing with the fiscal quarter ended June 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of Holdings’ fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of Holdings as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of Holdings and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;

(c)   as soon as available, but in any event within 30 days after the end of each of the first 11 months of each fiscal year of Holdings (commencing with the fiscal month ended June 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as of the end of such month, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such month and for the portion of Holdings’ fiscal year than ended setting forth in each case in comparative form for the corresponding month of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and duly certified by the chief executive officer, chief financial officer, treasurer or controller of Holdings; and

(d)   as soon as available, but in any event at least 15 days before the beginning of each fiscal year of Holdings, an annual business plan and budget of the Borrowers and their respective Subsidiaries on a consolidated basis, including forecasts prepared by management of the Borrowers, in form satisfactory to the Administrative Agent and the Required Lenders, of consolidated balance sheets and statements of income or operations and cash flows of Holdings and its Subsidiaries on a monthly basis for the immediately following fiscal year (including the fiscal year in which the Maturity Date for the Term Facility occurs).

As to any information contained in materials furnished pursuant to Section 6.02(d), the Borrowers shall not be separately required to furnish such information under Section 6.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrowers to furnish the information and materials described in Sections 6.01(a) and (b) above at the times specified therein.

6.02         Certificates; Other Information.  Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

82

(a)   concurrently with the delivery of the financial statements referred to in Section 6.01(a) (commencing with the delivery of the financial statements for the fiscal year ended September 30, 2007), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default under the financial covenants set forth in Section 7.11 or, if any such Default shall exist, stating the nature and status of such event;

(b)   concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended June 30, 2007), a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of Holdings;

(c)   within thirty (30) days following the end of each calendar month, a certificate substantially in the form attached hereto as Exhibit F signed by the chief executive officer, chief financial officer, treasurer or controller of Holdings certifying Holdings’ and its Subsidiaries’ compliance with Section 7.11(c) and setting forth detail in support of such certification.

(d)   promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party or any of its Subsidiaries, or any audit of any of them;

(e)   promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Holdings, and copies of all annual, regular, periodic and special reports and registration statements which Holdings may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

(f)    promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

(g)   as soon as available, but in any event within 30 days after the end of each fiscal year of Holdings, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify;

(h)   promptly, and in any event within seven Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other

83

correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

(i)    not later than five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) (i) alleging that a default or an event of default has occurred, (ii) pertaining to any matter that is, or could be, in any manner adverse to any Secured Party or (iii) pertaining to any matter that is otherwise prohibited under the terms of any Loan Document, in each case so received under or pursuant to any Related Document or instrument, indenture, loan or credit or similar agreement and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request;

(j)    promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law;

(k)   copies of all required operating, medical or provider licenses, as they are renewed, but no less frequently than every year;

(l)    copies of the results of any licensing survey or other inspection report noting any deficiency within five (5) Business Days of its receipt by any Loan Party;

(m)  quarterly, on or prior to the thirtieth (30th) day following the end of each fiscal quarter, the Borrowers shall provide the Administrative Agent with a schedule listing the revenue for such quarter of each existing Capitated Contract and the corresponding expiration date for each such Capitated Contract.  In addition, promptly, but in any case not later than three (3) Business Days after any Loan Party obtains knowledge thereof, the Loan Parties shall advise the Administrative Agent in writing of the termination or non-renewal of any Capitated Contract, any adjustment in the per-patient price or rate of payment under any Capitated Contract, or any adjustment, offset or deduction in respect of Capitated Contract Rights for retroactive additions and/or deletions of patients covered by Capitated Contracts during any consecutive 60-day period the payments under which Capitated Contract constituted, alone or together with payments under all other Capitated Contracts terminated or non-renewed or with respect to which any adjustment in the per-patient price or rate of payment under any Capitated Contract or any adjustment, offset or deduction in respect of Capitated Contract rights for retroactive additions and/or deletions of patients covered by Capitated Contracts was made during such 60-day period, in excess of ten percent (10%) of the aggregate payments under all Capitated Contracts during the immediately preceding twelve month period;

84

(n)monthly, on or prior to the thirtieth (30th) day after the end of each calendar month, the Borrowers shall provide a report of incurred but not reported items for such month, which report shall include, but not be limited to, the claims lag analysis prepared by Borrowers for PMG and each of its Subsidiaries.  Such reports shall be in form and substance satisfactory to the Administrative Agent and shall be prepared using the per-member-per-month (“PMPM”) method, and will include all medical expenses

(o)promptly upon receipt thereof, copies of actuarial reports as of March 31 and September 30 of each year;

(p)as soon as available but not later than thirty (30) days after submission thereof to the California Department of Managed Health Care or the corresponding agency of another state and/or any other applicable or successor state agency or body, each Loan Party will provide the Administrative Agent (a) written notice of any application for, or the grant of, any Healthcare Service Plan License and (b) all reports and/or financial statements required under any such Loan Party’s Healthcare Service Plan License, if any; and

(q)promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.

Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which either Borrower posts such documents, or provides a link thereto on either Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on either Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that:  (i) the Borrowers shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrowers to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrowers shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents.  Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent.  Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

Each Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will make available to the Lenders and the L/C Issuer materials and/or information

85

provided by or on behalf of the Borrowers hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrowers or their respective Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities.  Each Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrowers shall be deemed to have authorized the Administrative Agent, the Arranger, the L/C Issuer and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrowers or their securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arranger shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

6.03Notices.  Promptly notify the Administrative Agent and each Lender:

(a)of the occurrence of any Default;

(b)any notice (other than a “Committed Loan Notice” (as defined under the Second Lien Credit Agreement)) delivered to any Loan Party, or sent by or on behalf of any Loan Party, with respect to the Second Lien Loan Documents (including a copy of each such notice);

(c)of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of either Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between either Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting either Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;

(d)of the occurrence of any ERISA Event;

(e)of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof, including any determination by Holdings or the Borrowers referred to in Section 2.10(b);

(f)of the (i) occurrence of any Disposition of property or assets for which the Borrowers are required to make a mandatory prepayment pursuant to Section 2.05(b)(ii), (ii) incurrence or issuance of any Indebtedness for which the Borrower is required to

86

make a mandatory prepayment pursuant to Section 2.05(b)(iii) and (iii) receipt of any Extraordinary Receipt for which either Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(iv);

(g)of any announcement by Moody’s or S&P of any change or possible change in a Debt Rating;

(h)of any investigation or audit, or pending or threatened proceedings relating to any violation or potential violation by any Loan Party, any Subsidiary of a Loan Party, or any health care facility to which a Loan Party or any Subsidiary of a Loan Party provides services, of any Health Care Laws (including, without limitation, any investigation or audit or proceeding involving violation of any of the Medicare and/or Medicaid fraud and abuse provisions);

(i)copies of any written recommendation from any Governmental Authority or other regulatory body that any Loan Party or any Subsidiary of a Loan Party, or any Obligor to which any Loan Party or any Subsidiary of a Loan Party provides services should have its licensure, provider or supplier number, or accreditation suspended, revoked, or limited in any way, or have its eligibility to participate in TRICARE, Medicare or Medicaid or to accept assignments or rights to reimbursement under TRICARE, Medicaid or Medicare regulations suspended, revoked, or limited in any way;

(j)notice of any claim to recover any alleged material overpayments, including by way of Offset, with respect to any receivables including, without limitation, payments received from TRICARE, Medicare, Medicaid or from any private insurance carrier;

(k)notice of termination of eligibility of any Loan Party, any Subsidiary of any Loan Party, or any health care facility to which any Loan Party provides services to participate in any reimbursement program of any private insurance carrier, managed care or similar organization, or other Obligor applicable to it;

(l)notice of any material reduction in the level of reimbursement expected to be received with respect to any accounts receivables;

(m)notice of any reimbursement payment contract or process that results or is reasonably expected to result in any material claim against a Loan Party or any Subsidiary of such Loan Party (including on account of overpayments, settlement payments, appeals, repayment plan requests);

(n)copies of any material report or communication from any Governmental Authority in connection with any inspection of any facility of a Loan Party or any Subsidiary of such Loan Party;

(o)notice of any material fee dispute; and

(p)any complaint, order, citation or notice of violation with respect to, or if any Loan Party becomes aware of, (i) the existence or alleged existence of which any Loan Party becomes aware, of a violation of any applicable Environmental Law, (ii) any

87

release of any Hazardous Material into the environment in an amount or a concentration for which reporting, investigation, or remediation is required under any applicable Environmental Law, (iii) the commencement of any cleanup pursuant to or in accordance with any applicable Environmental Law of any Hazardous Materials, (iv) any pending legislative or threatened proceeding for the termination, suspension or non-renewal of any permit required under any applicable Environmental Law, and (v) any Real Property that is or will be subject to a Lien imposed pursuant to any Environmental Law, which in each of cases (i) through (v) above, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to Section 6.03 (other than Section 6.03(e) or (f)) shall be accompanied by a statement of a Responsible Officer of the Borrower Agent setting forth details of the occurrence referred to therein and stating what action the Borrowers have  taken and propose to take with respect thereto.  Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

6.04Payment of Obligations.  Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrowers or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrowers or such Subsidiary; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

6.05Preservation of Existence, Etc.  (a)  Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; provided, however, that Holdings and its Subsidiaries may consummate the Merger; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

6.06Maintenance of Properties.  (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

6.07Maintenance of Insurance.  Maintain with financially sound and reputable insurance companies not Affiliates of either Borrower, insurance with respect to its properties

88

and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days’ prior notice to the Administrative Agent of termination, lapse or cancellation of such insurance.

6.08Compliance with Laws.

(a)Comply in all respects with the requirements of all Laws (including all Health Care Laws, Seismic Compliance Laws (giving effect to any extensions or exemptions then in existence), all applicable Medicare and Medicaid rules and regulations, and to the extent applicable, the California Department of Managed Care financial solvency regulations) and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

(b)Regularly review and revise the policies and procedures of the Loan Parties to ensure continuing compliance by all Loan Parties, their employees and all healthcare providers under contract with any Loan Party with all applicable Health Care Laws and maintain appropriate programs and procedures for communicating such policies and procedures to all employees of any Loan Party and healthcare providers under contract with any Loan Party and for making sure that all employees of any Loan Party are able to report violations of any Health Care Laws and have such reports adequately addressed and corrected as soon as practicable.

(c)As soon as practically feasible, but in no event later than six (6) months from the Closing Date, Loan Parties engaged in the hospital line of business shall adopt a compliance program which satisfies the Compliance Program Guidance for Hospitals issued by the U.S. Department of Health and Human Services Office of Inspector General, and within six months of the closing date or within six months of the issuance of applicable OIG Compliance Program Guidance, whichever is later, the Loan Parties, Subsidiaries and Affiliates engaged in other lines of business shall adopt a compliance program which satisfies all Compliance Program Guidance that applies to such business line(s), including without limitation any Program Guidance that may be developed for management companies or independent physician associations in the future by the Office of Inspector General.

6.09Books and Records.  (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.

6.10Inspection Rights.  Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrowers and at such reasonable times during

89

normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrowers; provided, however, that when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrowers at any time during normal business hours and without advance notice.

6.11Use of Proceeds.  Use the proceeds of the Credit Extensions to (i) finance the Transactions (together with the proceeds of the Second Lien Term Loan) and (ii) for general corporate purposes, in each case, not in contravention of any Law or of any Loan Document.

6.12Covenant to Guarantee Obligations and Give Security.

(a)Upon the formation or acquisition of any new direct or indirect Subsidiary by any Loan Party, then the Borrowers shall, at the Borrowers’ expense:

(i)within 15 days after such formation or acquisition, cause such Subsidiary, and cause each direct and indirect parent of such Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a guaranty, guaranty supplement, or joinder in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents,

(ii)within 10 days after such formation or acquisition, furnish to the Administrative Agent a description of the real and personal properties of such Subsidiary, in detail satisfactory to the Administrative Agent,

(iii)within 30 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, joinders, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all pledged Equity Interests in and of such Subsidiary to the Administrative Agent, and other instruments of the type specified in Section 4.01(a)(v)), securing payment of all the Obligations of such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting first priority Liens on all such real and personal properties,

(iv)within 45 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting first priority Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms,

(v)within 60 days after such formation or acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion,

90

a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (iii) and (iv) above, and as to such other matters as the Administrative Agent may reasonably request, and

(vi)as promptly as practicable after such formation or acquisition, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to each parcel of real property owned or held by the entity that is the subject of such formation or acquisition title reports, surveys and engineering, soils and other reports, property condition assessments and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent.

(b)Upon the acquisition of any property by any Loan Party, if such property, in the judgment of the Administrative Agent, shall not already be subject to a perfected first priority security interest (subject to Liens permitted pursuant to Section 7.01(i)) in favor of the Administrative Agent for the benefit of the Secured Parties, then the Borrowers shall, at the Borrowers’ expense:

(i)within 10 days after such acquisition, furnish to the Administrative Agent a description of the property so acquired in detail satisfactory to the Administrative Agent,

(ii)within 30 days after such acquisition, cause the applicable Loan Party to duly execute and deliver to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, joinders, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent, securing payment of all the Obligations of the applicable Loan Party under the Loan Documents and constituting first priority Liens on all such properties,

(iii)within 45 days after such acquisition, cause the applicable Loan Party to take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting first priority Liens on such property, enforceable against all third parties,

(iv)within 60 days after such acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (ii) and (iii) above and as to such other matters as the Administrative Agent may reasonably request, and

91

(v)as promptly as practicable after any acquisition of a real property, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to such real property title reports, surveys and engineering, soils and other reports, property condition assessments, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent,

(b)Upon the request of the Administrative Agent following the occurrence and during the continuance of a Default, the Borrowers shall, at the Borrowers’ expense:

(i)within 10 days after such request, furnish to the Administrative Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Administrative Agent,

(ii)within 30 days after such request, duly execute and deliver, and cause each Loan Party (if it has not already done so) to duly execute and deliver, to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including delivery of all pledged Equity Interests and pledged debt in and of such Subsidiary, and other instruments of the type specified in Section 4.01(a)(v)), securing payment of all the Obligations of the applicable Loan Party under the Loan Documents and constituting first priority Liens on all such properties,

(iii)within 45 days after such request, take, and cause each Loan Party to take, whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting first priority Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms,

(iv)within 60 days after such request, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (ii) and (iii) above, and as to such other matters as the Administrative Agent may reasonably request, and

(v)as promptly as practicable after such request, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to each parcel of real property owned or held by either Borrowers or their respective

92

Subsidiaries, title reports, surveys and engineering, soils and other reports, property condition assessments, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent.

(c)At any time upon request of the Administrative Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable in obtaining the full benefits of, or (as applicable) in perfecting and preserving the Liens of, such guaranties, deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and other security and pledge agreements.

6.13Compliance with Environmental Laws.  Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither Borrower nor any of their respective Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

6.14Preparation of Environmental/Seismic Reports.

(a)At the request of the Required Lenders from time to time, provide to the Lenders within 60 days after such request, at the expense of the Borrowers, an environmental site assessment report for any of its properties described in such request, prepared by an environmental consulting firm acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties; without limiting the generality of the foregoing, if the Administrative Agent determines at any time that a material risk exists that any such report will not be provided within the time referred to above, the Administrative Agent may retain an environmental consulting firm to prepare such report at the expense of the Borrowers, and each Borrower hereby grants and agrees to cause any Subsidiary that owns any property described in such request to grant at the time of such request to the Administrative Agent, the Lenders, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto their respective properties to undertake such an assessment.

(b)Within 30 days following its request therefor, the Borrowers shall deliver to the Administrative Agent a written evaluation and report with a current cost estimate to bring the real properties described in the Mortgages into compliance with Seismic Compliance Laws.

93

6.15Further Assurances.  Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

6.16Compliance with Terms of Leaseholds.  Make all payments and otherwise perform all obligations in respect of all leases of real property to which either Borrower or any of their respective Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect.

6.17Interest Rate Hedging.  Within sixty (60) days of the Closing Date, the Borrowers shall enter into and maintain for at least two years following the Closing Date, interest rate Swap Contracts with Persons acceptable to the Administrative Agent, covering a notional amount of not less than fifty percent (50%) of the aggregate Term Loan and Second Lien Term Loan and otherwise with terms and  conditions reasonably satisfactory to the Administrative Agent.

6.18Material Contracts.  Perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so.

6.19         Post-Closing Covenants.

(a)Within 30 days following the Closing Date (provided that the Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver to the

94

Administrative Agent evidence satisfactory to the Administrative Agent in its sole discretion that each Loan Party that participates in Medicare or Medicaid has properly filed CMS Form 855 with CMS.

(b)Within 30 days following the Closing Date (provided that the Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver to the Administrative Agent evidence satisfactory to the Administrative Agent in its sole discretion that (i) each lien set forth on Schedule 5.08(b) noted for termination has been terminated and (ii) Alta Healthcare Building Corporation, a California corporation, has been dissolved by the California Secretary of State.

(c)As soon as possible following the Closing Date, but in any event no later than September 15, 2007, the Borrowers shall have filed, or shall have caused its appropriate Subsidiary to file, tax returns for Alta Heathcare Systems, Inc., and its Subsidiaries for such entities’ 2003 tax year.

(d)Within 15 days following the Closing Date (provided that the Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver, or shall cause their appropriate Subsidiaries to deliver to the Administrative Agent, in each case, in form and substance satisfactory to the Administrative Agent, deposit account control agreements and/or collection account agreements (as applicable) for all accounts held with Wells Fargo Bank, National Association (or any Affiliate thereof).

ARTICLE VII
NEGATIVE COVENANTS

So long as any Lender shall have any Commitment hereunder, any Loan or other Obligation hereunder shall remain unpaid or unsatisfied, or any Letter of Credit shall remain outstanding, neither Borrower shall, nor shall either Borrower permit any Subsidiary to, directly or indirectly:

7.01Liens.  Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names either Borrower or any of their respective Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:

(a)Liens pursuant to any Loan Document;

(b)Liens existing on the date hereof and listed on Schedule 5.08(b) and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as contemplated by Section 7.02(d), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.02(d);

95

(c)   Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d)   carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

(e)   pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

(f)    deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(g)   easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(h)   Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);

(i)    Liens securing Indebtedness permitted under Section 7.02(f); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition;

(j)    other Liens securing Indebtedness permitted under Section 7.02 outstanding in an aggregate principal amount not to exceed $2,000,000, provided that no such Lien shall extend to or cover any Collateral;

(k)   Liens in favor of any lender to Brotman Medical Center, Inc. on the shares held by Prospect Hospital Advisory Services, Inc. in Brotman Medical Center, Inc.; and

(l)    Liens securing Indebtedness permitted under Section 7.02(i).

7.02         Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness, except:

(a)   obligations (contingent or otherwise) existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates and (ii) such Swap Contract

96

does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;

(b)   Indebtedness of a Guarantor owed to a Borrower or another Guarantor, or owed by a Borrower to a Guarantor or the other Borrower, which Indebtedness shall be on terms (including subordination terms) acceptable to the Administrative Agent;

(c)   Indebtedness under the Loan Documents;

(d)   Indebtedness outstanding on the date hereof and listed on Schedule 7.02 and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; and provided, still further, that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

(e)   Guarantees of either Borrower or any Subsidiary thereof in respect of Indebtedness otherwise permitted hereunder of any Loan Party;

(f)    Indebtedness in respect of Capitalized Leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $2,000,000;

(g)   Indebtedness of any Person that becomes a Subsidiary of either Borrower after the date hereof in accordance with the terms of Section 7.03(h), which Indebtedness is existing at the time such Person becomes a Subsidiary of such Borrower (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of such Borrower);

(h)   letters of credit required under any Capitated Contract in favor of an HMO and any renewals thereof required by such HMO under the terms of the Capitated Contract; and

(i)    Indebtedness of the Borrowers and Guarantors under the Second Lien Loan Documents in an aggregate principal amount not to exceed at any time of $50,000,000 less the amount of any permanent repayments or prepayments thereof.

97

7.03         Investments.  Make or hold any Investments, except:

(a)   Investments held by either Borrower or any of their respective Subsidiaries in the form of Cash Equivalents;

(b)   (i) Investments by either Borrower or any of their respective Subsidiaries in their respective Subsidiaries (other than an Excluded Subsidiary) outstanding on the date hereof and (ii) additional Investments by either Borrower or their respective Subsidiaries in Loan Parties (other than Holdings and the Excluded Subsidiary);

(c)   Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(d)   Guarantees permitted by Section 7.02;

(e)   Investments existing on the date hereof (other than those referred to in Section 7.03(b)(i)) and set forth on Schedule 5.08(e);

(f)    Investments by the Borrowers in Swap Contracts permitted under Section 7.02(a);

(g)   the purchase or other acquisition of all of the Equity Interests in, or all or substantially all of the property of, any Person that, upon the consummation thereof, will be wholly-owned directly by either of the Borrowers or one or more of their wholly-owned Subsidiaries (including as a result of a merger or consolidation); provided that, with respect to each purchase or other acquisition made pursuant to this Section 7.03(g):

(i)            any such newly-created or acquired Subsidiary shall comply with the requirements of Section 6.12;

(ii)           the lines of business of the Person to be (or the property of which is to be) so purchased or otherwise acquired shall be substantially the same lines of business as one or more of the principal businesses of either of the Borrowers or their respective Subsidiaries in the ordinary course;

(iii)          such purchase or other acquisition shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrowers and their Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or the persons performing similar functions) of such Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Responsible Officer);

(iv)          the total cash and noncash consideration (including all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts

98

paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith but excluding all Equity Interests permitted to be issued under the terms of this Agreement issued or transferred to the sellers thereof) paid by or on behalf of the respective Borrower and its Subsidiaries for any such purchase or other acquisition, when aggregated with the total cash and noncash consideration paid by or on behalf of the Borrowers and their Subsidiaries for all other purchases and other acquisitions made by the Borrowers and their Subsidiaries pursuant to this Section 7.03(g) during the term of this Agreement, shall not exceed $5,000,000;

(v)           (A) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (B) immediately after giving effect to such purchase or other acquisition, Holdings and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such purchase or other acquisition had been consummated as of the first day of the fiscal period covered thereby; and

(vi)          the Borrowers shall have delivered to the Administrative Agent and each Lender, at least five Business Days prior to the date on which any such purchase or other acquisition is to be consummated, a certificate of a Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders, certifying that all of the requirements set forth in this subsection (h) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition;

(h)   Investments by the Borrowers and their Subsidiaries (other than the Excluded Subsidiary) not otherwise permitted under this Section 7.03 in an aggregate amount not to exceed $2,000,000; provided that, with respect to each Investment made pursuant to this Section 7.03(h):

(i)            such Investment shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrowers and their Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or persons performing similar functions) of such Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Responsible Officer);

(ii)           such Investment shall be in property that is part of, or in lines of business that are, substantially the same lines of business as one or more of the principal businesses of the Borrowers and their Subsidiaries in the ordinary course;

99

(iii)          any determination of the amount of such Investment shall include all cash and noncash consideration (including the fair market value of all Equity Interests issued or transferred to the sellers thereof, all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith) paid by or on behalf of the respective Borrower in connection with such Investment; and

(iv)          (A) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (B) immediately after giving effect to such purchase or other acquisition, Holdings and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such Investment had been consummated as of the first day of the fiscal period covered thereby; and

(i)    other Investments not exceeding $2,000,000 in the aggregate in any fiscal year of Holdings.

7.04         Fundamental Changes.  Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:

(a)   other than where prohibited under applicable Law (including Health Care Law), any Subsidiary (other than an Excluded Subsidiary) may merge with (i) any Borrower, provided that the respective Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that (A) when any Loan Party (other than Holdings) is merging with another Subsidiary, such Loan Party shall be the continuing or surviving Person and (B) the PMG Loan Parties may not merge with Holdings or any other Subsidiary outside the PMG Loan Party group;

(b)   to the extent permitted under all applicable Law, any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to either Borrower or to another Loan Party;

(c)   Holdings and its Subsidiaries may consummate the Merger;

(d)   in connection with any acquisition permitted under Section 7.03, any Subsidiary of either Borrower (other than an Excluded Subsidiary) may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that (i) the Person surviving such merger shall be a wholly-owned

100

Subsidiary of either Borrower and (ii) in the case of any such merger to which any Loan Party (other than a Borrower) is a party, such Loan Party is the surviving Person; and

(e)   so long as no Default has occurred and is continuing or would result therefrom, any Subsidiary of a Borrower (other than PMG or an Excluded Subsidiary) may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided, however, that in each case, immediately after giving effect thereto in the case of any such merger to which any Loan Party is a party, such Loan Party is the surviving corporation.

7.05         Dispositions.  Make any Disposition or enter into any agreement to make any Disposition, except:

(a)   Dispositions of obsolete, surplus or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(b)   Dispositions of inventory in the ordinary course of business;

(c)   Dispositions of equipment to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;

(d)   Dispositions of property by any Subsidiary to either Borrower or to a wholly-owned Subsidiary (other than an Excluded Subsidiary); provided that if the transferor of such property is a Guarantor, the transferee thereof must either be a Borrower or a Guarantor;

(e)   Dispositions permitted by Section 7.04; and

(f)    Dispositions (other than of real property) by the Borrowers and any of their Subsidiaries not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition, (ii) the aggregate book value of all property Disposed of in reliance on this clause (f) in any fiscal year shall not exceed $2,000,000 and (iii) the purchase price for such asset shall be paid to such Borrower or such Subsidiary solely in cash.

provided, however, that any Disposition pursuant to Section 7.05(a) through Section 7.05(f) shall be for fair market value.

7.06         Restricted Payments.  Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests or accept any capital contributions, except that, so long as no Default shall have occurred and be continuing at the time of any action described below or would result therefrom:

(a)   each Subsidiary (other than a Borrower) may make Restricted Payments to (i) the Borrowers and (ii) any Subsidiaries of either Borrower that are Guarantors;

101

(b)   each Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

(c)   PMG may make payments to Holdings in an amount not to exceed an amount necessary to permit Holdings to pay (i) reasonable and customary corporate and operating expenses (including reasonable out-of-pocket expenses for legal, administrative and accounting services provided by third parties, and compensation, benefits and other amounts payable to officers and employees in connection with their employment in the ordinary course of business and to board of director observers and (ii) franchise fees or similar taxes and fees required to maintain its corporate existence;

(d)   Restricted Payments by any Loan Party or its Subsidiary to any other Loan Party in an amount necessary to fund federal and state income taxes attributable to the taxable income of such Loan Party for the sole purpose of funding such tax payments;

(e)   Holdings may issue and sell its common Equity Interests;

(f)    Holdings may issue preferred Equity Interests; provided, that such preferred equity may not (i) require the payment of any dividends (other than dividends payable solely in shares of Holdings’ common stock or additional Holdings’ preferred stock meeting the requirements of this Section 7.06(f)), (ii) mature or be mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase, in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise (including as the result of a failure to maintain or achieve any financial performance standards) or (c) be convertible or exchangeable, automatically or at the option of any holder thereof, into any Indebtedness or other assets, other than Holdings’ common stock or additional Holdings’ preferred stock meeting the requirements of this Section 7.06(f)).

7.07         Change in Nature of Business: Limitations on Excluded Subsidiary.  (a) Engage in any material line of business substantially different from those lines of business conducted by the Borrowers and their respective Subsidiaries on the date hereof or any business substantially related or incidental thereto.

(b)           With respect to the Excluded Subsidiary, enter into any business, operations or activities other than dissolving such Excluded Subsidiary in accordance with Section 6.19.

7.08         Transactions with Affiliates.  Enter into any transaction of any kind with any Affiliate of either Borrower, whether or not in the ordinary course of business, other than on fair and reasonable terms substantially as favorable to such Borrower or such Subsidiary as would be obtainable by such Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not apply to transactions between or among the Loan Parties.

7.09         Burdensome Agreements.  Except where required under applicable Laws, enter into or permit to exist any Contractual Obligation (other than this Agreement, any other

102

Loan Document or any Second Lien Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrowers or any Guarantor or to otherwise transfer property to or invest in the Borrowers or any Guarantor, except for any agreement in effect (A) on the date hereof and set forth on Schedule 7.09 or (B) at the time any Subsidiary becomes a Subsidiary of either Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Subsidiary of such Borrower, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrowers or (iii) of either Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.02(f) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.

7.10         Use of Proceeds.  Use the proceeds of any Credit Extension, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

7.11         Financial Covenants.

(a)   Consolidated Leverage Ratio.  Permit the Consolidated Leverage Ratio at any time during any period of four fiscal quarters of Holdings set forth below to be greater than the ratio set forth below opposite such period:

Four Fiscal Quarters Ending	Maximum Consolidated Leverage Ratio
Closing Date through March 31, 2008	3.75:1.00
April 1, 2008 through December 31, 2008	3.25:1.00
January 1, 2009 and each fiscal quarter ending thereafter	2.75:1.00

(b)           Consolidated Fixed Charge Coverage Ratio.  Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of Holdings to be less than 1.25 to 1.00.

(c)           Consolidated Membership.  (i) Permit the aggregate Membership of the Loan Parties, as of the end of any calendar month to be less than 95% of such aggregate Membership as of the end of the previous calendar month or permit the aggregate Membership of the Loan Parties, for any fiscal quarter to be less than 95% of the aggregate Membership from the prior Fiscal Quarter unless any such decline shall have resulted from the Borrowers’ termination of an existing contract and the Borrowers (a) shall have provided the Administrative Agent with notice of such termination of such contract contemporaneously with the delivery of such notice to the counterparty and (b) shall have delivered to Administrative Agent, prior to giving the notice of termination, projections satisfactory to the Required Lenders confirming that

103

the Borrowers will remain in compliance with this Agreement and that such termination will not impair the Borrowers’ ability to repay its Obligations hereunder; or (ii) permit the aggregate monthly revenues for the Loan Parties, in any calendar month to be less than 95% of the average aggregate monthly revenues for the consecutive three-month period ending as of such month, or permit the aggregate revenue for any Fiscal Quarter of the Loan Parties, to be less than 95% of the aggregate revenue for the preceding Fiscal Quarter.

7.12         Capital Expenditures.  Make or become legally obligated to make any Capital Expenditure, except for Capital Expenditures in the ordinary course of business not exceeding $7,000,000 (the “Maximum Capital Expenditure”), in the aggregate for the Borrowers and their respective Subsidiaries during each fiscal year; provided, however, that so long as no Default has occurred and is continuing or would result from such expenditure, any portion of the Maximum Capital Expenditure, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal year; and provided, further, if any such amount is so carried over, it will be deemed used in the applicable subsequent fiscal year before the Maximum Capital Expenditure allocated for such fiscal year.

7.13         Amendments of Organization Documents.  Amend any of its Organization Documents in any manner adverse to the Administrative Agent or the Lenders.

7.14         Accounting Changes.  Make any change in (a) accounting policies or reporting practices, except as required by GAAP, or (b) fiscal year.

7.15         Prepayments, Etc. of Indebtedness; Payments and Prepayments of the Second Lien Term Loan.  (a)Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness, except (i) the prepayment of the Credit Extensions in accordance with the terms of this Agreement and (ii) regularly scheduled or required repayments or redemptions of Indebtedness set forth in Schedule 7.02 in accordance with any applicable Subordination Agreement and refinancings and refundings of such Indebtedness in compliance with Section 7.02(d); and (b) make any payment, prepayment, redemption or repurchase of principal in respect of any Indebtedness incurred pursuant to the Second Lien Loan Documents or any refinancing thereof; provided that, subject to the terms of the Intercreditor Agreement, the Borrower may make any mandatory prepayment in respect of the Second Lien Term Loan (A) to the extent that such mandatory prepayment is permitted by the terms of Section 2.05(b) or (B) to the extent that the Required Lenders waive the corresponding mandatory prepayment required under Section 2.05(b).

7.16         Amendment, Etc. of Related Documents and Indebtedness.  (a)  Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, (b) amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, (c) waive any default under or any breach of any term or condition of any Related Document, (d) take any other action in connection with any Related Document that would impair the value of the interest or rights of any Loan Party thereunder or that would impair the rights or interests of the Administrative Agent or any Lender,  (e) amend, modify or change in any manner any term or condition of any Indebtedness set forth in Schedule 7.02, except for any refinancing, refunding, renewal or extension thereof permitted

104

by Section 7.02(d), or (f) amend, modify, supplement or otherwise change, or consent to any amendment, modification, supplement or change to, any Second Lien Loan Document, except pursuant to the terms of the Intercreditor Agreement.

7.17         Designation of Senior Debt.  Designate any Indebtedness (other than the Indebtedness under the Loan Documents) of either Borrower or any of their respective Subsidiaries as “Designated Senior Debt” (or any similar term) under any agreement.

ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES

8.01         Events of Default.  Any of the following shall constitute an Event of Default:

(a)   Non-Payment.  Either Borrower or any other Loan Party fails to (i) pay when and as required to be paid herein, any amount of principal of any Loan or any L/C Obligation or deposit any funds as Cash Collateral in respect of L/C Obligations, or (ii) pay within three days after the same becomes due, any interest on any Loan or on any L/C Obligation, or any fee due hereunder, or (iii) pay within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b)   Specific Covenants.  (i) Either Borrower fails to perform or observe (or fails to cause any Subsidiary thereof to perform and observe) any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05, 6.08, 6.10, 6.11, 6.12, 6.14, 6.17, 6.19, or Article VII, (ii) any of the Guarantors fails to perform or observe any term, covenant or agreement contained in the Guaranty or (iii) any of the Loan Parties fails to perform or observe any term, covenant or agreement contained in the Collateral Agreement or the respective Mortgages to which it is a party; or

(c)   Other Defaults.  Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

(d)   Representations and Warranties.  Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrowers or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or

(e)   Cross-Default.

Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due after giving effect to any applicable notice and cure periods (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or

105

syndicated credit arrangement) of more than the Threshold Amount, (B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs after giving effect to any applicable notice and cure period, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded, or (C) incurs a loss or has a material breach or other occurrence with respect to a Material Contract which would be likely to result in a Material Adverse Effect;

there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party or such Subsidiary as a result thereof is greater than the Threshold Amount; or

any “Event of Default” as defined in the Second Lien Credit Agreement shall have occurred, or

any (A) Collection Account Agreement is terminated without the prior written consent of the Administrative Agent or (B) any Loan Party shall give notice to the depositary bank under any Collection Account Agreement amending, waiving, rescinding, revoking or terminating the instructions previously given for the disposition of funds deposited into the applicable deposit accounts without the prior written consent of the Administrative Agent; or

(f)    Insolvency Proceedings, Etc.  Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

(g)   Inability to Pay Debts; Attachment.  (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts

106

as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or

(h)   Judgments.  There is entered against any Loan Party or any Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by (A) independent third-party insurance as to which the insurer (1) is rated at least “A” by A.M. Best Company, (2) has been notified of the potential claim and (3) does not dispute coverage or (B) indemnification proceeds actually received by the applicable Loan Party pursuant to the Merger Agreement to the extent not required to be reimbursed by any Loan Party), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(i)    ERISA.  (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of either Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) either Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

(j)    Invalidity of Loan Documents.  Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or

(k)   Change of Control.  There occurs any Change of Control; or

(l)    Collateral Documents.  Any Collateral Document after delivery thereof pursuant to Section 4.01 or 6.12 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected first priority Lien (subject to Liens permitted by Section 7.01) on the Collateral purported to be covered thereby; or

(m)  Material Permits and Licenses.  The loss, suspension or revocation of, or failure to renew, any license, accreditation or Permit now held or hereafter acquired by any Loan Party or any Subsidiary thereof if such loss, suspension, revocation or failure to

107

renew would have a Material Adverse Effect; or the occurrence of any other Material Adverse Effect; or

(n)   Material Contracts.  Any Material Contract the loss of which could reasonably be expected to have a Material Adverse Effect is terminated or fails to be in full force and effect for any reason without being replaced by a Material Contract reasonably satisfactory to the Administrative Agent at the time of its termination or failure to be in full force and effect, or any breach, a default or an event of default occurs under any Material Contract which is not remedied within ten (10) days after its occurrence; or

(o)   Subordination.  (i)  The subordination provisions of the documents evidencing or governing any subordinated Indebtedness (collectively, the “Subordinated Provisions”) shall, in whole or in part, terminate, cease to be effective or cease to be legally valid, binding and enforceable against any holder of the applicable subordinated Indebtedness; or (ii) either Borrower or any other Loan Party shall, directly or indirectly, disavow or contest in any manner (A) the effectiveness, validity or enforceability of any of the Subordination Provisions, (B) that the Subordination Provisions exist for the benefit of the Administrative Agent, the Lenders and the L/C Issuer or (C) that all payments of principal of or premium and interest on the applicable subordinated Indebtedness, or realized from the liquidation of any property of any Loan Party, shall be subject to any of the Subordination Provisions;

(p)   Financial Solvency Requirements. Any Loan Party fails to comply with the California Department of Managed Care financial solvency regulations, if applicable; or

(q)   Indictment.  The indictment or, as the Administrative Agent may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of any Loan Party or any Subsidiary or Affiliate of a Loan Party, in either case, as to which there is a reasonable probability of an adverse determination under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against a Loan Party or any Subsidiary or Affiliate of a Loan Party, pursuant to which statute or proceeding the penalties or remedies sought or available include forfeiture of (i) any material portion of the Collateral, or (ii) any other assets of a Loan Party that are necessary or material to the conduct of its business.

8.02         Remedies upon Event of Default.  If any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

(a)   declare the commitment of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions to be terminated, whereupon such commitments and obligation shall be terminated;

(b)   declare the unpaid principal amount of all outstanding Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment,

108

demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers;

(c)   require that the Borrowers Cash Collateralize the L/C Obligations (in an amount equal to the then Outstanding Amount thereof); and

(d)   exercise on behalf of itself, the Lenders and the L/C Issuer all rights and remedies available to it, the Lenders and the L/C Issuer under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to either Borrower under the Bankruptcy Code of the United States, the obligation of each Lender to make Loans and any obligation of the L/C Issuer to make L/C Credit Extensions shall automatically terminate, the unpaid principal amount of all outstanding Loans and all interest and other amounts as aforesaid shall automatically become due and payable, and the obligation of the Borrowers to Cash Collateralize the L/C Obligations as aforesaid shall automatically become effective, in each case without further act of the Administrative Agent or any Lender.

8.03         Application of Funds.  After the exercise of remedies provided for in Section 8.02 (or after the Loans have automatically become immediately due and payable and the L/C Obligations have automatically been required to be Cash Collateralized as set forth in the proviso to Section 8.02), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal, interest and Letter of Credit Fees) payable to the Lenders and the L/C Issuer (including fees, charges and disbursements of counsel to the respective Lenders and the L/C Issuer (including fees and time charges for attorneys who may be employees of any Lender or the L/C Issuer) and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting accrued and unpaid Letter of Credit Fees and interest on the Loans, L/C Borrowings and other Obligations, ratably among the Lenders and the L/C Issuer in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Loans, L/C Borrowings and amounts owing under Secured Hedge Agreements and Secured Cash Management Agreements, ratably among the Lenders, the L/C Issuer, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them;

109

Fifth, to the Administrative Agent for the account of the L/C Issuer, to Cash Collateralize that portion of L/C Obligations comprised of the aggregate undrawn amount of Letters of Credit; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.

Subject to Section 2.03(c), amounts used to Cash Collateralize the aggregate undrawn amount of Letters of Credit pursuant to clause Fifth above shall be applied to satisfy drawings under such Letters of Credit as they occur.  If any amount remains on deposit as Cash Collateral after all Letters of Credit have either been fully drawn or expired, such remaining amount shall be applied to the other Obligations, if any, in the order set forth above.

ARTICLE IX
ADMINISTRATIVE AGENT

9.01         Appointment and Authority.

(a)           Each of the Lenders and the L/C Issuer hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Article are solely for the benefit of the Administrative Agent, the Lenders and the L/C Issuer, and neither Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.

(b)           The Administrative Agent shall also act as the “collateral agent” and/or “control agent” under the Loan Documents, and each of the Lenders (in its capacities as a Lender, Swing Line Lender (if applicable), potential Hedge Bank and potential Cash Management Bank) and the L/C Issuer hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender and the L/C Issuer for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto.  In this connection, the Administrative Agent, as “collateral agent” and/or “control agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” or “control agent” under the Loan Documents) as if set forth in full herein with respect thereto.

9.02         Rights as a Lender.  The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires,

110

include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with either Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

9.03         Exculpatory Provisions.  The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, the Administrative Agent:

(a)   shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b)   shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

(c)   shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower Agent, a Lender or the L/C Issuer.

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein,

111

other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

9.04         Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Loan, or the issuance of a Letter of Credit, that by its terms must be fulfilled to the satisfaction of a Lender or the L/C Issuer, the Administrative Agent may presume that such condition is satisfactory to such Lender or the L/C Issuer unless the Administrative Agent shall have received notice to the contrary from such Lender or the L/C Issuer prior to the making of such Loan or the issuance of such Letter of Credit.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.05         Delegation of Duties.  The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facilities provided for herein as well as activities as Administrative Agent.

9.06         Resignation of Administrative Agent.  The Administrative Agent may at any time give notice of its resignation to the Lenders, the L/C Issuer and the Borrower Agent.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower Agent, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders and the L/C Issuer, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower Agent and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders or the L/C Issuer under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (b) all payments, communications and determinations

112

provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender and the L/C Issuer directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section).  The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

Any resignation by Bank of America as Administrative Agent pursuant to this Section shall also constitute its resignation as L/C Issuer and Swing Line Lender.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, (i) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer and Swing Line Lender, (ii) the retiring L/C Issuer and Swing Line Lender shall be discharged from all of their respective duties and obligations hereunder or under the other Loan Documents, and (iii) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to the retiring L/C Issuer to effectively assume the obligations of the retiring L/C Issuer with respect to such Letters of Credit.

9.07         Non-Reliance on Administrative Agent and Other Lenders.  Each Lender and the L/C Issuer acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender and the L/C Issuer also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

9.08         Intercreditor Agreement.    Each of the Lenders hereby acknowledges that it has received and reviewed the Intercreditor Agreement and agrees to be bound by the terms thereof.  Each Lender (and each person that becomes a Lender hereunder pursuant to Section 10.06) hereby (i) acknowledges that Bank of America is acting under the Intercreditor Agreement in multiple capacities as the Administrative Agent, the Second Lien Administrative Agent and the Control Agent (as defined in the Intercreditor Agreement) and (ii) waives any conflict of interest, now contemplated or arising hereafter, in connection therewith and agrees not to assert against Bank of America any claims, cause of action, damages or liabilities of whatever kind or nature relating thereto.  Each Lender (and each Person that becomes a Lender

113

hereunder pursuant to Section 10.06) hereby authorizes and directs Bank of America to enter into the Intercreditor Agreement on behalf of such Lender and agrees that Bank of America, in its various capacities thereunder, may take such actions on its behalf as is contemplated by the terms of the Intercreditor Agreement.

9.09         No Other Duties, Etc.  Anything herein to the contrary notwithstanding, none of the Syndication Agent, Bookrunners, Arrangers or other titled entities listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent, a Lender or the L/C Issuer hereunder.

9.10         Administrative Agent May File Proofs of Claim.  In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Loan or L/C Obligation shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on either Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise

(a)   to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Loans, L/C Obligations and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders, the L/C Issuer and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders, the L/C Issuer and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders, the L/C Issuer and the Administrative Agent under Sections 2.03(i) and (j), 2.09 and 10.04) allowed in such judicial proceeding; and

(b)   to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender and the L/C Issuer to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders and the L/C Issuer, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender or the L/C Issuer any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender or the L/C Issuer to authorize the Administrative Agent to vote in respect of the claim of any Lender or the L/C Issuer or in any such proceeding.

9.11         Collateral and Guaranty Matters.  The Lenders and the L/C Issuer irrevocably authorize the Administrative Agent at its option and in its discretion,

114

(a)   to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon termination of the Aggregate Commitments and payment in full of all Obligations (other than contingent indemnification obligations) and the expiration or termination of all Letters of Credit, (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii)  if approved, authorized or ratified in writing in accordance with Section 10.01;

(b)   to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder; and

(c)   to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i).

Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.11.  In each case as specified in this Section 9.11, the Administrative Agent will, at the Borrowers’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.11.

ARTICLE X
MISCELLANEOUS

10.01       Amendments, Etc.  No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by either Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrowers or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

(a)   waive any condition set forth in Section 4.01 (other than Section 4.01(b)(i) or (c)), or, in the case of the initial Credit Extension, Section 4.02, without the written consent of each Lender;

(b)   without limiting the generality of clause (a) above, waive any condition set forth in Section 4.02 as to any Credit Extension under the Revolving Credit  Facility without the written consent of the Required Revolving Lenders;

(c)   extend or increase the Commitment of any Lender (or reinstate any Commitment terminated pursuant to Section 8.02) without the written consent of such Lender;

115

(d)   postpone any date fixed by this Agreement or any other Loan Document for any payment(excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;

(e)   reduce the principal of, or the rate of interest specified herein on, any Loan or L/C Borrowing, or (subject to clause (ii) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrowers to pay interest or Letter of Credit Fees at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Loan or L/C Borrowing or to reduce any fee payable hereunder;

(f)    change (i) Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender or (ii) the order of application of any reduction in the Commitments or any prepayment of Loans among the Facilities from the application thereof set forth in the applicable provisions of Section 2.05(b) or 2.06(c), respectively, in any manner that materially and adversely affects the Lenders under a Facility without the written consent of (i) if such Facility is the Term Facility, the Required Term Lenders and (ii) if such Facility is the Revolving Credit Facility, the Required Revolving Lenders;

(g)   change (i) any provision of this Section 10.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder (other than the definitions specified in clause (ii) of this Section 10.01(g)), without the written consent of each Lender or (ii) the definition of “Required Revolving Lenders,” or “Required Term Lenders,” without the written consent of each Lender under the applicable Facility;

(h)   release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

(i)    release all or substantially all of the value of the Guaranty, without the written consent of each Lender, except to the extent the release of any Subsidiary from the Guaranty is permitted pursuant to Section 9.11 (in which case such release may be made by the Administrative Agent acting alone); or

(j)    impose any greater restriction on the ability of any Lender under a Facility to assign any of its rights or obligations hereunder without the written consent of (i) if such Facility is the Term Facility, the Required Term Lenders and (ii) if such Facility is the Revolving Credit Facility, the Required Revolving Lenders;

and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the L/C Issuer in addition to the Lenders required above, affect the rights or duties of

116

the L/C Issuer under this Agreement or any Issuer Document relating to any Letter of Credit issued or to be issued by it; (ii) no amendment, waiver or consent shall, unless in writing and signed by the Swing Line Lender in addition to the Lenders required above, affect the rights or duties of the Swing Line Lender under this Agreement; (iii) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (iv) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder, except that the Commitment of such Lender may not be increased or extended without the consent of such Lender.

10.02       Notices; Effectiveness; Electronic Communications.

(a)  Notices Generally.  Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i)            if to the Borrower Agent (on behalf of the Borrowers), the Administrative Agent, the L/C Issuer or the Swing Line Lender, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

(ii)           if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).

(b)           Electronic Communications.  Notices and other communications to the Lenders and the L/C Issuer hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender or the L/C Issuer pursuant to Article II if such Lender or the L/C Issuer, as applicable, has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.  The Administrative Agent or the Borrower Agent may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

117

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(c)           The Platform.  THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.”  THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM.  In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to either Borrower, any Lender, the L/C Issuer or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of either Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to either Borrower, any Lender, the L/C Issuer or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

(d)           Change of Address, Etc.  Each of the Borrowers, the Administrative Agent, the L/C Issuer and the Swing Line Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto.  Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrowers, the Administrative Agent, the L/C Issuer and the Swing Line Lender.  In addition, each Lender agrees to notify the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.  Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the “Public Side Information” portion of the

118

Platform and that may contain material non-public information with respect to the Borrowers or their securities for purposes of United States Federal or state securities laws.

(e)           Reliance by Administrative Agent, L/C Issuer and Lenders.  The Administrative Agent, the L/C Issuer and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices and Swing Line Loan Notices) purportedly given by or on behalf of either Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof.  Each Borrower (jointly and severally) shall indemnify the Administrative Agent, the L/C Issuer, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of either Borrower.  All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

10.03       No Waiver; Cumulative Remedies.  No failure by any Lender, the L/C Issuer or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

10.04       Expenses; Indemnity; Damage Waiver.

(a)  Costs and Expenses.  The Borrowers, jointly and severally, shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facilities provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the L/C Issuer in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all reasonable out-of-pocket expenses incurred by the Administrative Agent, any Lender or the L/C Issuer (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent, any Lender or the L/C Issuer), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent, any Lender or the L/C Issuer, in connection with the enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit.

119

(b)           Indemnification by the Borrowers.  The Borrowers, jointly and severally, shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and the L/C Issuer, and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrowers or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Loan or Letter of Credit or the use or proposed use of the proceeds therefrom (including any refusal by the L/C Issuer to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by either Borrower or any of their respective Subsidiaries, or any Environmental Liability related in any way to either Borrower or any of their respective Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by either Borrower or any other Loan Party or any of either Borrower’s or such Loan Party’s directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by either Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

(c)           Reimbursement by Lenders.  To the extent that either Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof), the L/C Issuer or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent), the L/C Issuer or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) or the L/C Issuer in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such sub-agent) or L/C Issuer in connection with such capacity.  The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

120

(d)           Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicable law, neither Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Loan or Letter of Credit or the use of the proceeds thereof.  No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

(e)           Payments.  All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

(f)            Survival.  The agreements in this Section shall survive the resignation of the Administrative Agent, the L/C Issuer and the Swing Line Lender, the replacement of any Lender, the termination of the Aggregate Commitments and the repayment, satisfaction or discharge of all the other Obligations.

10.05       Payments Set Aside.  To the extent that any payment by or on behalf of either Borrower is made to the Administrative Agent, the L/C Issuer or any Lender, or the Administrative Agent, the L/C Issuer or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent, the L/C Issuer or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender and the L/C Issuer severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders and the L/C Issuer under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

10.06       Successors and Assigns.

(a)  Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither Borrower may assign or otherwise transfer any of its respective rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its rights or obligations hereunder except (i) to an assignee in accordance with the provisions of

121

Section 10.06(b), (ii) by way of participation in accordance with the provisions of Section 10.06(d), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f) (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent, the L/C Issuer and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)           Assignments by Lenders.  Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment(s) and the Loans (including for purposes of this Section 10.06(b), participations in L/C Obligations and in Swing Line Loans) at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i)            Minimum Amounts.

(A)          in the case of an assignment of the entire remaining amount of the assigning Lender’s Commitment under any Facility and the Loans at the time owing to it under such Facility or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B)           in any case not described in subsection (b)(i)(A) of this Section, the aggregate amount of the Commitment (which for this purpose includes Loans outstanding thereunder) or, if the Commitment is not then in effect, the principal outstanding balance of the Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $5,000,000, in the case of any assignment in respect of the Revolving Credit Facility, or $1,000,000, in the case of any assignment in respect of the Term Facility, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower Agent otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

(ii)           Proportionate Amounts.  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Loans or the Commitment assigned, except that this clause (ii) shall not (A) apply to the Swing Line Lender’s rights and obligations in

122

respect of Swing Line Loans or (B) prohibit any Lender from assigning all or a portion of its rights and obligations among separate Facilities on a non-pro rata basis;

(iii)          Required Consents.  No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A)   the consent of the Borrower Agent (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund;

(B)   the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of (1) any Revolving Credit Commitment if such assignment is to a Person that is not a Lender with a Revolving Credit Commitment, an Affiliate of such Lender or an Approved Fund with respect to such Lender or (2) any Term Loan to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund;

(C)   the consent of the L/C Issuer (such consent not to be unreasonably withheld or delayed) shall be required for any assignment that increases the obligation of the assignee to participate in exposure under one or more Letters of Credit (whether or not then outstanding); and

(D)   the consent of the Swing Line Lender (such consent not to be unreasonably withheld or delayed) shall be required for any assignment in respect of the Revolving Credit Facility.

(iv)          Assignment and Assumption.  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment.  The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

(v)           No Assignment to Either Borrower.  No such assignment shall be made to either of the Borrowers or any of the Borrowers’ respective Affiliates or Subsidiaries.

(vi)          No Assignment to Natural Persons.  No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party

123

hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment.  Upon request, the Borrowers (at their expense) shall execute and deliver a Note to the assignee Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).

(c)           Register.  The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitments of, and principal amounts of the Loans and L/C Obligations owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

(d)           Participations.  Any Lender may at any time, without the consent of, or notice to, the Borrowers or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrowers or any of the Borrowers’ respective Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of its Commitment and/or the Loans (including such Lender’s participations in L/C Obligations and/or Swing Line Loans) owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent, the Lenders and the L/C Issuer shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant.  Subject to subsection (e) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b).  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.

(e)           Limitations upon Participant Rights.  A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower Agent’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the

124

benefits of Section 3.01 unless the Borrower Agent is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 3.01(e) as though it were a Lender.

(f)            Certain Pledges.  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(g)           Electronic Execution of Assignments.  The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

(h)           Resignation as L/C Issuer or Swing Line Lender after Assignment.  Notwithstanding anything to the contrary contained herein, if at any time Bank of America assigns all of its Revolving Credit Commitment and Revolving Credit Loans pursuant to Section 10.06(b), Bank of America may, (i) upon 30 days’ notice to the Borrower Agent and the Lenders, resign as L/C Issuer and/or (ii) upon 30 days’ notice to the Borrower Agent, resign as Swing Line Lender.  In the event of any such resignation as L/C Issuer or Swing Line Lender, the Borrowers shall be entitled to appoint from among the Lenders a successor L/C Issuer or Swing Line Lender hereunder; provided, however, that no failure by the Borrowers to appoint any such successor shall affect the resignation of Bank of America as L/C Issuer or Swing Line Lender, as the case may be.  If Bank of America resigns as L/C Issuer, it shall retain all the rights, powers, privileges and duties of the L/C Issuer hereunder with respect to all Letters of Credit outstanding as of the effective date of its resignation as L/C Issuer and all L/C Obligations with respect thereto (including the right to require the Lenders to make Base Rate Loans or fund risk participations in Unreimbursed Amounts pursuant to Section 2.03(c)).  If Bank of America resigns as Swing Line Lender, it shall retain all the rights of the Swing Line Lender provided for hereunder with respect to Swing Line Loans made by it and outstanding as of the effective date of such resignation, including the right to require the Lenders to make Base Rate Loans or fund risk participations in outstanding Swing Line Loans pursuant to Section 2.04(c).  Upon the appointment of a successor L/C Issuer and/or Swing Line Lender, (a) such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the retiring L/C Issuer or Swing Line Lender, as the case may be, and (b) the successor L/C Issuer shall issue letters of credit in substitution for the Letters of Credit, if any, outstanding at the time of such succession or make other arrangements satisfactory to Bank of America to effectively assume the obligations of Bank of America with respect to such Letters of Credit.

10.07       Treatment of Certain Information; Confidentiality.  Each of the Administrative Agent, the Lenders and the L/C Issuer agrees to maintain the confidentiality of

125

the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrowers and their obligations, (g) with the consent of the Borrowers, (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent, any Lender, the L/C Issuer or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrowers or (i) subject to each such Person being informed of the confidential nature of the Information and to their agreement to keep such Information confidential on substantially the same terms as required by this Section, to (A) an investor or prospective investor in securities issued by an Approved Fund that also agrees that the Information shall be used solely for the purpose of evaluating an investment in such securities issued by the Approved Fund, (B) a trustee, collateral manager, servicer, backup servicer, noteholder or secured party in securities issued by an Approved Fund in connection with the administration, servicing and reporting on the assets serving as collateral for securities issued by an Approved Fund, or (C) a nationally recognized rating agency that requires access to information regarding the Loan Parties, the Loans and Loan Documents in connection with rating issued in respect of securities issued by an Approved Fund.

For purposes of this Section, “Information” means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary thereof or their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the L/C Issuer on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof, provided that, in the case of information received from a Loan Party or any such Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Each of the Administrative Agent, the Lenders and the L/C Issuer acknowledges that (a) the Information may include material non-public information concerning the Borrowers or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.

126

10.08       Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender, the L/C Issuer and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender, the L/C Issuer or any such Affiliate to or for the credit or the account of either Borrower  against any and all of the obligations of such Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender or the L/C Issuer, irrespective of whether or not such Lender or the L/C Issuer shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers may be contingent or unmatured or are owed to a branch or office of such Lender or the L/C Issuer different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Lender, the L/C Issuer and their respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender, the L/C Issuer or their respective Affiliates may have.  Each Lender and the L/C Issuer agrees to notify the Borrowers and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.  Notwithstanding the provisions of this Section 10.08, if at any time any Lender, the L/C Issuer or any of their respective Affiliates maintains one or more deposit accounts for either Borrower or any other Loan Party into which Medicare and/or Medicaid receivables are deposited, such Person shall waive the right of setoff set forth herein.

10.09       Interest Rate Limitation.  Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Loans or, if it exceeds such unpaid principal, refunded to the Borrowers.  In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

10.10       Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

127

10.11       Survival of Representations and Warranties.  All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of any Credit Extension, and shall continue in full force and effect as long as any Loan or any other Obligation hereunder shall remain unpaid or unsatisfied or any Letter of Credit shall remain outstanding.

10.12       Severability.  If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.13       Replacement of Lenders.  If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender is a Defaulting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent by the Borrower Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(a)   the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

(b)   such Lender shall have received payment of an amount equal to the outstanding principal of its Loans and L/C Advances, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(c)   in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and

(d)   such assignment does not conflict with applicable Laws.

128

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

10.14       Governing Law; Jurisdiction; Etc.  (a)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b)           SUBMISSION TO JURISDICTION.  EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)           WAIVER OF VENUE.  EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

129

10.15       Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

10.16       California Judicial Reference.

If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the generality of Section 10.04, the Borrowers shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

10.17       No Advisory or Fiduciary Responsibility.  In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent and the Arranger are arm’s-length commercial transactions between each Borrower and their respective Affiliates, on the one hand, and the Administrative Agent and the Arranger, on the other hand, (B) each of the Borrowers has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrowers is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Administrative Agent and the Arranger each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for either Borrowers or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent nor the Arranger has any obligation to either Borrower or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent and the Arranger and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrowers and their respective Affiliates, and neither the

130

Administrative Agent nor the Arranger has any obligation to disclose any of such interests to either Borrower or any of their respective Affiliates.  To the fullest extent permitted by law, each of the Borrowers hereby waives and releases any claims that it may have against the Administrative Agent and the Arranger with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

10.18       USA PATRIOT Act Notice.  Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act.

131

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name:

Title:

PROSPECT MEDICAL GROUP, INC.

By:

Name:

Title:

[Prospect Medical Holdings, Inc. First Lien Credit Agreement]

BANK OF AMERICA, N.A., as

Administrative Agent

By:

Name:

Title:

[Prospect Medical Holdings, Inc. First Lien Credit Agreement]

BANK OF AMERICA, N.A., as a Lender, L/C

Issuer and Swing Line Lender

By:

Name:

Title:

[Prospect Medical Holdings, Inc. First Lien Credit Agreement]

EX-10.32

Exhibit 10.32

Execution Version

Published CUSIP Number: 74349EAG9

Term Loan CUSIP Number: 74349EAH7

SECOND LIEN CREDIT AGREEMENT

Dated as of August 8, 2007

among

PROSPECT MEDICAL HOLDINGS, INC.

AND

PROSPECT MEDICAL GROUP, INC.,

as the Borrowers,

BANK OF AMERICA, N.A.,
as Administrative Agent,

and

The Other Lenders Party Hereto

BANC OF AMERICA SECURITIES LLC,

as Sole Lead Arranger and Sole Book Manager

TABLE OF CONTENTS

Section		Page
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01	Defined Terms	1
1.02	Other Interpretive Provisions	25
1.03	Accounting Terms	26
1.04	Rounding	26
1.05	Times of Day	27
1.06	Currency Equivalents Generally	27
ARTICLE II
THE COMMITMENTS AND CREDIT EXTENSIONS
2.01	The Term Loans	27
2.02	Borrowing; Conversions and Continuations of Loans	27
2.03	Intentionally Omitted.	29
2.04	Intentionally Omitted	29
2.05	Prepayments	29
2.06	Reduction of Term Commitments	32
2.07	Repayment of the Term Loans	32
2.08	Interest	32
2.09	Fees	33
2.10	Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate	33
2.11	Evidence of Debt	34
2.12	Payments Generally; Administrative Agent’s Clawback	34
2.13	Sharing of Payments by Lenders	36
2.14	Obligations Joint and Several	37
2.15	PMG as Borrower Agent	39
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
3.01	Taxes	39
3.02	Illegality	41
3.03	Inability to Determine Rates	42
3.04	Increased Costs; Reserves on Eurodollar Rate Loans	42
3.05	Compensation for Losses	43
3.06	Mitigation Obligations; Replacement of Lenders	44
3.07	Survival	44

i

ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
4.01	Conditions Precedent to Borrowing		44
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.01		Existence, Qualification and Power	52
5.02		Authorization; No Contravention	52
5.03		Governmental Authorization; Other Consents	53
5.04		Binding Effect	53
5.05		Financial Statements; No Material Adverse Effect	53
5.06		Litigation	54
5.07		No Default	54
5.08		Ownership of Property; Liens; Investments	54
5.09		Environmental Compliance	55
5.10		Insurance	56
5.11		Taxes	56
5.12		ERISA Compliance	56
5.13		Subsidiaries; Equity Interests; Loan Parties	57
5.14		Margin Regulations; Investment Company Act	57
5.15		Disclosure	58
5.16		Compliance with Laws	58
5.17		Intellectual Property; Licenses, Etc.	58
5.18		Solvency	59
5.19		Casualty, Etc.	59
5.20		Health Care Matters.	59
5.21		Labor Matters.	61
5.22		Collateral Documents.	61
ARTICLE VI
AFFIRMATIVE COVENANTS
6.01		Financial Statements	61
6.02		Certificates; Other Information	62
6.03		Notices	66
6.04		Payment of Obligations	68
6.05		Preservation of Existence, Etc.	68
6.06		Maintenance of Properties	68
6.07		Maintenance of Insurance	68
6.08		Compliance with Laws	69
6.09		Books and Records	69
6.10		Inspection Rights	69
6.11		Use of Proceeds	70
6.12		Covenant to Guarantee Obligations and Give Security	70
6.13		Compliance with Environmental Laws	73

ii

6.14		Preparation of Environmental/Seismic Reports	73
6.15		Further Assurances	74
6.16		Compliance with Terms of Leaseholds	74
6.17		Interest Rate Hedging	74
6.18		Material Contracts	74
6.19		Post-Closing Covenants.	75
ARTICLE VII
NEGATIVE COVENANTS
7.01		Liens	75
7.02		Indebtedness	76
7.03		Investments	78
7.04		Fundamental Changes	80
7.05		Dispositions	81
7.06		Restricted Payments	81
7.07		Change in Nature of Business; Limitations on Excluded Subsidiaries	82
7.08		Transactions with Affiliates	82
7.09		Burdensome Agreements	83
7.10		Use of Proceeds	83
7.11		Financial Covenants	83
7.12		Capital Expenditures	84
7.13		Amendments of Organization Documents	84
7.14		Accounting Changes	84
7.15		Prepayments, Etc. of Indebtedness	84
7.16		Amendment, Etc. of Related Documents and Indebtedness	84
7.17		Designation of Senior Debt	85
ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES
8.01	Events of Default		85
8.02	Remedies upon Event of Default		88
8.03	Application of Funds		89
ARTICLE IX
ADMINISTRATIVE AGENT
9.01	Appointment and Authority		90
9.02	Rights as a Lender		90
9.03	Exculpatory Provisions		90
9.04	Reliance by Administrative Agent		92
9.05	Delegation of Duties		92
9.06	Resignation of Administrative Agent		92
9.07	Non-Reliance on Administrative Agent and Other Lenders		93
9.08	Intercreditor Agreement		93
9.09	No Other Duties, Etc.		93

iii

9.10	Administrative Agent May File Proofs of Claim	94
9.11	Collateral and Guaranty Matters	94

ARTICLE X
MISCELLANEOUS
10.01	Amendments, Etc.	95
10.02	Notices; Effectiveness; Electronic Communications	96
10.03	No Waiver; Cumulative Remedies	98
10.04	Expenses; Indemnity; Damage Waiver	98
10.05	Payments Set Aside	100
10.06	Successors and Assigns	100
10.07	Treatment of Certain Information; Confidentiality	104
10.08	Right of Setoff.	105
10.09	Interest Rate Limitation	105
10.10	Counterparts; Integration; Effectiveness	105
10.11	Survival of Representations and Warranties	106
10.12	Severability	106
10.13	Replacement of Lenders	106
10.14	Governing Law; Jurisdiction; Etc.	107
10.15	Waiver of Jury Trial	108
10.16	California Judicial Reference.	108
10.17	No Advisory or Fiduciary Responsibility	108
10.18	USA PATRIOT Act Notice	109
10.19	Intercreditor Agreement	109
SIGNATURES		S-1

iv

SCHEDULES

1.01	Certain EBITDA Add-Backs
2.01	Term Commitments and Applicable Percentages
4.01(a)(vi)	Pledged Real Property
4.01(a)(xv)	Exceptions to Audited Financial Statements
5.06	Disclosed Litigation
5.07	Material Contracts
5.08(b)	Existing Liens
5.08(c)	Owned Real Property
5.08(d)(i)	Leased Real Property (Lessee)
5.08(d)(ii)	Leased Real Property (Lessor)
5.08(e)	Existing Investments
5.09	Environmental Compliance
5.11	Tax Returns
5.12(c)	Past ERISA Events
5.13	Subsidiaries and Other Equity Investments; Loan Parties
5.21	Labor Matters
7.02	Existing Indebtedness
7.09	Burdensome Agreements
10.02	Administrative Agent’s Office, Certain Addresses for Notices

EXHIBITS

Form of

A	Committed Loan Notice
B	Term Note
C	Compliance Certificate
D	Assignment and Assumption
E	Calculation of Consolidated Membership

v

SECOND LIEN CREDIT AGREEMENT

This SECOND LIEN CREDIT AGREEMENT (“Agreement”) is entered into as of August 8, 2007, among PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), PROSPECT MEDICAL GROUP, INC., a California professional corporation (together with Holdings, each a “Borrower” and collectively, the “Borrowers”), each lender from time to time party hereto (collectively, the “Lenders” and individually, a “Lender”), and BANK OF AMERICA, N.A., as Administrative Agent.

PRELIMINARY STATEMENTS:

The Borrowers have requested that the Lenders provide a term loan facility and the Lenders have indicated their willingness to lend on the terms and subject to the conditions set forth herein.

In consideration of the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS

1.01         Defined Terms.  As used in this Agreement, the following terms shall have the meanings set forth below:

“Acquisition Co.” means Prospect Hospitals System LLC, a California limited liability company, which entity’s name shall be changed on the Closing Date to Alta Hospitals System, LLC.

“Administrative Agent” means Bank of America in its capacity as administrative agent under any of the Loan Documents, or any successor administrative agent.

“Administrative Agent’s Office” means the Administrative Agent’s address and, as appropriate, account as set forth on Schedule 10.02, or such other address or account as the Administrative Agent may from time to time notify to the Borrowers and the Lenders.

“Administrative Questionnaire” means an Administrative Questionnaire in a form supplied by the Administrative Agent.

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agreement” means this Second Lien Credit Agreement, as the same may be amended, restated, supplemented or modified from time to time.

“AMVI/Prospect” means AMVI/Prospect Medical Group, a California general partnership, a/k/a AMVI/Prospect Health Network.

“Applicable Percentage” means, with respect to any Lender at any time, the percentage (carried out to the ninth decimal place) represented by (a) on or prior to the Closing Date, such Lender’s Term Commitment at such time and (ii) thereafter, the principal amount of such Lender’s Term Loans at such time.  The initial Applicable Percentage of each Lender is set forth opposite the name of such Lender on Schedule 2.01 or in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable.

“Applicable Rate” means (a) 7.00% per annum for Base Rate Loans and 8.25% per annum for Eurodollar Rate Loans.

“Approved Fund” means any Fund that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.

“Arranger” means Banc of America Securities LLC, in its capacity as sole lead arranger and sole book manager.

“Assignable Option Agreement” means that certain Third Amended and Restated Assignable Option Agreement dated as of the Closing Date and executed by and among Dr. Terner, PMS and PMG.

“Assignee Group” means two or more Eligible Assignees that are Affiliates of one another or two or more Approved Funds managed by the same investment advisor.

“Assignment and Assumption” means an assignment and assumption entered into by a Lender and an Eligible Assignee (with the consent of any party whose consent is required by Section 10.06(b)), and accepted by the Administrative Agent, in substantially the form of Exhibit D or any other form approved by the Administrative Agent.

“Attributable Indebtedness” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.

“Audited Financial Statements” means, collectively, (a) the audited consolidated balance sheet of Holdings and its Subsidiaries (including PMG and its Subsidiaries) for the fiscal year ended September 30, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of Holdings and its Subsidiaries (including PMG and its Subsidiaries), including the notes thereto and (b) the audited consolidated balance sheet of Alta Healthcare System, Inc. and its Subsidiaries for the fiscal year ended December 31, 2006, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for such fiscal year of Alta Healthcare System, Inc., and its Subsidiaries, including the notes thereto.

“Bank of America” means Bank of America, N.A. and its successors.

2

“Base Rate” means for any day a fluctuating rate per annum equal to the higher of (a) the Federal Funds Rate plus 1/2 of 1% and (b) the rate of interest in effect for such day as publicly announced from time to time by Bank of America as its “prime rate.”  The “prime rate” is a rate set by Bank of America based upon various factors including Bank of America’s costs and desired return, general economic conditions and other factors, and is used as a reference point for pricing some loans, which may be priced at, above, or below such announced rate.  Any change in such rate announced by Bank of America shall take effect at the opening of business on the day specified in the public announcement of such change.

“Base Rate Loan” means a Term Loan that bears interest based on the Base Rate.

“Borrowers” has the meaning specified in the introductory paragraph hereto.

“Borrower Agent” means PMG.

“Borrower Materials” has the meaning specified in Section 6.02.

“Borrowing” means a borrowing consisting of Term Loans of the same Type and, in the case of Eurodollar Rate Loans, having the same Interest Period made by each of the Lenders pursuant to Section 2.01.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, the state where the Administrative Agent’s Office is located and, if such day relates to any Eurodollar Rate Loan, means any such day on which dealings in Dollar deposits are conducted by and between banks in the London interbank eurodollar market.

“Capital Expenditures” means, with respect to any Person for any period, any expenditure in respect of the purchase or other acquisition of any fixed or capital asset (excluding normal replacements and maintenance which are properly charged to current operations).

“Capitalized Leases” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

“Capitated Contracts” means, collectively, all of the Loan Parties’ contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations and all proceeds therefrom.

“Capitated Contract Rights” means all of the Loan Parties’ rights to payment of any kind arising from or out of Capitated Contracts or any other contracts or rights to payment from health service contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations.

“Cash Equivalents” means any of the following types of Investments, to the extent owned by either Borrower or any of their respective Subsidiaries free and clear of all Liens (other than Liens created under the Collateral Documents and other Liens permitted hereunder):

3

(a)           readily marketable obligations issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof having maturities of not more than 360 days from the date of acquisition thereof; provided that the full faith and credit of the United States of America is pledged in support thereof;

(b)           time deposits with, or insured certificates of deposit or bankers’ acceptances of, any commercial bank that (i) (A) is a Lender or (B) is organized under the laws of the United States of America, any state thereof or the District of Columbia or is the principal banking subsidiary of a bank holding company organized under the laws of the United States of America, any state thereof or the District of Columbia, and is a member of the Federal Reserve System, (ii) issues (or the parent of which issues) commercial paper rated as described in clause (c) of this definition and (iii) has combined capital and surplus of at least $500,000,000, in each case with maturities of not more than 90 days from the date of acquisition thereof;

(c)           commercial paper issued by any issuer and rated at least “Prime-1” (or the then equivalent grade) by Moody’s or at least “A-1” (or the then equivalent grade) by S&P, in each case with maturities of not more than 180 days from the date of acquisition thereof; and

(d)           Investments, classified in accordance with GAAP as current assets of either Borrower or any of their respective Subsidiaries, in money market investment programs registered under the Investment Company Act of 1940, which are administered by financial institutions that have the highest rating obtainable from either Moody’s or S&P, and the portfolios of which are limited solely to Investments of the character, quality and maturity described in clauses (a), (b) and (c) of this definition.

“Cash Management Agreement” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.

“Cash Management Bank” means any Person that, at the time it enters into a Cash Management Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Cash Management Agreement.

“CERCLA” means the Comprehensive Environmental Response, Compensation and Liability Act of 1980.

“CERCLIS” means the Comprehensive Environmental Response, Compensation and Liability Information System maintained by the U.S. Environmental Protection Agency.

“CFC” means a Person that is a controlled foreign corporation under Section 957 of the Code.

“Change in Law” means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty, (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application

4

thereof by any Governmental Authority or (c) the making or issuance of any request, guideline or directive (whether or not having the force of law) by any Governmental Authority.

“Change of Control” means an event or series of events by which:

(a)           (i) Any Person or group (within the meaning of Sections 13(d) and 14(d) of the Securities Exchange Act of 1934) (other than Samuel S. Lee, the David and Alexa Topper Family Trust U/D/T September 29, 1997) becomes the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934) of more

than twenty percent (20%) of the Equity Interests (based on voting power, in the event different classes of stock shall have different voting powers) of Holdings, (ii) such Person or group shall otherwise obtain the power to control the election of a majority of the board of directors of Holdings, or (iii) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of Holdings (together with any new directors whose election by the board of directors of Holdings or whose nomination for election by the stockholders of Holdings was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; or

(b)           Holdings shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PMS, SMM, ProMed or Acquisition Co. on a fully diluted basis; or

(c)           PMS shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PHR, on a fully diluted basis; or

(d)           Dr. Terner shall cease to own and control all of the economic and voting rights associated with ownership of 100% of the outstanding Equity Interests having voting rights of all classes of PMG on a fully diluted basis or Dr. Terner institutes or consents to the institution of any proceeding against him or his estate under any Debtor Relief Law, or makes an assignment for the benefit of creditors or Dr. Terner ceases to be duly licensed to practice in the medical industry in the State of California or Dr. Terner ceases to be designated as a licensed professional in accordance with the California Professional Corporation Act; except that, if Dr. Terner shall cease to own and control such Equity Interests by reason of death or disability, a Change of Control under this clause (d) shall not be deemed to have occurred if Dr. Terner is replaced by another owner and controlling shareholder of such capital Stock reasonably acceptable to Administrative Agent and the Required Lenders within sixty (60) days; or

(e)           PMG ceases to own and control all of the economic and voting rights associated with ownership of one hundred percent (100%) of the outstanding Equity Interests of all classes of each PMG Loan Party on a fully diluted basis (except with respect to Nuestra Familia Medical Group, Inc., a California professional corporation, in

5

which case a Change of Control shall have occurred if PMG ceases to own and control all of the economic and voting rights associated with ownership of fifty five percent (55%) of the outstanding Equity Interests of all classes of Nuestra Familia Medical Group, Inc., on a fully diluted basis); or

(f)            the outstanding Equity Interests of any Subsidiary (other than Nuestra Familia Medical Group, Inc. and AMVI) ceases to be owned one hundred percent (100%) by a Loan Party; or

(g)           any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power to exercise, directly or indirectly, a controlling influence over the management or policies of Holdings, or control over the equity securities of Holdings entitled to vote for members of the board of directors or equivalent governing body of Holdings on a fully-diluted basis (and taking into account all such securities that such Person or Persons have the right to acquire pursuant to any option right) representing 25% or more of the combined voting power of such securities.

“Closing Date” means the first date all the conditions precedent in Section 4.01 are satisfied or waived in accordance with Section 10.01.

“CMS” means Centers for Medicare and Medicaid Services.

“Code” means the Internal Revenue Code of 1986, as amended.

“Collateral” means all of the “Collateral” and “Mortgaged Property” referred to in the Collateral Documents and all of the other property that is or is intended under the terms of the Collateral Documents to be subject to Liens in favor of the Administrative Agent for the benefit of the Secured Parties.

“Collateral Agreement” has the meaning specified in Section 4.01(a)(v).

“Collateral Documents” means, collectively, the Collateral Agreement, the Intercreditor Agreement, the Terner Pledge, the Mortgages, each intellectual property security agreement, and each other collateral assignment, security agreement, pledge agreement or other similar agreement delivered to the Administrative Agent pursuant to the terms hereof or pursuant to Section 6.12, and each of the other agreements, instruments or documents that creates or purports to create a Lien in favor of the Administrative Agent for the benefit of the Secured Parties.

“Collection Account Agreement” means each agreement with a depositary bank holding a Deposit Account into which Governmental Receivables are initially deposited executed in accordance with Section 4.6(b) of the Collateral Agreement.

“Committed Loan Notice” means a notice of (a) the Borrowings to be made on the Closing Date, (b) a conversion of Term Loans from one Type to the other, or (d) a

6

continuation of Eurodollar Rate Loans, pursuant to Section 2.02(a), which, if in writing, shall be substantially in the form of Exhibit A.

“Company” means Alta Healthcare System, Inc., a California corporation.

“Compliance Certificate” means a certificate substantially in the form of Exhibit C.

“Consolidated EBITDA” means, at any date of determination, an amount equal to Consolidated Net Income of the Loan Parties and their Subsidiaries on a consolidated basis for the most recently completed Measurement Period plus (a) the following to the extent deducted in calculating such Consolidated Net Income:  (i) Consolidated Interest Charges, (ii) the provision for Federal, state, local and foreign income taxes payable, (iii) depreciation and amortization expense and (iv) other non-recurring expenses reducing such Consolidated Net Income which do not represent a cash item in such period or any future period (in each case of or by Loan Parties and their Subsidiaries for such Measurement Period) and minus (b) the following to the extent included in calculating such Consolidated Net Income:  (i) Federal, state, local and foreign income tax credits, (ii) all non-cash items increasing Consolidated Net Income (in each case of or by Loan Parties and their Subsidiaries for such Measurement Period), (iii) losses (or plus gains) from dispositions of capital assets (including any fixed assets, whether tangible or intangible, all inventory sold in conjunction with the disposition of fixed assets and all securities); plus (iv) extraordinary losses (or plus gains) as defined under GAAP net of related tax effects included in the determination of Consolidated Net Income.  For purposes of this Agreement, Consolidated EBITDA shall be adjusted on a pro forma basis, in a manner reasonably acceptable to the Administrative Agent, to include, as of the first day of any applicable period, any acquisitions and Dispositions of assets permitted under this Agreement, including, without limitation, adjustments reflecting any non-recurring costs and any extraordinary expenses of any such permitted acquisitions and asset dispositions consummated during such period calculated on a basis consistent with GAAP and Regulation S-X of the Securities Exchange Act of 1934, as amended, or as approved by the Administrative Agent.  For purposes of this Agreement and the calculation of Consolidated Leverage Ratio and Consolidated Fixed Charge Coverage Ratio, the add-backs identified on Schedule 1.01(a) shall be permitted in the amounts and for the periods set forth on such Schedule.

“Consolidated Fixed Charge Coverage Ratio” means, at any date of determination, the ratio of (a) (i) Consolidated EBITDA, less (ii) the aggregate amount of all cash Capital Expenditures to (b) the sum of (i) Consolidated Interest Charges, (ii) the aggregate principal amount of all regularly scheduled principal payments or redemptions or similar acquisitions for value of outstanding debt for borrowed money, but excluding any such payments to the extent refinanced through the incurrence of additional Indebtedness otherwise expressly permitted under Section 7.02, and (iii) the aggregate amount of Federal, state, local and foreign income taxes paid in cash, in each case, of or by Holdings and its Subsidiaries for the most recently completed Measurement Period.

 “Consolidated Interest Charges” means, for any Measurement Period, the sum of (a) all interest, premium payments, debt discount, fees, charges and related expenses in connection with borrowed money (including capitalized interest) or in connection with the

7

deferred purchase price of assets, in each case to the extent treated as interest in accordance with GAAP, (b) all interest paid or payable with respect to discontinued operations and (c) the portion of rent expense under Capitalized Leases that is treated as interest in accordance with GAAP, in each case, of or by Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

“Consolidated Leverage Ratio” means, as of any date of determination, the ratio of (a) Consolidated Total Indebtedness as of such date to (b) Consolidated EBITDA of Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period.

“Consolidated Net Income” means, at any date of determination, the net income (or loss) of Holdings and its Subsidiaries on a consolidated basis for the most recently completed Measurement Period; provided that Consolidated Net Income shall exclude (a) extraordinary gains and extraordinary losses for such Measurement Period, (b) the net income of any Subsidiary during such Measurement Period to the extent that the declaration or payment of dividends or similar distributions by such Subsidiary of such income is not permitted by operation of the terms of its Organization Documents or any agreement, instrument or Law applicable to such Subsidiary during such Measurement Period, except that Holdings’ equity in any net loss of any such Subsidiary for such Measurement Period shall be included in determining Consolidated Net Income, and (c) any income (or loss) for such Period of any Person if such Person is not a Subsidiary, except that Holdings’ equity in the net income of any such Person for such Measurement Period shall be included in Consolidated Net Income up to the aggregate amount of cash actually distributed by such Person during such Period to Holdings or a Subsidiary as a dividend or other distribution (and in the case of a dividend or other distribution to a Subsidiary, such Subsidiary is not precluded from further distributing such amount to Holdings as described in clause (b) of this proviso).

“Consolidated Total Indebtedness” means, as of any date of determination, for Holdings and its Subsidiaries on a consolidated basis, the sum of all Indebtedness of Holdings and its Subsidiaries.

“Contractual Obligation” means, as to any Person, any provision of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound.

“Control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise.  “Controlling” and “Controlled” have meanings correlative thereto.

“Debt Rating” means, as of any date of determination, the rating as determined by either S&P or Moody’s (collectively, the “Debt Ratings”) of each Borrower’s non-credit-enhanced, senior unsecured long-term debt.

“Debtor Relief Laws” means the Bankruptcy Code of the United States, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors,

8

moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“Default” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

“Default Rate” means (a) when used with respect to Obligations other than Eurodollar Rate Loans, an interest rate equal to (i) the Base Rate plus (ii) the Applicable Rate, if any, applicable to Base Rate Loans plus (iii) 2% per annum, and (b) when used with respect to Obligations consisting of Eurodollar Rate Loans, an interest rate equal (i) the Eurodollar Rate plus (ii) the Applicable Rate plus (iii) 2% per annum.

“Defaulting Lender” means any Lender that (a) has failed to fund any portion of the Term Loans required to be funded by it hereunder within one Business Day of the date required to be funded by it hereunder, (b) has otherwise failed to pay over to the Administrative Agent or any other Lender any other amount required to be paid by it hereunder within one Business Day of the date when due, unless the subject of a good faith dispute, or (c) has been deemed insolvent or become the subject of a bankruptcy or insolvency proceeding.

 “Disposition” or “Dispose” means the sale, transfer, license, lease or other disposition (including any sale and leaseback transaction) of any property by any Person (or the granting of any option or other right to do any of the foregoing), including any sale, assignment, transfer or other disposal, with or without recourse, of any notes or accounts receivable or any rights and claims associated therewith.

“Dollar” and “$” mean lawful money of the United States.

“Domestic Subsidiary” means any Subsidiary that is organized under the laws of any political subdivision of the United States.

“Dr. Terner” means Jacob Y. Terner, M.D.

“Eligible Assignee” means any Person that meets the requirements to be an assignee under Section 10.06(b)(iii), (v) and (vi) (subject to such consents, if any, as may be required under Section 10.06(b)(iii)).

“Environmental Laws” means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to human health, safety, pollution and the protection of the environment or the release of any materials into the environment, including those related to hazardous/biohazardous substances or wastes, air emissions and discharges to waste or public systems.

“Environmental Liability” means any liability, contingent or otherwise (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of either Borrower, any other Loan Party or any of their respective Subsidiaries directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the

9

generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing.

“Environmental Permit” means any permit, approval, identification number, license or other authorization required under any Environmental Law.

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting.

“ERISA” means the Employee Retirement Income Security Act of 1974.

“ERISA Affiliate” means any trade or business (whether or not incorporated) under common control with either Borrower within the meaning of Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for purposes of provisions relating to Section 412 of the Code).

“ERISA Event” means (a) a Reportable Event with respect to a Pension Plan; (b) a withdrawal by either Borrower or any ERISA Affiliate from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by either Borrower or any ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer Plan is in reorganization; (d) the filing of a notice of intent to terminate, the treatment of a Plan amendment as a termination under Section 4041 or 4041A of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan or Multiemployer Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan or Multiemployer Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon either Borrower or any ERISA Affiliate.

“Eurodollar Rate” means, for any Interest Period with respect to a Eurodollar Rate Loan, the rate per annum equal to the British Bankers Association LIBOR Rate (“BBA LIBOR”), as published by Reuters (or other commercially available source providing quotations of BBA LIBOR as designated by the Administrative Agent from time to time) at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period, for Dollar deposits (for delivery on the first day of such Interest Period) with a term equivalent to such Interest Period.  If such rate is not available at such time for any reason, then the “Eurodollar Rate” for such Interest Period shall be the rate per annum determined by the

10

Administrative Agent to be the rate at which deposits in Dollars for delivery on the first day of such Interest Period in same day funds in the approximate amount of the Eurodollar Rate Loan being made, continued or converted by Bank of America and with a term equivalent to such Interest Period would be offered by Bank of America’s London Branch to major banks in the London interbank eurodollar market at their request at approximately 11:00 a.m. (London time) two Business Days prior to the commencement of such Interest Period.

“Eurodollar Rate Loan” means a Term Loan that bears interest at a rate based on the Eurodollar Rate.

“Event of Default” has the meaning specified in Section 8.01.

“Excess Cash Flow” means, for any fiscal year of Holdings, the excess (if any) of (a) Consolidated EBITDA for such fiscal year minus (b) the sum (for such fiscal year) of (i) Consolidated Interest Charges actually paid in cash by the Borrowers or any of their respective Subsidiaries, (ii) scheduled principal repayments, to the extent actually made, of the First Lien Term Loans pursuant to the terms of Section 2.07 of the First Lien Credit Agreement, (iii) all income taxes actually paid in cash by the Borrowers or any of their respective Subsidiaries and (iv) Capital Expenditures actually made by the Borrowers or any of their respective Subsidiaries in such fiscal year (excluding Capital Expenditures made in connection with an insurance and/or condemnation event and reinvested in accordance with Section 2.05(b)(iv)).

“Excluded Subsidiary” means Alta Healthcare Building Corporation.

 “Excluded Taxes” means, with respect to the Administrative Agent, any Lender or any other recipient of any payment to be made by or on account of any obligation of either Borrower hereunder, (a) taxes imposed on or measured by its overall net income (however denominated), and franchise taxes imposed on it (in lieu of net income taxes), by the jurisdiction (or any political subdivision thereof) under the laws of which such recipient is organized or in which its principal office is located or, in the case of any Lender, in which its applicable Lending Office is located, (b) any branch profits taxes imposed by the United States or any similar tax imposed by any other jurisdiction in which either Borrower is located and (c) in the case of a Foreign Lender (other than an assignee pursuant to a request by the Borrower Agent under Section 10.13), any withholding tax that is imposed on amounts payable to such Foreign Lender at the time such Foreign Lender becomes a party hereto (or designates a new Lending Office) or is attributable to such Foreign Lender’s failure or inability (other than as a result of a Change in Law) to comply with Section 3.01(e), except to the extent that such Foreign Lender (or its assignor, if any) was entitled, at the time of designation of a new Lending Office (or assignment), to receive additional amounts from either Borrower with respect to such withholding tax pursuant to Section 3.01(a).

“Existing Credit Agreements” means, collectively, (a) that certain Credit Agreement dated as of June 1, 2007 among the Borrowers, Bank of America, as agent, and a syndicate of lenders and (b) that certain Financing Agreement dated as of December 6, 2005 among the Company, Alta Hollywood Hospitals, Inc., Alta Los Angeles Hospitals, Inc. and CIT Lending Services Corporation.

11

“Extraordinary Receipt” means any cash received by or paid to or for the account of any Person not in the ordinary course of business, including pension plan reversions, proceeds of insurance (other than proceeds of business interruption insurance to the extent such proceeds constitute compensation for lost earnings), condemnation awards (and payments in lieu thereof), indemnity payments and any purchase price adjustments.

“Facility” means, at any time, (a) on or prior to the Closing Date, the aggregate amount of the Term Commitments at such time and (b) thereafter, the aggregate principal amount of the Term Loans of all Lenders outstanding at such time.

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by the Administrative Agent.

“Fee-For-Service Accounts” means Accounts other than Capitated Contract Rights.

“Fee Letter” means the letter agreement, dated May 23, 2007, among the Borrowers, the Administrative Agent and the Arranger.

“First Lien Administrative Agent” means Bank of America, N.A., in its capacity as the administrative agent under the First Lien Credit Agreement, and its successors in such capacity.

“First Lien Credit Agreement” means that certain First Lien Credit Agreement of even date herewith by and among the Borrowers, the First Lien Lenders, and the First Lien Administrative Agent, as the same may be amended, restated, supplemented or modified from time to time.

“First Lien Event of Default” means any “Event of Default” as defined in the First Lien Credit Agreement.

“First Lien Lenders” means the “Lenders” as defined in the First Lien Credit Agreement.

“First Lien Loan Documents” means the “Loan Documents” as defined in the First Lien Credit Agreement.

“First Lien Obligations” means the “Obligations” as defined in the First Lien Credit Agreement.

12

“First Lien Revolving Credit Commitment” means the “Revolving Credit Commitment” as defined in the First Lien Credit Agreement.

“First Lien Revolving Loans” means the “Revolving Loans” as defined in the First Lien Credit Agreement.

“First Lien Term Loans” means the “Term Loans” as defined in the First Lien Credit Agreement.

 “Foreign Lender” means any Lender that is organized under the laws of a jurisdiction other than that in which either Borrower is resident for tax purposes.  For purposes of this definition, the United States, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.

“FRB” means the Board of Governors of the Federal Reserve System of the United States.

“Fund” means any Person (other than a natural person) that is (or will be) engaged in making, purchasing, holding or otherwise investing in commercial loans and similar extensions of credit in the ordinary course of its activities.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Guarantee” means, as to any Person, any (a) any obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in

13

part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien).  The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.  The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” means, collectively, the Subsidiaries of each Borrower (other than the Excluded Subsidiary) and each other Subsidiary of the Borrowers that shall be required to execute and deliver a guaranty or guaranty supplement pursuant to Section 6.12.

“Guaranty” means, collectively, the Continuing Guaranty (Second Lien) made by the Guarantors in favor of the Secured Parties, together with each other guaranty and guaranty supplement delivered pursuant to Section 6.12.

“Hazardous Materials” means all explosive or radioactive substances or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos-containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law.

“Health Care Laws” means (i) any and all federal, state and local fraud and abuse and self-referral laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7b), the Stark Law (42 U.S.C. § 1395nn and § 1395x(q)), the civil False Claims Act (31 U.S.C. § 3729 et seq.), the Emergency Medical Treatment and Labor Act.(42 U.S.C. § 1395dd), Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code and the regulations promulgated pursuant to such statutes; (ii) the federal Food, Drug & Cosmetic Act (21 U.S.C. §§ 301 et seq.) and the regulations promulgated thereunder; (iii) the Health Insurance Portability and Accountability Act of 1996 (Pub. L. No. 104-191) and the regulations promulgated thereunder; (iv) Medicare and the regulations promulgated thereunder; (v) Medicaid and the regulations promulgated thereunder; (vi) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (Pub. L. No. 108-173) and the regulations promulgated thereunder; (vii) quality, safety and accreditation standards and requirements of all applicable state laws or regulatory bodies; (viii) requirements of Law relating to the ownership or operation of a health care facility or business, or assets used in connection therewith; (ix) requirements of Law relating to the billing or submission of claims, collection of accounts receivable, underwriting the cost of, or provision of management or administrative services in connection with, any and all of the foregoing, by any Loan Party and its Subsidiaries, including, but not limited to, laws and regulations relating to practice of medicine and other health care professions, professional fee splitting, tax-exempt organization and charitable trust law applicable to health care organizations, certificates of need, certificates of operations and authority; and (x) any and all other applicable health care laws, regulations, manual provisions, policies and administrative guidance, each of (i) through (x) as may be amended from time to time.

14

“Healthcare Service Plan License” means a license issued by the California Department of Corporations or the corresponding agency of another state and/or any other applicable agency or successor.

“Hedge Bank” means any Person that, at the time it enters into a Secured Hedge Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Secured Hedge Agreement.

“Holdings” has the meaning specified in the introductory paragraph hereto.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a)           all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)           the maximum amount of all direct or contingent obligations of such Person arising under letters of credit, including standby and commercial, solely to the extent that such letters of credit are not fully cash collateralized, bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

(c)           net obligations of such Person under any Swap Contract;

(d)           all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 90 days after the date on which such trade account was created);

(e)           indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f)            all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;

(g)           all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;

(h)           all Guarantees of such Person in respect of any of the foregoing; and

(i)            all obligations owing in respect of Medicare and/or Medicaid.

15

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.  The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

“Indemnified Taxes” means Taxes other than Excluded Taxes.

“Indemnitees” has the meaning specified in Section 10.04(b).

“Information” has the meaning specified in Section 10.07.

“Intercreditor Agreement” means that certain Intercreditor Agreement of even date herewith by and among the Administrative Agent, the First Lien Administrative Agent and each of the Credit Parties, as amended, restated, supplemented or otherwise modified from time to time.

“Interest Payment Date” means, (a) as to any Eurodollar Rate Loan, the last day of each Interest Period applicable to such Term Loan and the Maturity Date; provided, however, that if any Interest Period for a Eurodollar Rate Loan exceeds three months, the respective dates that fall every three months after the beginning of such Interest Period shall also be Interest Payment Dates; and (b) as to any Base Rate Loan, the last Business Day of each March, June, September and December and the Maturity Date.

“Interest Period” means, as to each Eurodollar Rate Loan, the period commencing on the date such Eurodollar Rate Loan is disbursed or converted to or continued as a Eurodollar Rate Loan and ending on the date one, two, three or six months thereafter, as selected by the Borrower Agent in its Committed Loan Notice or such other period that is twelve months or less requested by the Borrower Agent and consented to by all the Lenders; provided that:

(a)           any Interest Period that would otherwise end on a day that is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in another calendar month, in which case such Interest Period shall end on the next preceding Business Day;

(b)           any Interest Period that begins on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the calendar month at the end of such Interest Period) shall end on the last Business Day of the calendar month at the end of such Interest Period; and

(c)           no Interest Period shall extend beyond the Maturity Date.

“Investment” means, as to any Person, any direct or indirect acquisition or investment by such Person, whether by means of (a) the purchase or other acquisition of Equity Interests of another Person, (b) a loan, advance or capital contribution to, Guarantee or assumption of debt of, or purchase or other acquisition of any other debt or interest in, another Person, or (c) the purchase or other acquisition (in one transaction or a series of transactions) of

16

assets of another Person that constitute a business unit or all or a substantial part of the business of, such Person.  For purposes of covenant compliance, the amount of any Investment shall be the amount actually invested, without adjustment for subsequent increases or decreases in the value of such Investment.

“IP Rights” has the meaning specified in Section 5.17.

“IRS” means the United States Internal Revenue Service.

“Laws” means, collectively, all international, foreign, Federal, state and local statutes, treaties, rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities (including Seismic Compliance Laws, Health Care Laws, regulations and permits), including the interpretation or administration thereof by any Governmental Authority charged with the enforcement, interpretation or administration thereof, and all applicable administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case whether or not having the force of law.

“Lender” has the meaning specified in the introductory paragraph hereto.

“Lending Office” means, as to any Lender, the office or offices of such Lender described as such in such Lender’s Administrative Questionnaire, or such other office or offices as a Lender may from time to time notify the Borrower Agent and the Administrative Agent.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

“Loan Documents” means, collectively, (a) this Agreement, (b) the Notes, (c) the Guaranty, (d) the Collateral Documents, (e) the Fee Letter, (f) each Secured Hedge Agreement, (g) each Secured Cash Management Agreement, and (h) the Terner Pledge; provided that for purposes of the definition of “Material Adverse Effect” and Articles IV through IX, “Loan Documents” shall not include Secured Hedge Agreements or Secured Cash Management Agreements.

“Loan Parties” means, collectively, each Borrower and each Guarantor.

“Management Agreements” means, the agreements identified as management agreements on Schedule 5.07.

“Material Adverse Effect” means (a) a material adverse change in, or a material adverse effect upon, the operations, business, assets, properties, liabilities (actual or contingent), condition (financial or otherwise) or prospects of the Borrowers and their Subsidiaries taken as a whole; (b) a material impairment of the rights and remedies of the Administrative Agent or any Lender under any Loan Document, or of the ability of any Loan Party to perform its obligations

17

under any Loan Document or any First Lien Loan Document to which it is a party; or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

 “Material Contract” means, with respect to any Person, each contract to which such Person is a party that is material to the business, condition (financial or otherwise), operations, performance, properties or prospects of such Person; and, in the case of the Borrowers and their Subsidiaries, “Material Contracts” shall include, among other contracts, all Management Agreements and all Capitated Contracts.

“Maturity Date” means February 8, 2015; provided, however, that, in each case, if such date is not a Business Day, the Maturity Date shall be the next preceding Business Day.

“Maximum First Lien Indebtedness” has the meaning set forth in the Intercreditor Agreement.

“Measurement Period” means, at any date of determination, the most recently completed four fiscal quarters of Holdings or, if fewer than four consecutive fiscal quarters of Holdings have been completed since the Closing Date, the fiscal quarters of Holdings that have been completed since the Closing Date.

“Medicaid” means that government-sponsored entitlement program under Title XIX, P.L. 89-97 of the Social Security Act, which provides federal grants to states for medical assistance based on specific eligibility criteria, as set forth at Section 1396, et seq. of Title 42 of the United States Code.

“Medicare” means that government-sponsored insurance program under Title XVIII, P.L. 89-97, of the Social Security Act, which provides for a health insurance system for eligible elderly and disabled individuals, as set forth at Section 1395, et seq. of Title 42 of the United States Code.

“Membership” means, as to any Loan Party as of the end of any calendar month, the number of Persons who are subject to Capitated Contracts with such Loan Party.

“Merger” means the merger of the Company with and into Acquisition Co. as contemplated under the terms of the Merger Agreement.

“Merger Agreement” means that certain Agreement and Plan of Reorganization dated as of July 25, 2007 by and among the Company, Samuel S. Lee, The David & Alexa Topper Family Trust, U/D/T September 29, 1997, Holdings and Acquisition Co.

“Moody’s” means Moody’s Investors Service, Inc. and any successor thereto.

“Mortgage” has the meaning specified in Section 4.01(a)(vi).

“Mortgage Policy” has the meaning specified in Section 4.01(a)(vi)(B).

18

“Multiemployer Plan” means any employee benefit plan of the type described in Section 4001(a)(3) of ERISA, to which either Borrower or any ERISA Affiliate makes or is obligated to make contributions, or during the preceding five plan years, has made or been obligated to make contributions.

“Net Cash Proceeds” means, with respect to any Disposition by either Borrower or any of their respective Subsidiaries or any Extraordinary Receipt received or paid to the account of either Borrower or any of their respective Subsidiaries, the excess, if any, of (i) the sum of cash and Cash Equivalents received in connection with such transaction (including any cash or Cash Equivalents received by way of deferred payment pursuant to, or by monetization of, a note receivable or otherwise, but only as and when so received) over (ii) the sum of (A) the principal amount of any Indebtedness that is secured by the applicable asset and that is required to be repaid in connection with such transaction (other than Indebtedness under the Loan Documents or the First Lien Loan Documents), (B) the reasonable and customary out-of-pocket expenses incurred by either Borrower or such Subsidiary in connection with such transaction and (C) income taxes reasonably estimated to be actually payable within two years of the date of the relevant transaction as a result of any gain recognized in connection therewith; provided that, if the amount of any estimated taxes pursuant to subclause (C) exceeds the amount of taxes actually required to be paid in cash in respect of such Disposition, the aggregate amount of such excess shall constitute Net Cash Proceeds.

“Note” means a promissory note made by the Borrowers in favor of a Lender, evidencing the Term Loans made by such Lender, substantially in the form of Exhibit B.

“NPL” means the National Priorities List under CERCLA.

“Obligations” means all advances to, and debts, liabilities, obligations, covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Term Loan, whether direct or indirect (including those acquired by assumption), absolute or contingent, due or to become due, now existing or hereafter arising and including interest and fees that accrue after the commencement by or against any Loan Party or any Affiliate thereof of any proceeding under any Debtor Relief Laws naming such Person as the debtor in such proceeding, regardless of whether such interest and fees are allowed claims in such proceeding.

“Obligor” means any Person that is obligated to make payment with respect to any Capitated Contract or other account receivable.

“Offset” means any amount, including any overpayment made to a Loan Party or an Affiliate, with respect to any Obligor that is to be repaid by offset against amounts then due to such Loan Party by such Obligor.  Offsets shall include any amounts constituting penalties or assessments due to any state or federal tax authorities, amounts deemed by any Obligor to be recoupments, inter-agency or inter-creditor offsets and recoupments and any other amounts withheld or paid to any person or entity other than the Administrative Agent to offset against any purported liability of any Loan Party.

“Organization Documents” means, (a) with respect to any corporation, the certificate or articles of incorporation and the bylaws (or equivalent or comparable constitutive

19

documents with respect to any non-U.S. jurisdiction); (b) with respect to any limited liability company, the certificate or articles of formation or organization and operating agreement; and (c) with respect to any partnership, joint venture, trust or other form of business entity, the partnership, joint venture or other applicable agreement of formation or organization and any agreement, instrument, filing or notice with respect thereto filed in connection with its formation or organization with the applicable Governmental Authority in the jurisdiction of its formation or organization and, if applicable, any certificate or articles of formation or organization of such entity.

“Other Taxes” means all present or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or under any other Loan Document or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement or any other Loan Document.

“Participant” has the meaning specified in Section 10.06(d).

“PBGC” means the Pension Benefit Guaranty Corporation.

“Pension Plan” means any “employee pension benefit plan” (as such term is defined in Section 3(2) of ERISA), other than a Multiemployer Plan, that is subject to Title IV of ERISA and is sponsored or maintained by either Borrower or any ERISA Affiliate or to which either Borrower or any ERISA Affiliate contributes or has an obligation to contribute, or in the case of a multiple employer or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.

“Permits” means any permit, approval, authorization, license, registration, certification, certificate of authority, variance, permission, franchise, qualification, order, filing or consent required from a Governmental Authority or other Person under an applicable requirement of Law.

“Permitted Encumbrances” has the meaning specified in the Mortgages.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

“PHR” means Pinnacle Health Resources, a California corporation.

“Plan” means any “employee benefit plan” (as such term is defined in Section 3(3) of ERISA) established by either Borrower or, with respect to any such plan that is subject to Section 412 of the Code or Title IV of ERISA, any ERISA Affiliate.

“Platform” has the meaning specified in Section 6.02.

“PMG” means Prospect Medical Group, Inc., a California professional corporation.

“PMG Loan Parties” means PMG, Prospect Health Source Medical Group, Inc., Prospect Professional Care Medical Group, Inc., Nuestra Familia Medical Group, Inc., APAC

20

Medical Group, Inc., Prospect NWOC Medical Group, Inc., Sierra Primary Care Medical Group, Inc., StarCare Medical Group, Inc., Pegasus Medical Group, Inc., Antelope Valley Medical Associates, Inc., Santa Ana/Tustin Physicians Group, Inc., AMVI/Prospect, Genesis HealthCare of Southern California, A Medical Group, Inc., Pomona Valley Medical Group, Inc., Upland Medical Group, A Professional Medical Corporation, Prospect Physician Associates, Inc. and each future direct or indirect subsidiary of PMG required to be joined as a Guarantor pursuant to Section 6.12.

“PMS” means Prospect Medical Systems, Inc., a Delaware corporation.

“ProMed” means ProMed Health Services Company, a California corporation.

“Public Lender” has the meaning specified in Section 6.02.

“Real Property” means, collectively, all real property together with all buildings and improvements thereon and all appurtenances and rights pertaining thereto, currently or formerly held by any of the Loan Parties that is or was used or held for use in the operation of the Business.

“Register” has the meaning specified in Section 10.06(c).

“Related Documents” means the Merger Agreement, the documents effecting the Merger, and Assignable Option Agreement, and the Management Agreements (including any Management Agreement with any seller under the Merger Agreement).

“Related Parties” means, with respect to any Person, such Person’s Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person’s Affiliates.

“Reportable Event” means any of the events set forth in Section 4043(c) of ERISA, other than events for which the 30 day notice period has been waived.

“Required Lenders” means, as of any date of determination, Lenders holding more than 50% of the Facility on such date; provided that the portion of the Facility held or deemed held by, any Defaulting Lender shall be excluded for purposes of making a determination of Required Lenders.

“Responsible Officer” means the chief executive officer, president, chief financial officer, treasurer, assistant treasurer or controller of a Loan Party and any other officer of the applicable Loan Party so designated by any of the foregoing officers in a notice to the Administrative Agent.  Any document delivered hereunder that is signed by a Responsible Officer of a Loan Party shall be conclusively presumed to have been authorized by all necessary corporate, partnership and/or other action on the part of such Loan Party and such Responsible Officer shall be conclusively presumed to have acted on behalf of such Loan Party.

“Restricted Payment” means any dividend or other distribution (whether in cash, securities or other property) with respect to any capital stock or other Equity Interest of any Person or any of its Subsidiaries, or any payment (whether in cash, securities or other property),

21

including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, defeasance, acquisition, cancellation or termination of any such capital stock or other Equity Interest, or on account of any return of capital to any Person’s stockholders, partners or members (or the equivalent of any thereof), or any option, warrant or other right to acquire any such dividend or other distribution or payment.

“S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc., and any successor thereto.

“Second Priority Lien” means, with respect to any Lien purported to be created in any Collateral pursuant to any Collateral Document, that such Lien is the only Lien to which such Collateral is subject, other than any Permitted Lien, and is second in priority to the Liens granted by the Loan Parties under the First Lien Loan Documents.

“Seismic Compliance Laws” means all Federal, state and local statutes (including California State Senate Bill 1953), rules, guidelines, regulations, ordinances, codes and administrative or judicial precedents or authorities related to seismic evaluation, retrofit requirements, and disaster preparedness for hospitals (including any requirements to assure the provision of services to the public and continuity of care, structural soundness, maintenance of building contents, and integrity of nonstructural systems).

“SEC” means the Securities and Exchange Commission, or any Governmental Authority succeeding to any of its principal functions.

“Secured Cash Management Agreement” means any Cash Management Agreement that is entered into by and between either Borrower and any Cash Management Bank.

“Secured Hedge Agreement” means any interest rate Swap Contract required or permitted under Article VI or VII that is entered into by and between either Borrower and any Hedge Bank.

“Secured Parties” means, collectively, the Administrative Agent, the Lenders, the Hedge Banks, the Cash Management Banks, each co-agent or sub-agent appointed by the Administrative Agent from time to time pursuant to Section 9.05, and the other Persons the Obligations owing to which are or are purported to be secured by the Collateral under the terms of the Collateral Documents.

“Social Security Act” means the Social Security Act of 1965.

“Solvent” and “Solvency” mean, with respect to any Person on any date of determination, that on such date (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person’s ability to pay such debts and liabilities as they mature, (d) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person’s property would constitute an unreasonably small capital, and (e) such Person is able to

22

pay its debts and liabilities, contingent obligations and other commitments as they mature in the ordinary course of business.  The amount of contingent liabilities at any time shall be computed as the amount that, in the light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.

“SMM” means Sierra Medical Management, Inc., a Delaware corporation.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified or the context otherwise requires, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Holdings and shall include the PMG Loan Parties; provided, however, that the parties agree that Brotman Medical Center, Inc., a California corporation, in which Holdings’ Subsidiary, Prospect Hospital Advisory Services, Inc., holds less than a majority or the shares, is not considered a Subsidiary.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Synthetic Debt” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise

23

included in the definition of “Indebtedness” or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“Taxes” means all present or future taxes, levies, imposts, duties, deductions, withholdings, assessments, fees or other charges imposed by any Governmental Authority, including any interest, additions to tax or penalties applicable thereto.

“Term Commitment” means, as to each Lender, its obligation to make Term Loans to the Borrowers pursuant to Section 2.01 in an aggregate principal amount at any one time outstanding not to exceed the amount set forth opposite such Lender’s name on Schedule 2.01 under the caption “Term Commitment” or opposite such caption in the Assignment and Assumption pursuant to which such Lender becomes a party hereto, as applicable, as such amount may be adjusted from time to time in accordance with this Agreement.

“Term Loan” means, collectively, the advances made by the Lenders under the Facility.

“Terner Pledge” means that certain Second Lien Pledge Agreement dated as of the Closing Date by Dr. Terner in favor of the Administrative Agent, as such agreement may be amended, restated, supplemented or otherwise modified from time to time.

“Third Party Payor” means Medicare, Medicaid, TRICARE, Blue Cross and/or Blue Shield, state government insurers, private insurers and any other person or entity which presently or in the future maintains Third Party Payor Programs.

“Third Party Payor Programs” means all third party payor programs in which any of the Loan Parties or their respective Subsidiaries participates (including, without limitation, Medicare, Medicaid, TRICARE or any other federal or state health care programs, as well as Blue Cross and/or Blue Shield, managed care plans, or any other private insurance programs)

“Threshold Amount” means $3,750,000.

“Total Outstandings” means, as of any date, the aggregate outstanding principal amount of the Term Loans after giving effect to any prepayments or repayments of Term Loans occurring on such date.

“Transaction”means, collectively, (a) the consummation of the Merger, (b) the entering into by the Loan Parties and their applicable Subsidiaries of the Loan Documents, the First Lien Loan Documents and the Related Documents to which they are or are intended to be a party, (c) the refinancing of certain outstanding Indebtedness of the Borrowers and their respective Subsidiaries evidenced by the Existing Credit Agreements (and related documents)

24

and the termination of all commitments with respect thereto and (d) the payment of the fees and expenses incurred in connection with the consummation of the foregoing.

“Type” means, with respect to a Term Loan, its character as a Base Rate Loan or a Eurodollar Rate Loan.

“UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

“Unfunded Pension Liability” means the excess of a Pension Plan’s benefit liabilities under Section 4001(a)(16) of ERISA, over the current value of that Pension Plan’s assets, determined in accordance with the assumptions used for funding the Pension Plan pursuant to Section 412 of the Code for the applicable plan year.

“United States” and “U.S.” mean the United States of America.

“U.S. Loan Party” means any Loan Party that is organized under the laws of one of the states of the United States of America and that is not a CFC.

1.02         Other Interpretive Provisions.  With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:

(a)   The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall.”  Unless the context requires otherwise, (i) any definition of or reference to any agreement, instrument or other document (including any Organization Document) shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein or in any other Loan Document), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein,” “hereof” and “hereunder,” and words of similar import when used in any Loan Document, shall be construed to refer to such Loan Document in its entirety and not to any particular provision thereof, (iv) all references in a Loan Document to Articles, Sections, Preliminary Statements, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Preliminary Statements, Exhibits and Schedules to, the Loan Document in which such references appear, (v) any reference to any law shall include all statutory and regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall, unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time, and (vi) the words “asset” and

25

“property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

(b)   In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)   Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document.

1.03         Accounting Terms.

(a)           Generally.  All accounting terms not specifically or completely defined herein shall be construed in conformity with, and all financial data (including financial ratios and other financial calculations) required to be submitted pursuant to this Agreement shall be prepared in conformity with, GAAP applied on a consistent basis, as in effect from time to time, applied in a manner consistent with that used in preparing the Audited Financial Statements, except as otherwise specifically prescribed herein.

(b)           Changes in GAAP.  If at any time any change in GAAP would affect the computation of any financial ratio or requirement set forth in any Loan Document, and either the Borrower Agent or the Required Lenders shall so request, the Administrative Agent, the Lenders and the Borrowers shall negotiate in good faith to amend such ratio or requirement to preserve the original intent thereof in light of such change in GAAP (subject to the approval of the Required Lenders); provided that, until so amended, (i) such ratio or requirement shall continue to be computed in accordance with GAAP prior to such change therein and (ii) the Borrowers shall provide to the Administrative Agent and the Lenders financial statements and other documents required under this Agreement or as reasonably requested hereunder setting forth a reconciliation between calculations of such ratio or requirement made before and after giving effect to such change in GAAP.

(c)           Consolidation of Variable Interest Entities.  All references herein to consolidated financial statements of Holdings and its Subsidiaries or to the determination of any amount for Holdings and its Subsidiaries on a consolidated basis or any similar reference shall, in each case, be deemed to include each variable interest entity that Holdings is required to consolidate pursuant to FASB Interpretation No. 46 – Consolidation of Variable Interest Entities: an interpretation of ARB No. 51 (January 2003) as if such variable interest entity were a Subsidiary as defined herein.

1.04         Rounding.  Any financial ratios required to be maintained by the Borrowers pursuant to this Agreement shall be calculated by dividing the appropriate component by the other component, carrying the result to one place more than the number of places by which such ratio is expressed herein and rounding the result up or down to the nearest number (with a rounding-up if there is no nearest number).

26

1.05         Times of Day.  Unless otherwise specified, all references herein to times of day shall be references to Pacific time (daylight or standard, as applicable).

1.06         Currency Equivalents Generally.  Any amount specified in this Agreement (other than in Articles II and X) or any of the other Loan Documents to be in Dollars shall also include the equivalent of such amount in any currency other than Dollars, such equivalent amount thereof in the applicable currency to be determined by the Administrative Agent at such time on the basis of the Spot Rate (as defined below) for the purchase of such currency with Dollars.  For purposes of this Section 1.07, the “Spot Rate” for a currency means the rate determined by the Administrative Agent to be the rate quoted by the Person acting in such capacity as the spot rate for the purchase by such Person of such currency with another currency through its principal foreign exchange trading office at approximately 11:00 a.m. on the date two Business Days prior to the date of such determination; provided that the Administrative Agent may obtain such spot rate from another financial institution designated by the Administrative Agent if the Person acting in such capacity does not have as of the date of determination a spot buying rate for any such currency.

ARTICLE II

THE COMMITMENTS AND CREDIT EXTENSIONS

2.01         The Term Loans.  Subject to the terms and conditions set forth herein, each Term Lender severally agrees to make a single loan to the Borrowers on the Closing Date in an amount not to exceed such Lender’s Term Commitment.  The Borrowing shall consist of Term Loans made simultaneously by the Lenders in accordance with their respective Term Commitments.  Amounts borrowed under this Section 2.01 and repaid or prepaid may not be reborrowed.

2.02         Borrowing; Conversions and Continuations of Loans.

(a)  Term Loans may be Base Rate Loans or Eurodollar Rate Loans as further provided herein.  The Borrowing on the Closing Date, each conversion of Term Loans from one Type to the other and each continuation of Eurodollar Rate Loans shall be made upon the Borrower Agent’s irrevocable notice to the Administrative Agent, which may be given by telephone.  Each such notice must be received by the Administrative Agent not later than 11:00 a.m. (i) three Business Days prior to the requested date of any Borrowing of, conversion to or continuation of Eurodollar Rate Loans or of any conversion of Eurodollar Rate Loans to Base Rate Loans and (ii) on the requested date of any Borrowing of Base Rate Loans; provided, however, that if the Borrower Agent wishes to request Eurodollar Rate Loans having an Interest Period other than one, two, three or six months in duration as provided in the definition of “Interest Period,” the applicable notice must be received by the Administrative Agent not later than 11:00 a.m. four Business Days prior to the requested date of such Borrowing, conversion or continuation, whereupon the Administrative Agent shall give prompt notice to the Lenders of such request and determine whether the requested Interest Period is acceptable to all of them.  Not later than 11:00 a.m., three Business Days before the requested date of such Borrowing, conversion or continuation, the Administrative Agent shall notify the Borrower Agent (which notice may be by telephone) whether or not the requested Interest Period has been consented to by all the Lenders.  Each telephonic notice by the Borrower Agent pursuant to this Section 2.02(a)

27

must be confirmed promptly by delivery to the Administrative Agent of a written Committed Loan Notice, appropriately completed and signed by a Responsible Officer of the Borrower Agent.  Each conversion to or continuation of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof.  Each conversion to Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof.  Each Committed Loan Notice  (whether telephonic or written) shall specify (i) whether the Borrowers are requesting a conversion of Term Loans from one Type to the other, or a continuation of Eurodollar Rate Loans, (ii) the requested date of the conversion or continuation, as the case may be (which shall be a Business Day), (iii) the principal amount of Term Loans to be converted or continued, (iv) the Type of Term Loans to be borrowed or to which existing Term Loans are to be converted, and (v) if applicable, the duration of the Interest Period with respect thereto.  If the Borrower Agent fails to specify a Type of Term Loan in a Committed Loan Notice or if the Borrower Agent fails to give a timely notice requesting a conversion or continuation, then the applicable Term Loans shall be converted to Base Rate Loans.  Any such automatic conversion to Base Rate Loans shall be effective as of the last day of the Interest Period then in effect with respect to the applicable Eurodollar Rate Loans.  If the Borrower Agent requests a Borrowing of, conversion to, or continuation of Eurodollar Rate Loans in any such Committed Loan Notice, but fails to specify an Interest Period, the Borrowers will be deemed to have specified an Interest Period of one month.

(b)           Following receipt of a Committed Loan Notice, the Administrative Agent shall promptly notify each Lender of the amount of its Applicable Percentage of the Term Loans, and if no timely notice of a conversion or continuation is provided by the Borrower Agent, the Administrative Agent shall notify each Lender of the details of any automatic conversion to Base Rate Loans described in Section 2.02(a).  In the case of the Term Loans to be made on the Closing Date, each Lender shall make the amount of its Term Loan available to the Administrative Agent in immediately available funds at the Administrative Agent’s Office not later than 1:00 p.m. on the Closing Date.   Upon satisfaction of the applicable conditions set forth in Section 4.01, the Administrative Agent shall make all funds so received available to the Borrowers in like funds as received by the Administrative Agent either by (i) crediting the account of the Borrowers on the books of Bank of America with the amount of such funds or (ii) wire transfer of such funds in accordance with instructions provided to (and reasonably acceptable to) the Administrative Agent by the Borrower Agent.

(c)           Except as otherwise provided herein, a Eurodollar Rate Loan may be continued or converted only on the last day of an Interest Period for such Eurodollar Rate Loan.  During the existence of a Default, no Term Loans may be converted to or continued as Eurodollar Rate Loans without the consent of the Required Lenders.

(d)           The Administrative Agent shall promptly notify the Borrower Agent and the Lenders of the interest rate applicable to any Interest Period for Eurodollar Rate Loans upon determination of such interest rate.  At any time that Base Rate Loans are outstanding, the Administrative Agent shall notify the Borrower Agent and the Lenders of any change in Bank of America’s prime rate used in determining the Base Rate promptly following the public announcement of such change.

28

(e)           After giving effect to all Borrowings, all conversions of Term Loans from one Type to the other, and all continuations of Term Loans as the same Type, there shall not be more than 4 Interest Periods in effect.

2.03         Intentionally Omitted.

2.04         Intentionally Omitted.

2.05         Prepayments.

(a)  Optional.

(i)            Generally.   Subject to (A) the prior payment in full of the First Lien Obligations, (B) Section 2.05(a)(ii) and (C) the last two sentences of this Section 2.05(a)(i), the Borrowers may, upon notice to the Administrative Agent, at any time or from time to time voluntarily prepay the Term Loans in whole or in part; provided that (A) such notice must be received by the Administrative Agent not later than 11:00 a.m. (1) three Business Days prior to any date of prepayment of Eurodollar Rate Loans and (2) on the date of prepayment of Base Rate Loans; (B) any prepayment of Eurodollar Rate Loans shall be in a principal amount of $5,000,000 or a whole multiple of $1,000,000 in excess thereof; and (C) any prepayment of Base Rate Loans shall be in a principal amount of $500,000 or a whole multiple of $100,000 in excess thereof or, in each case, if less, the entire principal amount thereof then outstanding.  Each such notice shall specify the date and amount of such prepayment and the Type(s) of Term Loans to be prepaid and, if Eurodollar Rate Loans are to be prepaid, the Interest Period(s) of such Term Loans.  The Administrative Agent will promptly notify each Lender of its receipt of each such notice, and of the amount of such Lender’s ratable portion of such prepayment (based on such Lender’s Applicable Percentage).  If such notice is given by the Borrower Agent, the Borrowers shall make such prepayment and the payment amount specified in such notice shall be due and payable on the date specified therein.  Any prepayment of a Eurodollar Rate Loan shall be accompanied by all accrued interest on the amount prepaid, together with any additional amounts required pursuant to Section 3.05.  Each prepayment of the outstanding Term Loans pursuant to this Section 2.05(a) shall be applied to the outstanding principal balance of the Term Loans, and each such prepayment shall be paid to the Lenders in accordance with their respective Applicable Percentages.

(ii)           Prepayment Premiums.

(A)          Notwithstanding anything herein to the contrary, all prepayments of the Term Loan that are made in accordance with this Section 2.05(a) prior to the second anniversary of the Closing Date shall be subject to a prepayment premium equal to the present value, as determined by Holdings and certified by a Responsible Officer of Holdings to the Administrative Agent, of (1) all required interest payments due on such Term Loans from the date of prepayment through and including the second anniversary of the Closing Date (excluding accrued interest) (assuming that the interest rate applicable to all such interest is the swap

29

rate at the close of business on the third Business Day prior to the date of such prepayment with the termination date nearest to the second anniversary of the Closing Date plus the Applicable Rate for Eurodollar Rate Loans) plus (2) the prepayment premium that would be due pursuant to Section 2.05(a)(ii)(B) if such prepayment were made on the day after the second anniversary of the Closing Date, in each case discounted to the date of prepayment on a quarterly basis (assuming a 360-day year and actual days elapsed) at a rate equal to the sum of such swap rate plus 0.50%.

(B)           Notwithstanding anything herein to the contrary, all prepayments of the Term Loan that are made in accordance with this Section 2.05(a) prior to (1) the third anniversary of the Closing Date, but on or after the second anniversary of the Closing Date, shall be subject to an additional premium equal to the amount of such prepayment multiplied by 3%, with respect to each such prepayment made prior to the third anniversary of the Closing Date, (2) the fourth anniversary of the Closing Date but on or after the third anniversary of the Closing Date shall be subject to an additional premium equal to the amount of such prepayment multiplied by 2%; and (3) the fifth anniversary of the Closing Date but on or after the fourth anniversary of the Closing Date shall be subject to an additional premium equal to the amount of such prepayment multiplied by 1%.  On or after the fifth anniversary of the Closing Date, no premiums or penalties shall be payable pursuant to this Section 2.05(a)(ii) in connection with any prepayments of the Term Loan.

(b)  Mandatory.  Subject to the provisions of the Intercreditor Agreement and subject to the prior payment in full of (1) the First Lien Term Loan and (2) the First Lien Revolving Loans (but not including the permanent reduction of the First Lien Revolving Credit Commitment), in each case as provided in Section 2.05 of the First Lien Credit Agreement (or the waiver of such payment in accordance with Section 10.01 of the First Lien Credit Agreement), the Borrowers shall prepay the Term Loans pursuant to, and in accordance with, clauses (i) through (iv) below.  For the avoidance of doubt, it is understood and agreed that, notwithstanding anything to the contrary set forth in this Agreement, the Borrowers shall not be required or permitted to prepay the Term Loans hereunder as a result of any incurrence of Indebtedness, any Asset Disposition, any Extraordinary Receipt or any Excess Cash Flow if the First Lien Term Loan or the First Lien Revolving Loans (but not the First Lien Revolving Credit Commitment) remain outstanding.

(i)            Subject to the first two sentences of this subsection (b), within five Business Days after financial statements have been delivered pursuant to Section 6.01(a) and the related Compliance Certificate has been delivered pursuant to Section 6.02(b), the Borrowers shall prepay an aggregate principal amount of Term Loans equal to the excess (if any) of (A) 50% of Excess Cash Flow for the fiscal year covered by such financial statements over (B) the aggregate principal amount of Term Loans prepaid pursuant to Section 2.05(a)(i) (such prepayments to be applied as set forth in clause (v) below).

(ii)           Subject to the first two sentences of this subsection (b), if any Borrower or any of its Subsidiaries Disposes of any property (other than any Disposition of any

30

property permitted by Sections 7.05(b), (c), (d) or (e)) which results in the realization by such Person of Net Cash Proceeds, the Borrowers shall prepay an aggregate principal amount of Term Loans equal to 100% of such Net Cash Proceeds immediately upon receipt thereof by such Person (such prepayments to be applied as set forth in clause (v) below); provided, however, that, with respect to any Net Cash Proceeds realized under a Disposition described in this Section 2.05(b)(ii), at the election of the Borrowers (as notified by the Borrower Agent to the Administrative Agent on or prior to the date of such Disposition), and so long as no Default shall have occurred and be continuing, the Borrowers or such Subsidiary may reinvest all or any portion of such Net Cash Proceeds in operating assets so long as within 270 days after the receipt of such Net Cash Proceeds, such purchase shall have been consummated (as certified by the Borrowers in writing to the Administrative Agent); and provided further, however, that any Net Cash Proceeds not subject to such definitive agreement or so reinvested shall be immediately applied to the prepayment of the Term Loans as set forth in this Section 2.05(b)(ii).

(iii)          Subject to the first two sentences of this subsection (b), upon the incurrence or issuance by either Borrower or any of their respective Subsidiaries of any Indebtedness (other than Indebtedness expressly permitted to be incurred or issued pursuant to Section 7.02), the Borrowers shall prepay an aggregate principal amount of Term Loans equal to 100% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by either Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (v) below).

(iv)          Subject to the first two sentences of this subsection (b), upon any Extraordinary Receipt received by or paid to or for the account of either Borrower or any of their Subsidiaries, and not otherwise included in clause (ii) or (iii) of this Section 2.05(b), the Borrower shall prepay an aggregate principal amount of Term Loans equal to 50% of all Net Cash Proceeds received therefrom immediately upon receipt thereof by such Borrower or such Subsidiary (such prepayments to be applied as set forth in clause (v) below); provided, however, that with respect to any proceeds of insurance, condemnation awards (or payments in lieu thereof) or indemnity payments, at the election of the applicable Borrower (as notified by the Borrower Agent to the Administrative Agent on or prior to the date of receipt of such insurance proceeds, condemnation awards or indemnity payments), and so long as no Default shall have occurred and be continuing, the applicable Borrower or such Subsidiary may apply within 270 days after the receipt of such cash proceeds to replace or repair the equipment, fixed assets or real property in respect of which such cash proceeds were received; and provided, further, however, that any cash proceeds not so applied shall be immediately applied to the prepayment of the Term Loans as set forth in this Section 2.05(b)(iv).

(v)           Each prepayment of Term Loans pursuant to the foregoing provisions of this Section 2.05(b) shall be applied to the outstanding principal balance of the Term Loans; provided that each Lender having outstanding Term Loans may elect to decline its Applicable Percentage of any mandatory prepayment by notifying the Administrative Agent within three days of receipt of the notice of such prepayment. All mandatory prepayments declined in accordance with the foregoing shall be re-offered to those Lenders under this Agreement who have initially accepted such prepayment (such re-

31

offer to be made to each such Lender based on the percentage which such Lender’s Term Loans represents of the aggregate Term Loans of all such Lenders who have initially accepted such prepayment).  In the event of such a re-offer, the relevant Lenders may elect to decline, by notice to the Administrative Agent within two days of such re-offering, all of the amount of such prepayment that is re-offered to them, in which case the aggregate amount of the prepayment that would have been applied to prepay such Loans pursuant to such re-offer but was so declined shall be returned to the Borrowers.  Any Lender that does not promptly notify the Administrative Agent in accordance with the foregoing that it is declining a mandatory prepayment shall automatically be deemed to have accepted such prepayment and any re-offer in respect thereof.

2.06         Reduction of Term Commitments.  The Term Commitments shall be automatically and permanently reduced to zero on the date of the Borrowing.

2.07         Repayment of the Term Loans.  The Borrowers, jointly and severally, shall repay to the Lenders the aggregate outstanding principal amount of the Term Loans on the Maturity Date (or on such earlier date on which the Term Loans become due and payable pursuant to Article VIII).

2.08         Interest.

(a)           Subject to the provisions of Section 2.08(b), (i) each Eurodollar Rate Loan shall bear interest on the outstanding principal amount thereof for each Interest Period at a rate per annum equal to the Eurodollar Rate for such Interest Period plus the Applicable Rate; and (ii) each Base Rate Loan shall bear interest on the outstanding principal amount thereof from the applicable borrowing date at a rate per annum equal to the Base Rate plus the Applicable Rate.

(b)           (i)  If any amount of principal of any Term Loan is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(ii)           If any amount (other than principal of any Term Loan) payable by either Borrower under any Loan Document is not paid when due (without regard to any applicable grace periods), whether at stated maturity, by acceleration or otherwise, then upon the request of the Required Lenders such amount shall thereafter bear interest at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iii)          Upon the request of the Required Lenders, while any Event of Default exists, the Borrowers shall pay interest on the principal amount of all outstanding Obligations hereunder at a fluctuating interest rate per annum at all times equal to the Default Rate to the fullest extent permitted by applicable Laws.

(iv)          Accrued and unpaid interest on past due amounts (including interest on past due interest) shall be due and payable upon demand.

32

(c)           Interest on each Term Loan shall be due and payable in arrears on each Interest Payment Date applicable thereto and at such other times as may be specified herein.  Interest hereunder shall be due and payable in accordance with the terms hereof before and after judgment, and before and after the commencement of any proceeding under any Debtor Relief Law.

2.09         Fees  The Borrowers, jointly and severally, shall pay to the Arranger and the Administrative Agent for their own respective accounts and for the accounts of the Lenders, fees in the amounts and at the times specified in the Fee Letter (without duplication of any fees payable pursuant to the First Lien Credit Agreement).  Such fees shall be fully earned when paid and shall not be refundable for any reason whatsoever.

2.10         Computation of Interest and Fees; Retroactive Adjustments of Applicable Rate.

(a)  All computations of interest for Base Rate Loans when the Base Rate is determined by Bank of America’s “prime rate” shall be made on the basis of a year of 365 or 366 days, as the case may be, and actual days elapsed.  All other computations of fees and interest shall be made on the basis of a 360-day year and actual days elapsed (which results in more fees or interest, as applicable, being paid than if computed on the basis of a 365-day year).  Interest shall accrue on each Term Loan for the day on which the Term Loan is made, and shall not accrue on a Term Loan, or any portion thereof, for the day on which the Term Loan or such portion is paid, provided that any Term Loan that is repaid on the same day on which it is made shall, subject to Section 2.12(a), bear interest for one day.  Each determination by the Administrative Agent of an interest rate or fee hereunder shall be conclusive and binding for all purposes, absent manifest error.

(b)           If, as a result of any restatement of or other adjustment to the financial statements of Holdings or for any other reason, either Borrower or the Lenders determine that (i) the Consolidated Leverage Ratio as calculated by the Borrowers as of any applicable date was inaccurate and (ii) a proper calculation of the Consolidated Leverage Ratio would have resulted in higher pricing for such period, the Borrowers shall immediately and retroactively be obligated to pay to the Administrative Agent for the account of the applicable Lenders, promptly on demand by the Administrative Agent (or, after the occurrence of an actual or deemed entry of an order for relief with respect to either Borrower under the Bankruptcy Code of the United States, automatically and without further action by the Administrative Agent or any Lender), an amount equal to the excess of the amount of interest and fees that should have been paid for such period over the amount of interest and fees actually paid for such period.  This paragraph shall not limit the rights of the Administrative Agent or any Lender, as the case may be, under Section 2.08(b) or under Article VIII.  The Borrowers’ obligations under this paragraph shall survive the repayment of all Obligations hereunder.

2.11         Evidence of Debt.  The Term Loans made by each Lender shall be evidenced by one or more accounts or records maintained by such Lender and by the Administrative Agent in the ordinary course of business.  The accounts or records maintained by the Administrative Agent and each Lender shall be conclusive absent manifest error of the amount of the Term Loans made by the Lenders to the Borrowers and the interest and payments

33

thereon.  Any failure to so record or any error in doing so shall not, however, limit or otherwise affect the obligation of the Borrowers hereunder to pay any amount owing with respect to the Obligations.  In the event of any conflict between the accounts and records maintained by any Lender and the accounts and records of the Administrative Agent in respect of such matters, the accounts and records of the Administrative Agent shall control in the absence of manifest error.  Upon the request of any Lender made through the Administrative Agent, the Borrowers shall execute and deliver to such Lender (through the Administrative Agent) a Note, which shall evidence such Lender’s Term Loans in addition to such accounts or records.  Each Lender may attach schedules to its Note and endorse thereon the date, Type (if applicable), amount and maturity of its Term Loans and payments with respect thereto.

2.12         Payments Generally; Administrative Agent’s Clawback.

(a)           General.  All payments to be made by either Borrower shall be made without condition or deduction for any counterclaim, defense, recoupment or setoff.  Except as otherwise expressly provided herein, all payments by either Borrower hereunder shall be made to the Administrative Agent, for the account of the Lenders at the Administrative Agent’s Office in Dollars and in immediately available funds not later than 2:00 p.m. on the date specified herein.  The Administrative Agent will promptly distribute to each Lender its Applicable Percentage (or other applicable share as provided herein) of such payment in like funds as received by wire transfer to such Lender’s Lending Office.  All payments received by the Administrative Agent after 2:00 p.m. shall be deemed received on the next succeeding Business Day and any applicable interest or fee shall continue to accrue.  If any payment to be made by the Borrowers shall come due on a day other than a Business Day, payment shall be made on the next following Business Day, and such extension of time shall be reflected on computing interest or fees, as the case may be.

(b)           Presumptions by Administrative Agent.

(i)            Funding by Lenders; Presumption by Administrative Agent.  Unless the Administrative Agent shall have received notice from a Lender prior to the proposed date of any Borrowing of Eurodollar Rate Loans (or, in the case of any Borrowing of Base Rate Loans, prior to 12:00 noon on the date of such Borrowing) that such Lender will not make available to the Administrative Agent such Lender’s share of such Borrowing, the Administrative Agent may assume that such Lender has made such share available on such date in accordance with Section 2.02 (or, in the case of a Borrowing of Base Rate Loans, that such Lender has made such share available in accordance with and at the time required by Section 2.02) and may, in reliance upon such assumption, make available to the Borrowers a corresponding amount.  In such event, if a Lender has not in fact made its share of the applicable Borrowing available to the Administrative Agent, then the applicable Lender on the one hand and the Borrowers on the other severally agree to pay to the Administrative Agent forthwith on demand such corresponding amount in immediately available funds with interest thereon, for each day from and including the date such amount is made available to either Borrower to but excluding the date of payment to the Administrative Agent, at (A) in the case of a payment to be made by such Lender, the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank

34

compensation, plus any administrative, processing or similar fees customarily charged by the Administrative Agent in connection with the foregoing, and (B) in the case of a payment to be made by the Borrowers, the interest rate applicable to Base Rate Loans.  If the Borrowers and such Lender shall pay such interest to the Administrative Agent for the same or an overlapping period, the Administrative Agent shall promptly remit to the Borrowers the amount of such interest paid by the Borrowers for such period.  If such Lender pays its share of the applicable Borrowing to the Administrative Agent, then the amount so paid shall constitute such Lender’s Term Loan included in such Borrowing.  Any payment by the Borrowers shall be without prejudice to any claim the Borrowers may have against a Lender that shall have failed to make such payment to the Administrative Agent.

(ii)           Payments by Borrowers; Presumptions by Administrative Agent.  Unless the Administrative Agent shall have received notice from the Borrowers prior to the time at which any payment is due to the Administrative Agent for the account of the Lenders hereunder that the Borrowers will not make such payment, the Administrative Agent may assume that the Borrowers have made such payment on such date in accordance herewith and may, in reliance upon such assumption, distribute to the Lenders the amount due.  In such event, if the Borrowers have not in fact made such payment, then each of the Lenders severally agrees to repay to the Administrative Agent forthwith on demand the amount so distributed to such Lender, in immediately available funds with interest thereon, for each day from and including the date such amount is distributed to it to but excluding the date of payment to the Administrative Agent, at the greater of the Federal Funds Rate and a rate determined by the Administrative Agent in accordance with banking industry rules on interbank compensation.

A notice of the Administrative Agent to any Lender or the Borrower Agent with respect to any amount owing under this subsection (b) shall be conclusive, absent manifest error.

(c)           Failure to Satisfy Conditions Precedent.  If any Lender makes available to the Administrative Agent funds for any Term Loan to be made by such Lender as provided in the foregoing provisions of this Article II, and such funds are not made available to the Borrowers by the Administrative Agent because the conditions to the Term Loans set forth in Article IV are not satisfied or waived in accordance with the terms hereof, the Administrative Agent shall return such funds (in like funds as received from such Lender) to such Lender, without interest.

(d)           Obligations of Lenders Several.  The obligations of the Lenders hereunder to make Term Loans and to make payments pursuant to Section 10.04(c) are several and not joint.  The failure of any Lender to make any Term Loan on the Closing Date or to make any payment under Section 10.04(c) on any date required hereunder shall not relieve any other Lender of its corresponding obligation to do so on such date, and no Lender shall be responsible for the failure of any other Lender to so make its Term Loan or to make its payment under Section 10.04(c).

(e)           Funding Source.  Nothing herein shall be deemed to obligate any Lender to obtain the funds for any Term Loan in any particular place or manner or to constitute a

35

representation by any Lender that it has obtained or will obtain the funds for any Term Loan in any particular place or manner.

(f)            Insufficient Funds.  If at any time insufficient funds are received by and available to the Administrative Agent to pay fully all amounts of principal, interest and fees then due hereunder, such funds shall be applied (i) first, toward payment of interest and fees then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of interest and fees then due to such parties, and (ii) second, toward payment of principal then due hereunder, ratably among the parties entitled thereto in accordance with the amounts of principal then due to such parties.

2.13         Sharing of Payments by Lenders.  If any Lender shall, by exercising any right of setoff or counterclaim or otherwise, obtain payment in respect of (a) Obligations due and payable to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations due and payable to such Lender at such time to (ii) the aggregate amount of the Obligations due and payable to all Lenders hereunder and under the other Loan Documents at such time) of payments on account of the Obligations due and payable to all Lenders hereunder and under the other Loan Documents at such time obtained by all the Lenders at such time or (b) Obligations owing (but not due and payable) to such Lender hereunder and under the other Loan Documents at such time in excess of its ratable share (according to the proportion of (i) the amount of such Obligations owing (but not due and payable) to such Lender at such time to (ii) the aggregate amount of the Obligations owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time) of payment on account of the Obligations owing (but not due and payable) to all Lenders hereunder and under the other Loan Documents at such time obtained by all of the Lenders at such time then the Lender receiving such greater proportion shall (a) notify the Administrative Agent of such fact, and (b) purchase (for cash at face value) participations in the Term Loans of the other Lenders, or make such other adjustments as shall be equitable, so that the benefit of all such payments shall be shared by the Lenders ratably in accordance with the aggregate amount of Obligations then due and payable to the Lenders or owing (but not due and payable) to the Lenders, as the case may be, provided that:

(i)            if any such participations are purchased and all or any portion of the payment giving rise thereto is recovered, such participations shall be rescinded and the purchase price restored to the extent of such recovery, without interest; and

(ii)           the provisions of this Section shall not be construed to apply to (A) any payment made by the Borrowers pursuant to and in accordance with the express terms of this Agreement or (B) any payment obtained by a Lender as consideration for the assignment of or sale of a participation in any of its Term Loans, other than to the Borrowers or any Subsidiary thereof (as to which the provisions of this Section shall apply).

Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against the Borrowers rights of setoff and counterclaim

36

with respect to such participation as fully as if such Lender were a direct creditor of the Borrowers in the amount of such participation.

2.14         Obligations Joint and Several.

(a)                           Nature of Obligations.  Each of the Borrowers shall be jointly and severally liable for the Obligations, however incurred.  References to the Borrowers with respect to the Obligations or any portion thereof shall mean each Borrower on a joint and several basis.

(b)                           Bankruptcy Limitations.   Notwithstanding anything to the contrary contained in this Agreement, it is the intention of each Borrower, the Administrative Agent and the Lenders that, in any proceeding involving the bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution or insolvency or any similar proceeding with respect to any Borrower or its assets, the amount of such Borrower’s obligations with respect to the Obligations shall be equal to, but not in excess of, the maximum amount thereof not subject to avoidance or recovery by operation of Applicable Insolvency Laws (as defined below) after giving effect to Section 2.14(c).   To that end, but only in the event and to the extent that after giving effect to Section 2.14(c), such Borrower’s obligations with respect to the Obligations or any payment made pursuant to such Obligations would, but for the operation of the first sentence of this Section 2.14(b), be subject to avoidance or recovery in any such proceeding under Applicable Insolvency Laws after giving effect to Section 2.14(c), the amount of such Borrower’s obligations with respect to the Obligations shall be limited to the largest amount which, after giving effect thereto, would not, under Applicable Insolvency Laws, render such Borrower’s obligations with respect to the Obligations unenforceable or avoidable or otherwise subject to recovery under Applicable Insolvency Laws.  To the extent any payment actually made pursuant to the Obligations exceeds the limitation of the first sentence of this Section 2.14(b) and is otherwise subject to avoidance and recovery in any such proceeding under Applicable Insolvency Laws, the amount subject to avoidance shall in all events be limited to the amount by which such actual payment exceeds such limitation and the Obligations as limited by the first sentence of this Section 2.14(b) shall in all events remain in full force and effect and be fully enforceable against such Borrower.   The first sentence of this Section 2.14(b) is intended solely to preserve the rights of the Administrative Agent and the Lenders hereunder against such Borrower in such proceeding to the maximum extent permitted by Applicable Insolvency Laws and neither such Borrower nor any other Person shall have any right or claim under such sentence that would not otherwise be available under Applicable Insolvency Laws in such proceeding.  For the purposes of this Section 2.14(b), “Applicable Insolvency Laws” means all applicable laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws, whether foreign or domestic (including, without limitation, 11 U.S.C. Sections 544, 547, 548 and 550 and other “avoidance” provisions of Title 11 of the United States Code, as amended or supplemented).

(c)           Agreement for Contribution.  The Borrowers hereby agree among themselves that, if either Borrower shall make an Excess Payment (as defined below), such Borrower shall have a right of contribution from the other Borrower in an amount equal to such other Borrower’s Contribution Share (as defined below) of such Excess Payment.  The payment obligations of any Borrower under this Section 2.14(c) shall be subordinate and subject in right

37

of payment to the Obligations until such time as the Obligations have been paid in full, and neither Borrower shall exercise any right or remedy under this Section 2.14(c) against the other Borrower until such Obligations have been paid in full.  For purposes of this Section 2.14(c), (i) “Excess Payment” shall mean the amount paid by any Borrower in excess of its Ratable Share of any Obligations; (ii) “Ratable Share” shall mean, for any Borrower in respect of any payment of Obligations, the ratio (expressed as a percentage) as of the date of such payment of Obligations of (A) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Borrower (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower hereunder) to (B) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Borrowers exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrowers hereunder) of the Borrowers; provided, however, that, for purposes of calculating the Ratable Shares of the Borrowers in respect of any payment of Obligations, any Borrower that became a Borrower subsequent to the date of any such payment shall be deemed to have been a Borrower on the date of such payment and the financial information for such Borrower as of the date such Borrower became a Borrower shall be utilized for such Borrower in connection with such payment; and (iii) “Contribution Share” shall mean, for any Borrower in respect of any Excess Payment made by any other Borrower, the ratio (expressed as a percentage) as of the date of such Excess Payment of (A) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Borrower (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Borrower hereunder) to (B) the amount by which the aggregate present fair salable value of all assets and other properties of the Borrower other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Borrowers) of the Borrower other than the maker of such Excess Payment.  Each Borrower recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution.  No Borrower shall have any right of subrogation, indemnity or reimbursement under applicable law in respect of any payment of Obligations (other than the contribution rights set forth in this Section 2.14(c)) against any other Borrower.  No Person other than a Lender or a Borrower may rely on the provisions of this Section 2.14(c).

38

2.15PMG as Borrower Agent.  Holdings hereby irrevocably appoints and authorizes PMG, and PMG hereby accepts such appointment and agrees to act, as the Borrower Agent (a) to provide the Administrative Agent with all notices with respect to the Borrowings obtained for the benefit of the Borrowers and all other notices and instructions under this Agreement, (b) to take such action on behalf of the Borrowers as the Borrower Agent deems appropriate on its behalf to obtain Borrowings and to exercise such other powers as are reasonably incidental thereto to carry out the purposes of this Agreement and (c) to act as its agent for service of process and notices required to be delivered under this Agreement or the other Loan Documents, it being understood and agreed that receipt by the Borrower Agent of any summons, notice or other similar item shall be deemed effective receipt by the Borrowers and their Subsidiaries.

ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY

3.01Taxes.

(a)  Payments Free of Taxes.  Any and all payments by or on account of any obligation of the Borrowers hereunder or under any other Loan Document shall be made free and clear of and without reduction or withholding for any Indemnified Taxes or Other Taxes, provided that if either Borrower shall be required by applicable law to deduct any Indemnified Taxes (including any Other Taxes) from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section) the Administrative Agent or any Lender, as the case may be, receives an amount equal to the sum it would have received had no such deductions been made, (ii) such Borrower shall make such deductions and (iii) the Borrowers shall timely pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law.

(b)Payment of Other Taxes by the Borrowers.  Without limiting the provisions of subsection (a) above, the Borrowers shall timely pay any Other Taxes to the relevant Governmental Authority in accordance with applicable law.

(c)Indemnification by the Borrowers.  The Borrowers shall, jointly and severally, indemnify the Administrative Agent and each Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes or Other Taxes (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) paid by the Administrative Agent or such Lender, as the case may be, and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority.  A certificate as to the amount of such payment or liability delivered to the Borrower Agent by a Lender (with a copy to the Administrative Agent), or by the Administrative Agent on its own behalf or on behalf of a Lender, shall be conclusive absent manifest error.

(d)Evidence of Payments.  As soon as practicable after any payment of Indemnified Taxes or Other Taxes by either Borrower to a Governmental Authority, the applicable Borrower shall deliver to the Administrative Agent the original or a certified copy of a

39

receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Administrative Agent.

(e)Status of Lenders.  Any Foreign Lender that is entitled to an exemption from or reduction of withholding tax under the law of the jurisdiction in which either Borrower is resident for tax purposes, or any treaty to which such jurisdiction is a party, with respect to payments hereunder or under any other Loan Document shall deliver to the Borrower Agent (with a copy to the Administrative Agent), at the time or times prescribed by applicable law or reasonably requested by the Borrower Agent or the Administrative Agent, such properly completed and executed documentation prescribed by applicable law as will permit such payments to be made without withholding or at a reduced rate of withholding.  In addition, any Lender, if requested by the Borrower Agent or the Administrative Agent, shall deliver such other documentation prescribed by applicable law or reasonably requested by the Borrower Agent or the Administrative Agent as will enable the Borrowers or the Administrative Agent to determine whether or not such Lender is subject to backup withholding or information reporting requirements.

Without limiting the generality of the foregoing, if either Borrower is resident for tax purposes in the United States, any Foreign Lender shall deliver to the Borrower Agent and the Administrative Agent (in such number of copies as shall be requested by the recipient) on or prior to the date on which such Foreign Lender becomes a Lender under this Agreement (and from time to time thereafter upon the request of the Borrower Agent or the Administrative Agent, but only if such Foreign Lender is legally entitled to do so), whichever of the following is applicable:

(i)duly completed copies of Internal Revenue Service Form W-8BEN claiming eligibility for benefits of an income tax treaty to which the United States is a party,

(ii)duly completed copies of Internal Revenue Service Form W-8ECI,

(iii)in the case of a Foreign Lender claiming the benefits of the exemption for portfolio interest under section 881(c) of the Code, (A) a certificate to the effect that such Foreign Lender is not (1) a “bank” within the meaning of section 881(c)(3)(A) of the Code, (2) a “10 percent shareholder” of either Borrower within the meaning of section 881(c)(3)(B) of the Code, or (3) a “controlled foreign corporation” described in section 881(c)(3)(C) of the Code and (B) duly completed copies of Internal Revenue Service Form W-8BEN, or

(iv)any other form prescribed by applicable law as a basis for claiming exemption from or a reduction in United States Federal withholding tax duly completed together with such supplementary documentation as may be prescribed by applicable law to permit the Borrowers to determine the withholding or deduction required to be made.

(f)Treatment of Certain Refunds.  If the Administrative Agent or any Lender determines, in its sole discretion, that it has received a refund of any Taxes or Other Taxes as to

40

which it has been indemnified by the Borrowers or with respect to which the Borrowers have paid additional amounts pursuant to this Section, it shall pay to the Borrowers an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrowers under this Section with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of the Administrative Agent or such Lender, as the case may be, and without interest (other than any interest paid by the relevant Governmental Authority with respect to such refund), provided that the Borrowers, upon the request of the Administrative Agent or such Lender, agree to repay the amount paid over to the Borrowers (plus any penalties, interest or other charges imposed by the relevant Governmental Authority) to the Administrative Agent or such Lender if the Administrative Agent or such Lender is required to repay such refund to such Governmental Authority.  This subsection shall not be construed to require the Administrative Agent or any Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to either Borrower or any other Person.

3.02Illegality.  If any Lender determines that any Law has made it unlawful, or that any Governmental Authority has asserted that it is unlawful, for any Lender or its applicable Lending Office to make, maintain or fund Eurodollar Rate Loans, or to determine or charge interest rates based upon the Eurodollar Rate, or any Governmental Authority has imposed material restrictions on the authority of such Lender to purchase or sell, or to take deposits of, Dollars in the London interbank market, then, on notice thereof by such Lender to the Borrower Agent through the Administrative Agent, any obligation of such Lender to make or continue Eurodollar Rate Loans or to convert Base Rate Loans to Eurodollar Rate Loans shall be suspended until such Lender notifies the Administrative Agent and the Borrower Agent that the circumstances giving rise to such determination no longer exist.  Upon receipt of such notice, the Borrower Agent shall, upon demand from such Lender (with a copy to the Administrative Agent), prepay or, if applicable, convert all Eurodollar Rate Loans of such Lender to Base Rate Loans, either on the last day of the Interest Period therefor, if such Lender may lawfully continue to maintain such Eurodollar Rate Loans to such day, or immediately, if such Lender may not lawfully continue to maintain such Eurodollar Rate Loans.  Upon any such prepayment or conversion, the Borrowers shall also pay accrued interest on the amount so prepaid or converted.

3.03Inability to Determine Rates.  If the Required Lenders determine that for any reason in connection with any request for a Eurodollar Rate Loan or a conversion to or continuation thereof that (a) Dollar deposits are not being offered to banks in the London interbank eurodollar market for the applicable amount and Interest Period of such Eurodollar Rate Loan, (b) adequate and reasonable means do not exist for determining the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan, or (c) the Eurodollar Rate for any requested Interest Period with respect to a proposed Eurodollar Rate Loan does not adequately and fairly reflect the cost to such Lenders of funding such Term Loan, the Administrative Agent will promptly so notify the Borrower Agent and each Lender.  Thereafter, the obligation of the Lenders to make or maintain Eurodollar Rate Loans shall be suspended until the Administrative Agent (upon the instruction of the Required Lenders) revokes such notice.  Upon receipt of such notice, the Borrower Agent may revoke any pending request for a Borrowing of, conversion to or continuation of Eurodollar Rate Loans or, failing that, will be deemed to have converted such request into a request for a Committed Borrowing of Base Rate Loans in the amount specified therein.

41

3.04Increased Costs; Reserves on Eurodollar Rate Loans.

(a)  Increased Costs Generally.  If any Change in Law shall:

(i)impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, any Lender (except any reserve requirement contemplated by Section 3.04(e));

(ii)subject any Lender to any tax of any kind whatsoever with respect to this Agreement or any Eurodollar Rate Loan made by it, or change the basis of taxation of payments to such Lender in respect thereof (except for Indemnified Taxes or Other Taxes covered by Section 3.01 and the imposition of, or any change in the rate of, any Excluded Tax payable by such Lender); or

(iii)impose on any Lender or the London interbank market any other condition, cost or expense affecting this Agreement or Eurodollar Rate Loans made by such Lender;

and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Rate Loan (or of maintaining its obligation to make any such Eurodollar Rate Loan), or to reduce the amount of any sum received or receivable by such Lender (whether of principal, interest or any other amount) then, upon request of such Lender, the Borrowers will pay to such Lender such additional amount or amounts as will compensate such Lender for such additional costs incurred or reduction suffered.

(b)Capital Requirements.  If any Lender determines that any Change in Law affecting such Lender or any Lending Office of such Lender or such Lender’s holding company, if any, regarding capital requirements has or would have the effect of reducing the rate of return on such Lender’s capital or on the capital of such Lender’s holding company, if any, as a consequence of this Agreement, the Term Commitment of such Lender or the Term Loans made by such Lender to a level below that which such Lender or such Lender’s holding company could have achieved but for such Change in Law (taking into consideration such Lender’s policies and the policies of such Lender’s holding company with respect to capital adequacy), then from time to time the Borrowers will pay to such Lender, as the case may be, such additional amount or amounts as will compensate such Lender or such Lender’s holding company for any such reduction suffered.

(c)Certificates for Reimbursement.  A certificate of a Lender setting forth the amount or amounts necessary to compensate such Lender or its holding company, as the case may be, as specified in subsection (a) or (b) of this Section and delivered to the Borrower Agent shall be conclusive absent manifest error.  The Borrowers shall pay such Lender the amount shown as due on any such certificate within 10 days after receipt thereof.

(d)Delay in Requests.  Failure or delay on the part of any Lender to demand compensation pursuant to the foregoing provisions of this Section shall not constitute a waiver of such Lender’s right to demand such compensation, provided that the Borrowers shall not be required to compensate a Lender pursuant to the foregoing provisions of this Section for any

42

increased costs incurred or reductions suffered more than nine months prior to the date that such Lender notifies the Borrower Agent of the Change in Law giving rise to such increased costs or reductions and of such Lender’s intention to claim compensation therefor (except that, if the Change in Law giving rise to such increased costs or reductions is retroactive, then the nine-month period referred to above shall be extended to include the period of retroactive effect thereof).

(e)Reserves on Eurodollar Rate Loans.  The Borrowers shall pay to each Lender, as long as such Lender shall be required to maintain reserves with respect to liabilities or assets consisting of or including Eurocurrency funds or deposits (currently known as “Eurocurrency liabilities”), additional interest on the unpaid principal amount of each Eurodollar Rate Loan equal to the actual costs of such reserves allocated to such Term Loan by such Lender (as determined by such Lender in good faith, which determination shall be conclusive), which shall be due and payable on each date on which interest is payable on such Term Loan, provided the Borrower Agent shall have received at least 10 days’ prior notice (with a copy to the Administrative Agent) of such additional interest from such Lender.  If a Lender fails to give notice 10 days prior to the relevant Interest Payment Date, such additional interest shall be due and payable 10 days from receipt of such notice.

3.05Compensation for Losses.  Upon demand of any Lender (with a copy to the Administrative Agent) from time to time, the Borrowers shall promptly compensate such Lender for and hold such Lender harmless from any loss, cost or expense incurred by it as a result of:

(a)any continuation, conversion, payment or prepayment of any Term Loan other than a Base Rate Loan on a day other than the last day of the Interest Period for such Term Loan (whether voluntary, mandatory, automatic, by reason of acceleration, or otherwise);

(b)any failure by either Borrower (for a reason other than the failure of such Lender to make a Term Loan) to prepay, borrow, continue or convert any Term Loan other than a Base Rate Loan on the date or in the amount notified by the Borrower Agent; or

(c)any assignment of a Eurodollar Rate Loan on a day other than the last day of the Interest Period therefor as a result of a request by the Borrowers (through the Borrower Agent) pursuant to Section 10.13;

including any loss of anticipated profits and any loss or expense arising from the liquidation or reemployment of funds obtained by it to maintain such Term Loan or from fees payable to terminate the deposits from which such funds were obtained.  The Borrowers shall also pay any customary administrative fees charged by such Lender in connection with the foregoing.

For purposes of calculating amounts payable by the Borrowers to the Lenders under this Section 3.05, each Lender shall be deemed to have funded each Eurodollar Rate Loan made by it at the Eurodollar Rate for such Term Loan by a matching deposit or other borrowing in the

43

London interbank eurodollar market for a comparable amount and for a comparable period, whether or not such Eurodollar Rate Loan was in fact so funded.

3.06Mitigation Obligations; Replacement of Lenders.

(a)  Designation of a Different Lending Office.  If any Lender requests compensation under Section 3.04, or either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender gives a notice pursuant to Section 3.02, then such Lender shall use reasonable efforts to designate a different Lending Office for funding or booking its Term Loans hereunder or to assign its rights and obligations hereunder to another of its offices, branches or affiliates, if, in the judgment of such Lender, such designation or assignment (i) would eliminate or reduce amounts payable pursuant to Section 3.01 or 3.04, as the case may be, in the future, or eliminate the need for the notice pursuant to Section 3.02, as applicable, and (ii) in each case, would not subject such Lender to any unreimbursed cost or expense and would not otherwise be disadvantageous to such Lender.  Each Borrower hereby agrees to pay all reasonable costs and expenses incurred by any Lender in connection with any such designation or assignment.

(b)Replacement of Lenders.  If any Lender requests compensation under Section 3.04, or if either Borrower is required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, the Borrowers may replace such Lender in accordance with Section 10.13.

3.07Survival.  All of the Borrowers’ obligations under this Article III shall survive the repayment of all Obligations hereunder.

ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING

4.01Conditions Precedent to Borrowing.  The obligation of each Lender to make its Term Loan is subject to satisfaction of the following conditions precedent:

(a)The Administrative Agent’s receipt of the following, each of which shall be originals or facsimiles (followed promptly by originals) unless otherwise specified, each properly executed by a Responsible Officer of the signing Loan Party, each dated the Closing Date (or, in the case of certificates of governmental officials, a recent date before the Closing Date) and each in form and substance satisfactory to the Administrative Agent and each of the Lenders:

(i)executed counterparts of this Agreement and the Guaranty, sufficient in number for distribution to the Administrative Agent, each Lender and the Borrowers;

(ii)a Note or Notes executed by the Borrowers in favor of each Lender requesting a Note;

(iii)the Terner Pledge executed by Dr. Terner;

44

(iv)the Amended and Restated Assignable Option Agreement duly executed by PMS, PMG and Dr. Terner;

(v)a second lien security agreement (together with each other security agreement and security agreement supplement delivered pursuant to Section 6.12, in each case as amended, the “Collateral Agreement”), duly executed by each Loan Party, together with:

(A)delivery to the First Lien Administrative Agent of certificates representing all certificated pledged Equity Interests referred to therein accompanied by undated stock powers executed in blank and instruments evidencing pledged debt indorsed in blank,

(B)the Administrative Agent shall have received the results of Lien searches (including a search as to judgments, pending litigation and tax matters), in form and substance reasonably satisfactory thereto, made against the Loan Parties and certain of the sellers under the Merger Agreement under the Uniform Commercial Code (or applicable judicial docket) as in effect in any state in which any of the assets of such Loan Party are located, indicating among other things that its assets are free and clear of any Lien except Permitted Encumbrances and the other Liens permitted under the Loan Documents,

(C)proper Financing Statements in form appropriate for filing under the Uniform Commercial Code of all jurisdictions that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement, covering the Collateral described in the Collateral Agreement,

(D)completed requests for information, dated on or before the Closing Date, listing all effective financing statements filed in the jurisdictions referred to in clause (B) above that name any Loan Party as debtor, together with copies of such other financing statements,

(E)evidence of the completion of all other actions, recordings and filings of or with respect to the Collateral Agreement that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created thereby,

(F)the deposit account control agreements and the securities account control agreements as referred to in the Collateral Agreement and duly executed by the appropriate parties, in each case perfecting Liens against such accounts in accordance with the Collateral Agreement, and the Administrative Agent shall be satisfied with the Loan Parties’ cash management system with respect to Medicaid/Medicare receivables,

(G)evidence that all other action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created

45

under the Collateral Agreement has been taken (including receipt of duly executed payoff letters, UCC-3 termination statements and landlords’ and bailees’ waiver and consent agreements) and all filing and recording fees and taxes shall have been duly paid; and

(H)to the extent applicable, intellectual property security agreements in recordable form and otherwise acceptable to the Administrative Agent and duly executed by each applicable Loan Party, together with evidence that all action that the Administrative Agent may deem necessary or desirable in order to perfect the Liens created under the Collateral Agreement has been taken;

(vi)Second Priority Lien deeds of trust, trust deeds, deeds to secure debt, and mortgages covering the properties listed on Schedule 4.01(a)(vi) (together with the Assignments of Leases and Rents referred to therein and each other mortgage delivered pursuant to Section 6.12, in each case as amended, the “Mortgages”), duly executed by the appropriate Loan Party, together with:

(A)evidence that counterparts of the Mortgages have been duly executed, acknowledged and delivered and are in form suitable for filing or recording in all filing or recording offices that the Administrative Agent may deem necessary or desirable in order to create a valid and subsisting Second Priority Lien on the property described therein in favor of the Administrative Agent for the benefit of the Secured Parties and that all filing, documentary, stamp, intangible and recording taxes and fees have been paid,

(B)fully paid American Land Title Association Lender’s Extended Coverage title insurance policies (the “Mortgage Policies”), with endorsements and in amounts acceptable to the Administrative Agent, issued, coinsured and reinsured by title insurers acceptable to the Administrative Agent, insuring the Mortgages to be valid and subsisting Second Priority Liens on the property described therein, free and clear of all defects (including, but not limited to, mechanics’ and materialmen’s Liens) and encumbrances, excepting only Permitted Encumbrances and other Liens permitted under the Loan Documents, and providing for such other affirmative insurance (including endorsements for mechanics’ and materialmen’s Liens and for zoning of the applicable property) and such coinsurance and direct access reinsurance as the Administrative Agent may deem necessary or desirable,

(C)property condition assessments as to the properties described in the Mortgages, from professional firms acceptable to the Administrative Agent,

(D)an environmental assessment report from an environmental consulting firm acceptable to the Lenders, which report (1) shall be

46

addressed to the Administrative Agent and the Lenders or otherwise permit reliance by the Administrative Agent and the Lenders thereon, (2) shall identify existing and potential environmental concerns, (3) shall quantify related costs and liabilities, associated with any facilities of either Borrower or any of their respective Subsidiaries and (4) shall be satisfactory to the Lenders with respect to the nature and amount of any matters covered thereby and the Lenders shall be satisfied with the Borrowers’ plans with respect thereto,

(E)estoppel and consent agreements executed by each of the lessors of the leased real properties listed on Schedule 5.08(d)(i), together with legal descriptions sufficient for recording in the real property records of the applicable county; provided, however, that to the extent that any estoppel and consent agreements for the leased real properties listed on Schedule 5.08(d)(i) are not obtained prior to the Closing Date, the Borrowers shall use commercially reasonable efforts deliver such agreements and memoranda within 60 days following the Closing Date,

(F)evidence of the insurance required by the terms of the Mortgages, and

(G)evidence that all other action that the Administrative Agent may deem necessary or desirable in order to create valid and subsisting Second Priority Liens on the property described in the Mortgages has been taken;

(vii)such certificates of resolutions or other action, incumbency certificates and/or other certificates of Responsible Officers of each Loan Party as the Administrative Agent may require evidencing the identity, authority and capacity of each Responsible Officer thereof authorized to act as a Responsible Officer in connection with this Agreement and the other Loan Documents to which such Loan Party is a party or is to be a party;

(viii)such documents and certifications as the Administrative Agent may reasonably require to evidence that each Loan Party is duly organized or formed, and that each Borrower and each Loan Party is validly existing, in good standing and qualified to engage in business in each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect;

(ix)a favorable opinion of Theodora Oringher Miller and Richman PC, counsel to the Loan Parties, addressed to the Administrative Agent and each Lender, as to such matters concerning the Loan Parties and the Loan Documents as the Administrative Agent or the Required Lenders may reasonably request;

47

(x)            a favorable opinion of Strategic Law Partners, LLP, counsel for the Company and its Subsidiaries, delivered in connection with the Merger which opinion is either (A) addressed to the Administrative Agent and the Lenders or (B) accompanied by a reliance letter from such counsel addressed to the Administrative Agent and the Lenders that expressly states that the Administrative Agent and the Lenders may rely on such opinion;

(xi)           evidence of the receipt of all Governmental Approvals (including all applicable healthcare and other applicable regulatory), shareholder and third party consents (including Hart-Scott-Rodino clearance) and approvals necessary or, in the opinion of the Administrative Agent, desirable in connection with the Transactions and the related financings and other transactions contemplated hereby and expiration of all applicable waiting periods without any action being taken by any authority that could restrain, prevent or impose any material adverse conditions on the Borrowers and their Subsidiaries or such other transactions or that could seek or threaten any of the foregoing, and no law or regulation shall be applicable which in the reasonable judgment of the Administrative Agent could have such an effect;

(xii)          a Business Associate Agreement duly executed by each Loan Party and AMVI/Prospect;

(xiii)         a certificate of a Responsible Officer of each Loan Party either (A) attaching copies of all consents, licenses and approvals required in connection with the consummation by such Loan Party of the Transaction and the execution, delivery and performance by such Loan Party and the validity against such Loan Party of the Loan Documents to which it is a party, and such consents, licenses and approvals shall be in full force and effect, or (B) stating that no such consents, licenses or approvals are so required;

(xiv)        evidence that the Borrowers have obtained corporate/corporate family ratings from Moody’s and S&P, as applicable, of at least B3/B-, respectively, and in each case, with a stable outlook or better;

(xv)         a certificate signed by a Responsible Officer of each Borrower certifying (A) that the conditions specified in Sections 4.02(a) and (b) have been satisfied, (B) except as set forth on Schedule 4.01(a)(xv), that there has been no event or circumstance since the date of the Audited Financial Statements that has had or could be reasonably expected to have, either individually or in the aggregate, a Material Adverse Effect; and (C) a calculation as of the last day of the fiscal quarter of Holdings most recently ended prior to the Closing Date reflecting that the Consolidated Leverage Ratio of Holdings and its Subsidiaries (which ratio shall be calculated reflecting the Transactions contemplated hereby on a pro forma basis) is not greater than 3.5:1.0;

(xvi)        pro forma consolidated financial statements of Holdings and its Subsidiaries as of as of the last day of the fiscal quarter of Holdings most recently

48

ended prior to the Closing Date giving effect to all elements of the Transactions, and forecasts prepared by management of the Borrowers, each in form satisfactory to the Lenders, of balance sheets, income statements and cash flow statements on a monthly basis for the first year following the Closing Date and on an annual basis for each year thereafter during the term of this Agreement;

(xvii)       the annual (or other audited) financial statements of each of (A) the Borrowers and their respective Subsidiaries and (B) the Company and its Subsidiaries for the fiscal years ended 2004, 2005, and 2006, and interim financial statements of each of (A) the Borrowers and their respective Subsidiaries and (B) the Company and its Subsidiaries dated of the end of the most recent fiscal quarter for which financial statements are available;

(xviii)      evidence that all Term Loans will be in full compliance with the Federal Reserve’s margin regulations;

(xix)         certificates attesting to the Solvency of each Loan Party before and after giving effect to the Transaction, from each Borrower’s chief financial officer;

(xx)          the Lenders shall be satisfied with the amount, terms, conditions and holders of all intercompany indebtedness and all material indebtedness and other material liabilities owing to third parties to be outstanding on and after the Closing Date;

(xxi)         evidence that all insurance required to be maintained pursuant to the Loan Documents has been obtained and is in effect, together with the certificates of insurance, naming the First Lien Administrative Agent, as control agent, as loss payee on all certificates for property hazard insurance maintained with respect to the assets and properties of the Loan Parties that constitutes Collateral and naming the Administrative Agent as an additional insured on all certificates for liability insurance;

(xxii)        certified copies of each of the Related Documents, duly executed by the parties thereto, together with all agreements, instruments and other documents delivered in connection therewith as the Administrative Agent shall request;

(xxiii)       certified copies of a certificate of merger or other confirmation satisfactory to the Lenders of the consummation of the Merger from the Secretary of State of the State of California;

(xxiv)       a duly completed Compliance Certificate as of the last day of the fiscal quarter of Holdings ended March 31, 2007, signed by chief executive officer, chief financial officer, treasurer or controller of Holdings;

(xxv)        evidence that each Existing Credit Agreement has been, or concurrently with the Closing Date is being, terminated and all Liens securing

49

obligations under each Existing Credit Agreement have been, or concurrently with the Closing Date are being, released;

(xxvi)       evidence that Holdings has received approval from the American Stock Exchange for the listing of common shares of Holdings stock thereon in connection with the conversion of the preferred equity issued to Samuel S. Lee and The David and Alexa Topper Family Trust U/D/T September 29, 1997;

(xxvii)      a copy of each duly-executed Voting Agreement delivered in connection with the Merger Agreement;

(xxviii)     duly executed counterparts to the Intercreditor Agreement; and

(xxix)       such other assurances, certificates, documents, consents, reports, audits or opinions as the Administrative Agent or any Lender reasonably may require.

(b)   (i) All fees required to be paid to the Administrative Agent and the Arranger on or before the Closing Date shall have been paid and (ii) all fees required to be paid to the Lenders on or before the Closing Date shall have been paid.

(c)   Unless waived by the Administrative Agent, the Borrowers shall have paid all fees, charges and disbursements of counsel to the Administrative Agent (directly to such counsel if requested by the Administrative Agent) to the extent invoiced prior to or on the Closing Date, plus such additional amounts of such fees, charges and disbursements as shall constitute its reasonable estimate of such fees, charges and disbursements incurred or to be incurred by it through the closing proceedings (provided that such estimate shall not thereafter preclude a final settling of accounts between the Borrowers and the Administrative Agent).

(d)   (i) The final terms and conditions of each aspect of the Merger, including, without limitation, all tax aspects thereof, shall be satisfactory to the Lenders and the Merger shall have been consummated strictly in accordance with the terms of the Merger Agreement, without any waiver or amendment not consented to by the Lenders of any term, provision or condition set forth therein, and in compliance with all applicable requirements of Law; (ii) the Lenders shall be reasonably satisfied with the Merger Agreement (including all schedules and exhibits thereto) which shall provide for an aggregate purchase price not in excess of $144,000,000 (less the indebtedness of the Company), and all other agreements, instruments and documents relating to the Merger; (iii) and the Related Documents shall not have been altered, amended or otherwise changed or supplemented prior to the Closing Date or any condition therein waived without the prior written consent of the Lenders; and (iv) in connection with any and all judgment liens shown of record as a Lien against any real or personal property of any Loan Party, the Borrowers shall have provided the Administrative Agent either (A) evidence reasonably acceptable to the Administrative Agent that such judgment lien has been satisfied and that the applicable Loan Party has, or is diligently pursuing, a release of lien to be filed in all public records, with such release of lien to be so filed in any event

50

no later than thirty (30) days after the Closing Date or (B) if the Lien has not been paid, or if the applicable Loan Party is unable to establish to the satisfaction of the Administrative Agent that such judgment lien has been paid and is no long of force and effect, the Borrowers have deposited funds with an escrow agent reasonably acceptable to the Administrative Agent in an amount sufficient to pay in full each such judgment lien and have delivered to the Administrative Agent a demand from the corresponding judgment creditor for each such outstanding judgment lien; and (iv) in connection with any and all state and federal tax liens shown of record as a Lien against any Loan Party’s personal or real property, the Borrowers shall have delivered to the Administrative Agent evidence acceptable to the Administrative Agent that each such tax lien has been satisfied and that the applicable Loan Party has, or is diligently pursuing, a release of lien to be filed in all public records, with such release of lien to be so filed in any event no later than thirty (30) days after the Closing Date.

(e)   The Lenders shall have completed a due diligence investigation of the Borrowers, the Company and their respective Subsidiaries in scope, and with results, satisfactory to the Lenders, and shall have been given such access to the management, records, books of account, contracts and properties of the Borrowers, the Company, their respective Subsidiaries and shall have received such financial, business and other information regarding each of the foregoing Persons and businesses as they shall have requested, including information as to possible contingent liabilities, tax matters, collective bargaining agreements and other arrangements with employees, and no changes or developments shall have occurred, and no new or additional information shall have been received or discovered by the Administrative Agent or the Lenders regarding the Borrowers, the Company and their respective Subsidiaries or the Transaction after May 23, 2007 that (A) either individually or in the aggregate could reasonably be expected to have a Material Adverse Effect or (B) purports to adversely affect the Facility or any other aspect of the Transaction, and nothing shall have come to the attention of the Lenders during the course of such due diligence investigation to lead them to believe (i) that the Information Memorandum was or has become misleading, incorrect or incomplete in any material respect, (ii) that, following the consummation of the Transaction, Holdings would not have good and marketable title to all material assets of the Company and its Subsidiaries reflected in the Information Memorandum or (iii) that the Transaction will have a Material Adverse Effect.

(f)    The Lenders shall be satisfied with the pro forma capital and ownership structure and the shareholder arrangements of the Loan Parties and their Affiliates after giving effect to the Transactions, including, without limitation,  the respective charter and bylaws (or equivalent document/agreement) of each Loan Party and each agreement or instrument relating thereto.

(g)   (i)  The First Lien Loan Documents shall be in form and substance satisfactory to the Administrative Agent and (ii) concurrent with the closing of the Facility and the funding of the Term Loan, the Borrowers shall have borrowed at least $95,000,000 pursuant to, and in accordance with, the First Lien Credit Agreement.

51

(h)   No action, suit, investigation or proceeding shall be pending or, to the knowledge of the Borrowers or the Company, or any Subsidiary thereof, threatened in any court or before any arbitrator or Governmental Authority that could reasonably be expected to have a Material Adverse Effect.

(i)    The representations and warranties of the Borrowers contained in Article V or any other Loan Document, or which are contained in any document furnished at any time under or in connection herewith or therewith, shall be true and correct on and as of the Closing Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case they shall be true and correct as of such earlier date.

(j)    No Default shall exist.

Without limiting the generality of the provisions of the last paragraph of Section 9.03, for purposes of determining compliance with the conditions specified in this Section 4.01, each Lender that has signed this Agreement shall be deemed to have consented to, approved or accepted or to be satisfied with, each document or other matter required thereunder to be consented to or approved by or acceptable or satisfactory to a Lender unless the Administrative Agent shall have received notice from such Lender prior to the proposed Closing Date specifying its objection thereto.

ARTICLE V
REPRESENTATIONS AND WARRANTIES

Each Borrower represents and warrants to the Administrative Agent and the Lenders that:

5.01         Existence, Qualification and Power.  Each Loan Party and each of its Subsidiaries (a) is duly organized or formed, validly existing and, as applicable, in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and Related Documents to which it is a party and consummate the Transaction, and (c) is duly qualified and is licensed and, as applicable, in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clause (b)(i) or (c), to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect.

5.02         Authorization; No Contravention.  The execution, delivery and performance by each Loan Party of each Loan Document and Related Document to which such Person is or is to be a party have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries (other than Liens arising under the First Lien Loan Documents)

52

or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.

5.03         Governmental Authorization; Other Consents.  No approval, consent, exemption, authorization, or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with (a) the execution, delivery or performance by, or enforcement against, any Loan Party of this Agreement or any other Loan Document or Related Document, or for the consummation of the Transaction, (b) the grant by any Loan Party of the Liens granted by it pursuant to the Collateral Documents, (c) the perfection or maintenance of the Liens created under the Collateral Documents (including the second priority nature thereof) or (d) the exercise by the Administrative Agent or any Lender of its rights under the Loan Documents or the remedies in respect of the Collateral pursuant to the Collateral Documents.  All applicable waiting periods in connection with the Transaction have expired without any action having been taken by any Governmental Authority restraining, preventing or imposing materially adverse conditions upon the Transaction or the rights of the Loan Parties or their Subsidiaries freely to transfer or otherwise dispose of, or to create any Lien on, any properties now owned or hereafter acquired by any of them.

5.04         Binding Effect.  This Agreement has been, and each other Loan Document, when delivered hereunder, will have been, duly executed and delivered by each Loan Party that is party thereto.  This Agreement constitutes, and each other Loan Document when so delivered will constitute, a legal, valid and binding obligation of such Loan Party, enforceable against each Loan Party that is party thereto in accordance with its terms.

5.05         Financial Statements; No Material Adverse Effect.  (a)  The Audited Financial Statements (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; (ii) fairly present the financial condition of the Borrowers and their respective Subsidiaries as of the date thereof and their results of operations for the period covered thereby in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein; and (iii) show all material indebtedness and other liabilities, direct or contingent, of the Borrowers and their Subsidiaries as of the date thereof, including liabilities for taxes, material commitments and Indebtedness.

(b)           The unaudited consolidated balance sheet of Holdings and its Subsidiaries dated March 31, 2007, and the related consolidated statements of income or operations, shareholders’ equity and cash flows for the fiscal quarter ended on that date (i) were prepared in accordance with GAAP consistently applied throughout the period covered thereby, except as otherwise expressly noted therein, and (ii) fairly present the financial condition of Holdings and its Subsidiaries as of the date thereof and their results of operations for the period covered thereby, subject, in the case of clauses (i) and (ii), to the absence of footnotes and to normal year-end audit adjustments.

(c)           Except as set forth on Schedule 4.01(a)(xv), since the date of the Audited Financial Statements, there has been no event or circumstance, either individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect.

53

(d)           The consolidated and consolidating pro forma balance sheet of Holdings and its Subsidiaries as at March 31, 2007, and the related consolidated and consolidating pro forma statements of income and cash flows of the Borrowers and their Subsidiaries for the twelve months then ended, certified by the chief financial officer or treasurer of the Borrowers, copies of which have been furnished to each Lender, fairly present the consolidated and consolidating pro forma financial condition of Holdings and its Subsidiaries as at such date and the consolidated and consolidating pro forma results of operations of Holdings and its Subsidiaries for the period ended on such date, in each case giving effect to the Transaction, all in accordance with GAAP.

(e)           The consolidated and consolidating forecasted balance sheet, statements of income and cash flows of Holdings and its Subsidiaries delivered pursuant to Section 4.01 or Section 6.01(d) were prepared in good faith on the basis of the assumptions stated therein, which assumptions were fair in light of the conditions existing at the time of delivery of such forecasts, and represented, at the time of delivery, the Borrowers’ best estimate of its future financial condition and performance.

5.06         Litigation.  There are no actions, suits, proceedings, claims or disputes pending or, to the knowledge of either Borrower after due and diligent investigation, threatened or contemplated, at law, in equity, in arbitration or before any Governmental Authority, by or against either Borrower or any of their respective Subsidiaries or against any of their properties or revenues that (a) purport to affect or pertain to this Agreement, any other Loan Document, or any Related Document, (b) except as disclosed on Schedule 5.06(b), purport to affect or pertain to the consummation of the Transaction or (c) except as specifically disclosed in Schedule 5.06(c), either individually or in the aggregate, if determined adversely, could reasonably be expected to have a Material Adverse Effect.

5.07         No Default.  Schedule 5.07 sets forth a complete and accurate list of all Material Contracts to which any Loan Party is a party.  Neither any Loan Party nor any Subsidiary thereof is in default under or with respect to, or a party to, any Contractual Obligation that could, either individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.  No Default has occurred and is continuing or would result from the consummation of the transactions contemplated by this Agreement or any other Loan Document.

5.08         Ownership of Property; Liens; Investments.

(a)           Each Loan Party and each of its Subsidiaries has good record and marketable title in fee simple to, or valid leasehold interests in, all real property necessary or used in the ordinary conduct of its business, except for such defects in title as could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)           Schedule 5.08(b) sets forth a complete and accurate list of all Liens on the property or assets of each Loan Party and each of its Subsidiaries, showing as of the date hereof the lienholder thereof, the principal amount of the obligations secured thereby and the property or assets of such Loan Party or such Subsidiary subject thereto.  The property of each Loan Party and each of its Subsidiaries is subject to no Liens, other than Liens set forth on Schedule 5.08(b), and as otherwise permitted by Section 7.01.

54

(c)           Schedule 5.08(c) sets forth a complete and accurate list of all real property owned by each Loan Party and each of its Subsidiaries, showing as of the date hereof the street address, county or other relevant jurisdiction, state, record owner and book and estimated fair value thereof.  Each Loan Party and each of its Subsidiaries has good, marketable and insurable fee simple title to the real property owned by such Loan Party or such Subsidiary, free and clear of all Liens, other than Liens created or permitted by the Loan Documents.

(d)           (i)  Schedule 5.08(d)(i) sets forth a complete and accurate list of all leases of real property under which any Loan Party or any Subsidiary of a Loan Party is the lessee, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof.  Each such lease is the legal, valid and binding obligation of the lessor thereof, enforceable in accordance with its terms.

(ii)           Schedule 5.08(d)(ii) sets forth a complete and accurate list of all leases of real property under which any Loan Party or any Subsidiary of a Loan Party is the lessor, showing as of the date hereof the street address, county or other relevant jurisdiction, state, lessor, lessee, expiration date and annual rental cost thereof.  Each such lease is the legal, valid and binding obligation of the lessee thereof, enforceable in accordance with its terms.

(e)           Schedule 5.08(e) sets forth a complete and accurate list of all Investments held by any Loan Party or any Subsidiary of a Loan Party on the date hereof, showing as of the date hereof the amount, obligor or issuer and maturity, if any, thereof.

5.09         Environmental Compliance.

(a)           (i) each of the Loan Parties and their respective Subsidiaries is in compliance with all Environmental Laws except where non-compliance would not, individually or in the aggregate, have a Material Adverse Effect; and (ii) all operations or activities upon, or any use, occupancy or operation of the Real Property, are in compliance with all Environmental Laws except where non-compliance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

(b)           No Loan Party has stored, manufactured, used, generated or dumped any Hazardous Materials on, in, under or upon any of the Real Property, except for uses and temporary storage of Hazardous Materials reasonably necessary to the customary operation of a general acute care hospital in material compliance with applicable Environmental Laws.

(c)           None of the Real Property is listed or proposed for listing on the NPL or on the CERCLIS or any analogous foreign, state or local list or is adjacent to any such property.

(d)           No Loan Party has ever received any written communication from a Governmental Authority or any other Person that alleges that such Loan Party is not in material compliance with Environmental Laws or is otherwise subject to liability relating to Environmental Laws;

(e)           There is no claim pending or, to either Borrower’s knowledge, threatened against any Loan Party or any of the Real Property, and no material work, repairs, remedy,

55

remediation, clean-up, construction or capital expenditures are required by any Environmental Laws with respect to the Real Property in order for the continued lawful use of the Real Property operated by any Loan Party as of the Closing Date, as it has been and is currently used, subject to such exceptions that would not have a Material Adverse Effect;

(f)            Each of the Loan Parties is in compliance with OSHA requirements respecting friable asbestos, if any, located on the Real Property, or any portion thereof, except where non-compliance would not have a Material Adverse Effect; and in this regard, each Loan Party has properly implemented an operations and maintenance training program where required for certain of its employees in the proper handling and removal of asbestos in compliance with OSHA requirements except where non-compliance would not have a Material Adverse Effect;

(g)           There are no above or underground storage tanks located on or beneath the Real Property except as disclosed on Schedule 5.09.  All above or underground storage tanks currently operated on any of the Real Property by any Loan Party, if any, are in compliance with applicable Environmental Laws, except where non-compliance would not have a Material Adverse Effect.  For any underground storage tanks which were formerly located on any Real Property, and of which any Loan Party has knowledge, such tanks were removed or closed in place in compliance with applicable Environmental Laws except where non-compliance would not have a Material Adverse Effect, and any remediation work required as a result of any release, leakage or discharge of Hazardous Materials from such tanks or related lines has been fully completed in accordance with Environmental Laws and accepted by the applicable Governmental Authority, subject to such exceptions that would not have a Material Adverse Effect.

5.10         Insurance.  The properties of the Borrowers and their respective Subsidiaries are insured with financially sound and reputable insurance companies not Affiliates of the Borrowers, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrowers or the applicable Subsidiary operates.

5.11         Taxes.  Other than as set forth on Schedule 5.11, the Borrowers and their respective Subsidiaries have filed all Federal, state and other material tax returns and reports required to be filed, and have paid all Federal, state and other material taxes, assessments, fees and other governmental charges levied or imposed upon them or their properties, income or assets otherwise due and payable, except those which are being contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves have been provided in accordance with GAAP.  There is no proposed tax assessment against any Borrower or any Subsidiary that would, if made, have a Material Adverse Effect.  Neither any Loan Party nor any Subsidiary thereof is party to any tax sharing agreement.  The Merger will not be taxable to either Borrower or any of their respective Subsidiaries (including the Company) or AMVI/Prospect.

5.12         ERISA Compliance.  (a)  Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the Code and other Federal or state Laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed

56

by the IRS with respect thereto and, to the best knowledge of each Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification.  Each Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.

(b)           There are no pending or, to the best knowledge of each Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan that could reasonably be expected to have a Material Adverse Effect.  There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan that has resulted or could reasonably be expected to result in a Material Adverse Effect.

(c)           (i) Except as set forth on Schedule 5.12(c), no ERISA Event has occurred or is reasonably expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability; (iii) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Pension Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (iv) neither Borrower nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (v) neither Borrower nor any ERISA Affiliate has engaged in a transaction that could be subject to Section 4069 or 4212(c) of ERISA.

5.13         Subsidiaries; Equity Interests; Loan Parties.  No Loan Party has any Subsidiaries other than those specifically disclosed in Part (a) of Schedule 5.13, and all of the outstanding Equity Interests in such Subsidiaries have been validly issued, are fully paid and non-assessable and are owned by a Loan Party in the amounts specified on Part (a) of Schedule 5.13 free and clear of all Liens except those created under the Collateral Documents.  No Loan Party has any equity investments in any other corporation or entity other than those specifically disclosed in Part (b) of Schedule 5.13.  All of the outstanding Equity Interests in Holdings have been validly issued, are fully paid and non-assessable and Holdings’ authorized Equity Interests are set forth on Part (c) of Schedule 5.13.  Set forth on Part (d) of Schedule 5.13 is a complete and accurate list of all Loan Parties, showing as of the Closing Date (as to each Loan Party) the jurisdiction of its incorporation, the address of its principal place of business and its U.S. taxpayer identification number or, in the case of any non-U.S. Loan Party that does not have a U.S. taxpayer identification number, its unique identification number issued to it by the jurisdiction of its incorporation.  The copy of the charter of each Loan Party and each amendment thereto provided pursuant to Section 4.01(a)(viii) is a true and correct copy of each such document, each of which is valid and in full force and effect.

5.14         Margin Regulations; Investment Company Act.

(a)           Neither Borrower is engaged or will engage, principally or as one of its important activities, in the business of purchasing or carrying margin stock (within the meaning of Regulation U issued by the FRB), or extending credit for the purpose of purchasing or carrying margin stock.

57

(b)           None of the Borrowers, any Person Controlling either Borrower, or any Subsidiary of either Borrower is or is required to be registered as an “investment company” under the Investment Company Act of 1940.

5.15         Disclosure.  The Borrowers have disclosed to the Administrative Agent and the Lenders all agreements, instruments and corporate or other restrictions to which they or any of their respective Subsidiaries or any other Loan Party is subject, and all other matters known to it, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect.  No report, financial statement, certificate or other information furnished (whether in writing or orally) by or on behalf of any Loan Party to the Administrative Agent or any Lender in connection with the transactions contemplated hereby and the negotiation of this Agreement or delivered hereunder or under any other Loan Document (in each case as modified or supplemented by other information so furnished) contains any material misstatement of fact or omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, with respect to projected financial information, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time.

5.16         Compliance with Laws.  Each Loan Party and each Subsidiary thereof is in compliance in all respects with the requirements of all Laws (including all Health Care Laws and Seismic Compliance Laws (giving effect to any extensions or exemptions then in existence), all applicable Medicare and Medicaid rules and regulations, and to the extent applicable, the California Department of Managed Care financial solvency regulations) and all orders, writs, injunctions and decrees applicable to it or to its properties, except in such instances in which (a) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted or (b) the failure to comply therewith, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect.  There is no basis for (a) any Offsets asserted or threatened to be asserted against any Loan Party by any Obligor (including but not limited to amounts due to Medicare or the IRS), or (b) any overdue or delinquent liabilities or Indebtedness which could give rise to a right of a federal Governmental Authority or any other Person to offset or levy with respect to such liabilities or Indebtedness against any accounts receivable of a Loan Party or payments due thereon.  No condition exists and no event has occurred which, in itself or with the giving of notice or lapse of time or both, would result in the suspension, revocation, impairment, forfeiture or non-renewal of any governmental consent or permit applicable to any Loan Party or any facility owned or operated by it.

5.17         Intellectual Property; Licenses, Etc.  Each Loan Party and each of its Subsidiaries own, or possess the right to use, all of the trademarks, service marks, trade names, copyrights, patents, patent rights, franchises, licenses and other intellectual property rights (collectively, “IP Rights”) that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person.  To the best knowledge of each Borrower, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Loan Party or any of its Subsidiaries infringes upon any rights held by any other Person.  No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of each Borrower,

58

threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.18         Solvency.  Each Loan Party is, individually and together with its Subsidiaries on a consolidated basis, Solvent.

5.19         Casualty, Etc.  Neither the businesses nor the properties of any Loan Party or any of its Subsidiaries are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy or other casualty (whether or not covered by insurance) that, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

5.20         Health Care Matters.

(a)           Compliance with Health Care Laws; Permits.  Without limiting the generality of Section 5.16, each Loan Party and each of its Subsidiaries, and any Person acting on their behalf, is in compliance in all material respects with all Health Care Laws applicable to it, its products and its properties or other assets or its business or operation, including its provision of professional services.  Each Loan Party and each of its Subsidiaries, and any Person acting on their behalf, has in effect all material Permits, including, without limitation, all material Permits necessary for it to own, lease or operate its properties and other assets and to carry on its business and operations, including its provision of professional services, as presently conducted.  All such material Permits are in full force and effect and there has occurred no default under, or violation of, any such material Permit.  No action, demand, or investigation by any Governmental Authority and no suit, action or proceeding by any other person, in each case with respect to each Loan Party, any of its Subsidiaries, any Person acting on their behalf, or any of their respective properties, other assets or provision of professional services under any requirements of Law, is pending or, to the knowledge of any Loan Party or its Subsidiaries, threatened.

(b)           Filings.  All reports, documents, claims, notices or approvals required to be filed, obtained, maintained or furnished to any Governmental Authority have been so filed, obtained, maintained or furnished, and all such reports, documents, claims and notices were complete and correct in all material respects on the date filed (or were corrected in or supplemented by a subsequent filing).

(c)           Material Statements.  No Loan Party nor any of its Subsidiaries, nor any officer, affiliate, employee or agent of any Loan Party or any of its Subsidiaries, has made an untrue statement of a material fact or fraudulent statement to any Governmental Authority, failed to disclose a material fact required to any Governmental Authority, or committed an act, made a statement, or failed to make a statement that, at the time such disclosure was made, would reasonably be expected to constitute a violation of any Health Care Law.  No Loan Party nor any of its Subsidiaries, nor any officer, affiliate or employee of any Loan Party, nor to any Loan Party’s knowledge, any agent of any Loan Party or any of its Subsidiaries, has made any untrue statement of fact regarding claims incurred but not reported.

59

(d)           Billing.  Each Loan Party, each of its Subsidiaries and each contracting physician of a Loan Party or Subsidiary (to the extent required) has the requisite provider number or other Permit to bill the Medicare program (to the extent such entity participates in the Medicare program), the respective Medicaid program in the state or states in which such entity operates, and all other Third Party Payor Programs, including but not limited to Capitated Contracts with managed care organizations, that each Loan Party and each of its Subsidiaries currently bill.  There is no investigation, audit, claim review, or other action pending, or to the knowledge of any Loan Party or its Subsidiaries, threatened which could result in a revocation, suspension, termination, probation, restriction, limitation, or non-renewal of any Third Party Payor provider number or result in any Loan Party’s or any Subsidiaries’ exclusion from any Third Party Payor Program.  No Loan Party nor each of its Subsidiaries has billed or received any payment or reimbursement in excess of amounts allowed by any Health Care Law or other Law.

(e)           Proceedings.  There are no facts, circumstances or conditions that would reasonably be expected to form the basis for any material investigation, suit, claim, audit, action (legal or regulatory) or proceeding (legal or regulatory) by a Governmental Authority against or affecting any Loan Party or any of its Subsidiaries relating to any of the Health Care Laws.

(f)            Prohibited Transactions.  Neither the Loan Parties nor any Subsidiary nor any Person acting on behalf of the Loan Parties or any Subsidiary is a party to any contract, lease agreement or other arrangement (including any joint venture or consulting agreement) with any physician, health care facility, hospital, nursing facility, home health agency or other person who is in a position to make or influence referrals to or otherwise generate business to provide services, lease space, lease equipment or engage in any other venture or activity, other than agreements which are in compliance with all applicable Health Care Laws.  Neither the Loan Parties nor any Subsidiary, nor any person acting on behalf of the Loan Parties or any Subsidiary, directly or indirectly:  (1) offered, paid or received any remuneration, in cash or in kind, to, or made any financial arrangements with, any past, present or potential patient, supplier, medical staff member, referral source, contractor or Third Party Payor of the Loan Parties and/or any Subsidiary in order to illegally obtain or refer business or receive payments from such person; (2) given, received or agreed to give or receive, or is aware that there has been made or that there is any illegal agreement to make or receive, any illegal gift or gratuitous payment of any kind, nature or description (whether in money, property or services) to any past, present or potential patient, supplier, contractor, Third Party Payor or any other person; (3) made or agreed to make, or is aware that there has been made or that there is any agreement to make, any contribution, payment or gift of funds or property to, or for the private use of, any governmental official, employee or agent where either the contribution, payment or gift or the purpose of such contribution, payment or gift is or was illegal under the laws of any government entity having jurisdiction over such payment, contribution or gift; (4) established or maintained any unrecorded fund or asset for any purpose or made any misleading, false or artificial entries on any of its books or records for any reason; or (5) made, or agreed to make, or is aware that there has been made or that there is any agreement to make, any payment to any person with the intention or understanding that any part of such payment would be used or was given for any purpose other than that described in the documents supporting such payment.

60

(g)           Medicare/Medicaid.  There are no Medicare or Medicaid termination proceedings underway with respect to any of the Loan Parties, each entity meets the Medicare conditions of participation and no employee or independent contractor to any of the Loan Parties has been excluded from participating in Medicare or Medicaid or any similar federal programs.

(h)           Compliance.  Each Loan Party possesses and implements all requisite policies and procedures to ensure that all aspects of Loan Parties’ operations, their employees, and all healthcare providers under contract with any Loan Party, comply with all applicable Health Care Laws.

5.21         Labor Matters.   Except as set forth on Schedule 5.21, there are no collective bargaining agreements or Multiemployer Plans covering the employees of the Borrower or any of its Subsidiaries as of the Closing Date and neither the Borrower nor any Subsidiary has suffered any strikes, walkouts, work stoppages or other material labor difficulty within the last five years.

5.22         Collateral Documents.   The provisions of the Collateral Documents are effective to create in favor of the Administrative Agent for the benefit of the Secured Parties a legal, valid and enforceable Second Priority Lien (subject to Liens permitted by Section 7.01(a)-(i) and (k)-(l)) on all right, title and interest of the respective Loan Parties in the Collateral described therein.  Except for filings completed prior to the Closing Date and as contemplated hereby and by the Collateral Documents, no filing or other action will be necessary to perfect or protect such Liens.

ARTICLE VI
AFFIRMATIVE COVENANTS

So long as any Term Loan or other Obligation hereunder shall remain unpaid or unsatisfied each Borrower shall, and shall (except in the case of the covenants set forth in Sections 6.01, 6.02, 6.03 and 6.11) cause each of its respective Subsidiaries to:

6.01         Financial Statements.  Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

(a)   as soon as available, but in any event within 120 days after the end of each fiscal year of Holdings (commencing with the fiscal year ended September 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal year, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail and prepared in accordance with GAAP, such consolidated statements to be audited and accompanied by a report and opinion of an independent certified public accountant of nationally recognized standing reasonably acceptable to the Required Lenders, which report and opinion shall be prepared in accordance with generally accepted auditing standards and shall not be subject to any “going concern” or like qualification or exception or any qualification or exception as to the scope of such audit,

61

and together with any letters from such accountants to the board of directors or management of Holdings;

(b)   as soon as available, but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year of Holdings (commencing with the fiscal quarter ended June 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as at the end of such fiscal quarter, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such fiscal quarter and for the portion of Holdings’ fiscal year then ended, setting forth in each case in comparative form the figures for the corresponding fiscal quarter of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail, such consolidated statements to be certified by the chief executive officer, chief financial officer, treasurer or controller of Holdings as fairly presenting the financial condition, results of operations, shareholders’ equity and cash flows of Holdings and its Subsidiaries in accordance with GAAP, subject only to normal year-end audit adjustments and the absence of footnotes;

(c)   as soon as available, but in any event within 30 days after the end of each of the first 11 months of each fiscal year of Holdings (commencing with the fiscal month ended June 30, 2007), a consolidated and consolidating balance sheet of Holdings and its Subsidiaries as of the end of such month, and the related consolidated and consolidating statements of income or operations, shareholders’ equity and cash flows for such month and for the portion of Holdings’ fiscal year than ended setting forth in each case in comparative form for the corresponding month of the previous fiscal year and the corresponding portion of the previous fiscal year, all in reasonable detail and duly certified by the chief executive officer, chief financial officer, treasurer or controller of Holdings; and

(d)   as soon as available, but in any event at least 15 days before the beginning of each fiscal year of Holdings, an annual business plan and budget of the Borrowers and their respective Subsidiaries on a consolidated basis, including forecasts prepared by management of the Borrowers, in form satisfactory to the Administrative Agent and the Required Lenders, of consolidated balance sheets and statements of income or operations and cash flows of Holdings and its Subsidiaries on a monthly basis for the immediately following fiscal year (including the fiscal year in which the Maturity Date occurs).

As to any information contained in materials furnished pursuant to Section 6.02(d), the Borrowers shall not be separately required to furnish such information under Section 6.01(a) or (b) above, but the foregoing shall not be in derogation of the obligation of the Borrowers to furnish the information and materials described in Sections 6.01(a) and (b) above at the times specified therein.

6.02         Certificates; Other Information.  Deliver to the Administrative Agent and each Lender, in form and detail satisfactory to the Administrative Agent and the Required Lenders:

62

(a)   concurrently with the delivery of the financial statements referred to in Section 6.01(a) (commencing with the delivery of the financial statements for the fiscal year ended September 30, 2007), a certificate of its independent certified public accountants certifying such financial statements and stating that in making the examination necessary therefor no knowledge was obtained of any Default under the financial covenants set forth in Section 7.11 or, if any such Default shall exist, stating the nature and status of such event;

(b)   concurrently with the delivery of the financial statements referred to in Sections 6.01(a) and (b) (commencing with the delivery of the financial statements for the fiscal quarter ended June 30, 2007), a duly completed Compliance Certificate signed by the chief executive officer, chief financial officer, treasurer or controller of Holdings;

(c)   within thirty (30) days following the end of each calendar month, a certificate substantially in the form attached hereto as Exhibit E signed by the chief executive officer, chief financial officer, treasurer or controller of Holdings certifying Holdings’ and its Subsidiaries’ compliance with Section 7.11(c) and setting forth detail in support of such certification.

(d)   promptly after any request by the Administrative Agent or any Lender, copies of any detailed audit reports, management letters or recommendations submitted to the board of directors (or the audit committee of the board of directors) of any Loan Party by independent accountants in connection with the accounts or books of any Loan Party or any of its Subsidiaries, or any audit of any of them;

(e)   promptly after the same are available, copies of each annual report, proxy or financial statement or other report or communication sent to the stockholders of Holdings, and copies of all annual, regular, periodic and special reports and registration statements which Holdings may file or be required to file with the SEC under Section 13 or 15(d) of the Securities Exchange Act of 1934, or with any national securities exchange, and in any case not otherwise required to be delivered to the Administrative Agent pursuant hereto;

(f)    promptly after the furnishing thereof, copies of any statement or report furnished to any holder of debt securities of any Loan Party or of any of its Subsidiaries pursuant to the terms of any indenture, loan or credit or similar agreement and not otherwise required to be furnished to the Lenders pursuant to Section 6.01 or any other clause of this Section 6.02;

(g)   as soon as available, but in any event within 30 days after the end of each fiscal year of Holdings, a report summarizing the insurance coverage (specifying type, amount and carrier) in effect for each Loan Party and its Subsidiaries and containing such additional information as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably specify;

(h)   promptly, and in any event within seven Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of each notice or other

63

correspondence received from the SEC (or comparable agency in any applicable non-U.S. jurisdiction) concerning any investigation or possible investigation or other inquiry by such agency regarding financial or other operational results of any Loan Party or any Subsidiary thereof;

(i)    not later than five Business Days after receipt thereof by any Loan Party or any Subsidiary thereof, copies of all notices, requests and other documents (including amendments, waivers and other modifications) (i) alleging that a default or an event of default has occurred, (ii) pertaining to any matter that is, or could be, in any manner adverse to any Secured Party or (iii) pertaining to any matter that is otherwise prohibited under the terms of any Loan Document, in each case so received under or pursuant to any Related Document or instrument, indenture, loan or credit or similar agreement and, from time to time upon request by the Administrative Agent, such information and reports regarding the Related Documents and such instruments, indentures and loan and credit and similar agreements as the Administrative Agent may reasonably request;

(j)    promptly after the assertion or occurrence thereof, notice of any action or proceeding against or of any noncompliance by any Loan Party or any of its Subsidiaries with any Environmental Law or Environmental Permit that could (i) reasonably be expected to have a Material Adverse Effect or (ii) cause any property described in the Mortgages to be subject to any restrictions on ownership, occupancy, use or transferability under any Environmental Law;

(k)   copies of all required operating, medical or provider licenses, as they are renewed, but no less frequently than every year;

(l)    copies of the results of any licensing survey or other inspection report noting any deficiency within five (5) Business Days of its receipt by any Loan Party;

(m)  quarterly, on or prior to the thirtieth (30th) day following the end of each fiscal quarter, the Borrowers shall provide the Administrative Agent with a schedule listing the revenue for such quarter of each existing Capitated Contract and the corresponding expiration date for each such Capitated Contract.  In addition, promptly, but in any case not later than three (3) Business Days after any Loan Party obtains knowledge thereof, the Loan Parties shall advise the Administrative Agent in writing of the termination or non-renewal of any Capitated Contract, any adjustment in the per-patient price or rate of payment under any Capitated Contract, or any adjustment, offset or deduction in respect of Capitated Contract Rights for retroactive additions and/or deletions of patients covered by Capitated Contracts during any consecutive 60-day period the payments under which Capitated Contract constituted, alone or together with payments under all other Capitated Contracts terminated or non-renewed or with respect to which any adjustment in the per-patient price or rate of payment under any Capitated Contract or any adjustment, offset or deduction in respect of Capitated Contract rights for retroactive additions and/or deletions of patients covered by Capitated Contracts was made during such 60-day period, in excess of ten percent (10%) of the aggregate payments under all Capitated Contracts during the immediately preceding twelve month period;

64

(n)   monthly, on or prior to the thirtieth (30th) day after the end of each calendar month, the Borrowers shall provide a report of incurred but not reported items for such month, which report shall include, but not be limited to, the claims lag analysis prepared by Borrowers for PMG and each of its Subsidiaries.  Such reports shall be in form and substance satisfactory to the Administrative Agent and shall be prepared using the per-member-per-month (“PMPM”) method, and will include all medical expenses

(o)   promptly upon receipt thereof, copies of actuarial reports as of March 31 and September 30 of each year;

(p)   as soon as available but not later than thirty (30) days after submission thereof to the California Department of Managed Health Care or the corresponding agency of another state and/or any other applicable or successor state agency or body, each Loan Party will provide the Administrative Agent (a) written notice of any application for, or the grant of, any Healthcare Service Plan License and (b) all reports and/or financial statements required under any such Loan Party’s Healthcare Service Plan License, if any; and

(q)   promptly, such additional information regarding the business, financial, legal or corporate affairs of any Loan Party or any Subsidiary thereof, or compliance with the terms of the Loan Documents, as the Administrative Agent or any Lender may from time to time reasonably request.

Documents required to be delivered pursuant to Section 6.01(a) or (b) or Section 6.02(d) (to the extent any such documents are included in materials otherwise filed with the SEC) may be delivered electronically and if so delivered, shall be deemed to have been delivered on the date (i) on which either Borrower posts such documents, or provides a link thereto on either Borrower’s website on the Internet at the website address listed on Schedule 10.02; or (ii) on which such documents are posted on either Borrower’s behalf on an Internet or intranet website, if any, to which each Lender and the Administrative Agent have access (whether a commercial, third-party website or whether sponsored by the Administrative Agent); provided that:  (i) the Borrowers shall deliver paper copies of such documents to the Administrative Agent or any Lender that requests the Borrowers to deliver such paper copies until a written request to cease delivering paper copies is given by the Administrative Agent or such Lender and (ii) the Borrowers shall notify the Administrative Agent and each Lender (by telecopier or electronic mail) of the posting of any such documents and provide to the Administrative Agent by electronic mail electronic versions (i.e., soft copies) of such documents.  Notwithstanding anything contained herein, in every instance the Borrowers shall be required to provide paper copies of the Compliance Certificates required by Section 6.02(b) to the Administrative Agent.  Except for such Compliance Certificates, the Administrative Agent shall have no obligation to request the delivery or to maintain copies of the documents referred to above, and in any event shall have no responsibility to monitor compliance by the Borrowers with any such request for delivery, and each Lender shall be solely responsible for requesting delivery to it or maintaining its copies of such documents.

Each Borrower hereby acknowledges that (a) the Administrative Agent and/or the Arranger will make available to the Lenders materials and/or information provided by or on

65

behalf of the Borrowers hereunder (collectively, “Borrower Materials”) by posting the Borrower Materials on IntraLinks or another similar electronic system (the “Platform”) and (b) certain of the Lenders (each, a “Public Lender”) may have personnel who do not wish to receive material non-public information with respect to the Borrowers or their respective Affiliates, or the respective securities of any of the foregoing, and who may be engaged in investment and other market-related activities with respect to such Persons’ securities.  Each Borrower hereby agrees that it will use commercially reasonable efforts to identify that portion of the Borrower Materials that may be distributed to the Public Lenders and that (w) all such Borrower Materials shall be clearly and conspicuously marked “PUBLIC” which, at a minimum, shall mean that the word “PUBLIC” shall appear prominently on the first page thereof; (x) by marking Borrower Materials “PUBLIC,” the Borrowers shall be deemed to have authorized the Administrative Agent, the Arranger and the Lenders to treat such Borrower Materials as not containing any material non-public information (although it may be sensitive and proprietary) with respect to the Borrowers or their securities for purposes of United States Federal and state securities laws (provided, however, that to the extent such Borrower Materials constitute Information, they shall be treated as set forth in Section 10.07); (y) all Borrower Materials marked “PUBLIC” are permitted to be made available through a portion of the Platform designated “Public Investor;” and (z) the Administrative Agent and the Arranger shall be entitled to treat any Borrower Materials that are not marked “PUBLIC” as being suitable only for posting on a portion of the Platform not designated “Public Investor.”

6.03         Notices.  Promptly notify the Administrative Agent and each Lender:

(a)   of the occurrence of any Default;

(b)   any notice (other than a “Committed Loan Notice” (as defined under the First Lien Credit Agreement)) delivered to any Loan Party, or sent by or on behalf of any Loan Party, with respect to the First Lien Loan Documents (including a copy of each such notice);

(c)   of any matter that has resulted or could reasonably be expected to result in a Material Adverse Effect, including (i) breach or non-performance of, or any default under, a Contractual Obligation of either Borrower or any Subsidiary; (ii) any dispute, litigation, investigation, proceeding or suspension between either Borrower or any Subsidiary and any Governmental Authority; or (iii) the commencement of, or any material development in, any litigation or proceeding affecting either Borrower or any Subsidiary, including pursuant to any applicable Environmental Laws;

(d)   of the occurrence of any ERISA Event;

(e)   of any material change in accounting policies or financial reporting practices by any Loan Party or any Subsidiary thereof, including any determination by Holdings or the Borrowers referred to in Section 2.10(b);

(f)    of the (i) occurrence of any Disposition of property or assets for which the Borrowers are required to make a mandatory prepayment pursuant to Section 2.05(b)(ii), (ii) incurrence or issuance of any Indebtedness for which the Borrower is required to

66

make a mandatory prepayment pursuant to Section 2.05(b)(iii) and (iii) receipt of any Extraordinary Receipt for which either Borrower is required to make a mandatory prepayment pursuant to Section 2.05(b)(iv);

(g)   of any announcement by Moody’s or S&P of any change or possible change in a Debt Rating;

(h)   of any investigation or audit, or pending or threatened proceedings relating to any violation or potential violation by any Loan Party, any Subsidiary of a Loan Party, or any health care facility to which a Loan Party or any Subsidiary of a Loan Party provides services, of any Health Care Laws (including, without limitation, any investigation or audit or proceeding involving violation of any of the Medicare and/or Medicaid fraud and abuse provisions);

(i)    copies of any written recommendation from any Governmental Authority or other regulatory body that any Loan Party or any Subsidiary of a Loan Party, or any Obligor to which any Loan Party or any Subsidiary of a Loan Party provides services should have its licensure, provider or supplier number, or accreditation suspended, revoked, or limited in any way, or have its eligibility to participate in TRICARE, Medicare or Medicaid or to accept assignments or rights to reimbursement under TRICARE, Medicaid or Medicare regulations suspended, revoked, or limited in any way;

(j)    notice of any claim to recover any alleged material overpayments, including by way of Offset, with respect to any receivables including, without limitation, payments received from TRICARE, Medicare, Medicaid or from any private insurance carrier;

(k)   notice of termination of eligibility of any Loan Party, any Subsidiary of any Loan Party, or any health care facility to which any Loan Party provides services to participate in any reimbursement program of any private insurance carrier, managed care or similar organization, or other Obligor applicable to it;

(l)    notice of any material reduction in the level of reimbursement expected to be received with respect to any accounts receivables;

(m)  notice of any reimbursement payment contract or process that results or is reasonably expected to result in any material claim against a Loan Party or any Subsidiary of such Loan Party (including on account of overpayments, settlement payments, appeals, repayment plan requests);

(n)   copies of any material report or communication from any Governmental Authority in connection with any inspection of any facility of a Loan Party or any Subsidiary of such Loan Party;

(o)   notice of any material fee dispute; and

(p)   any complaint, order, citation or notice of violation with respect to, or if any Loan Party becomes aware of, (i) the existence or alleged existence of which any Loan Party becomes aware, of a violation of any applicable Environmental Law, (ii) any

67

release of any Hazardous Material into the environment in an amount or a concentration for which reporting, investigation, or remediation is required under any applicable Environmental Law, (iii) the commencement of any cleanup pursuant to or in accordance with any applicable Environmental Law of any Hazardous Materials, (iv) any pending legislative or threatened proceeding for the termination, suspension or non-renewal of any permit required under any applicable Environmental Law, and (v) any Real Property that is or will be subject to a Lien imposed pursuant to any Environmental Law, which in each of cases (i) through (v) above, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

Each notice pursuant to Section 6.03 (other than Section 6.03(e) or (f)) shall be accompanied by a statement of a Responsible Officer of the Borrower Agent setting forth details of the occurrence referred to therein and stating what action the Borrowers have  taken and propose to take with respect thereto.  Each notice pursuant to Section 6.03(a) shall describe with particularity any and all provisions of this Agreement and any other Loan Document that have been breached.

6.04         Payment of Obligations.  Pay and discharge as the same shall become due and payable, all its obligations and liabilities, including (a) all tax liabilities, assessments and governmental charges or levies upon it or its properties or assets, unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrowers or such Subsidiary; (b) all lawful claims which, if unpaid, would by law become a Lien upon its property unless the same are being contested in good faith by appropriate proceedings diligently conducted and adequate reserves in accordance with GAAP are being maintained by the Borrowers or such Subsidiary; and (c) all Indebtedness, as and when due and payable, but subject to any subordination provisions contained in any instrument or agreement evidencing such Indebtedness.

6.05         Preservation of Existence, Etc.  (a)  Preserve, renew and maintain in full force and effect its legal existence and good standing under the Laws of the jurisdiction of its organization except in a transaction permitted by Section 7.04 or 7.05; provided, however, that Holdings and its Subsidiaries may consummate the Merger; (b) take all reasonable action to maintain all rights, privileges, permits, licenses and franchises necessary or desirable in the normal conduct of its business, except to the extent that failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) preserve or renew all of its registered patents, trademarks, trade names and service marks, the non-preservation of which could reasonably be expected to have a Material Adverse Effect.

6.06         Maintenance of Properties.  (a) Maintain, preserve and protect all of its material properties and equipment necessary in the operation of its business in good working order and condition, ordinary wear and tear excepted; (b) make all necessary repairs thereto and renewals and replacements thereof except where the failure to do so could not reasonably be expected to have a Material Adverse Effect; and (c) use the standard of care typical in the industry in the operation and maintenance of its facilities.

6.07         Maintenance of Insurance.  Maintain with financially sound and reputable insurance companies not Affiliates of either Borrower, insurance with respect to its properties

68

and business against loss or damage of the kinds customarily insured against by Persons engaged in the same or similar business, of such types and in such amounts as are customarily carried under similar circumstances by such other Persons and providing for not less than 30 days’ prior notice to the Administrative Agent of termination, lapse or cancellation of such insurance.

6.08         Compliance with Laws.

(a)           Comply in all respects with the requirements of all Laws (including all Health Care Laws, Seismic Compliance Laws (giving effect to any extensions or exemptions then in existence), all applicable Medicare and Medicaid rules and regulations, and to the extent applicable, the California Department of Managed Care financial solvency regulations) and all orders, writs, injunctions and decrees applicable to it or to its business or property, except in such instances in which (i) such requirement of Law or order, writ, injunction or decree is being contested in good faith by appropriate proceedings diligently conducted; or (ii) the failure to comply therewith could not reasonably be expected to have a Material Adverse Effect.

(b)           Regularly review and revise the policies and procedures of the Loan Parties to ensure continuing compliance by all Loan Parties, their employees and all healthcare providers under contract with any Loan Party with all applicable Health Care Laws and maintain appropriate programs and procedures for communicating such policies and procedures to all employees of any Loan Party and healthcare providers under contract with any Loan Party and for making sure that all employees of any Loan Party are able to report violations of any Health Care Laws and have such reports adequately addressed and corrected as soon as practicable.

(c)           As soon as practically feasible, but in no event later than six (6) months from the Closing Date, Loan Parties engaged in the hospital line of business shall adopt a compliance program which satisfies the Compliance Program Guidance for Hospitals issued by the U.S. Department of Health and Human Services Office of Inspector General, and within six months of the closing date or within six months of the issuance of applicable OIG Compliance Program Guidance, whichever is later, the Loan Parties, Subsidiaries and Affiliates engaged in other lines of business shall adopt a compliance program which satisfies all Compliance Program Guidance that applies to such business line(s), including without limitation any Program Guidance that may be developed for management companies or independent physician associations in the future by the Office of Inspector General.

6.09         Books and Records.  (a) Maintain proper books of record and account, in which full, true and correct entries in conformity with GAAP consistently applied shall be made of all financial transactions and matters involving the assets and business of such Borrower or such Subsidiary, as the case may be; and (b) maintain such books of record and account in material conformity with all applicable requirements of any Governmental Authority having regulatory jurisdiction over the Borrower or such Subsidiary, as the case may be.

6.10         Inspection Rights.  Permit representatives and independent contractors of the Administrative Agent and each Lender to visit and inspect any of its properties, to examine its corporate, financial and operating records, and make copies thereof or abstracts therefrom, and to discuss its affairs, finances and accounts with its directors, officers, and independent public accountants, all at the expense of the Borrowers and at such reasonable times during

69

normal business hours and as often as may be reasonably desired, upon reasonable advance notice to the Borrowers; provided, however, that when an Event of Default exists, the Administrative Agent or any Lender (or any of their respective representatives or independent contractors) may do any of the foregoing at the expense of the Borrowers at any time during normal business hours and without advance notice.

6.11         Use of Proceeds.  Use the proceeds of the Term Loans to (i) finance the Transactions (together with the proceeds of the First Lien Term Loan and First Lien Revolving Loans) and (ii) for general corporate purposes, in each case, not in contravention of any Law or of any Loan Document.

6.12         Covenant to Guarantee Obligations and Give Security.

(a)           Upon the formation or acquisition of any new direct or indirect Subsidiary by any Loan Party, then the Borrowers shall, at the Borrowers’ expense:

(i)            within 15 days after such formation or acquisition, cause such Subsidiary, and cause each direct and indirect parent of such Subsidiary (if it has not already done so), to duly execute and deliver to the Administrative Agent a guaranty, guaranty supplement, or joinder in form and substance satisfactory to the Administrative Agent, guaranteeing the other Loan Parties’ obligations under the Loan Documents,

(ii)           within 10 days after such formation or acquisition, furnish to the Administrative Agent a description of the real and personal properties of such Subsidiary, in detail satisfactory to the Administrative Agent,

(iii)          within 30 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to duly execute and deliver to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, joinders, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including, subject to the Intercreditor Agreement, delivery of all pledged Equity Interests in and of such Subsidiary to the First Lien Administrative Agent, and other instruments of the type specified in Section 4.01(a)(v)), securing payment of all the Obligations of such Subsidiary or such parent, as the case may be, under the Loan Documents and constituting Second Priority Liens on all such real and personal properties,

(iv)          within 45 days after such formation or acquisition, cause such Subsidiary and each direct and indirect parent of such Subsidiary (if it has not already done so) to take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Second Priority Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms,

70

(v)           within 60 days after such formation or acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (i), (iii) and (iv) above, and as to such other matters as the Administrative Agent may reasonably request, and

(vi)          as promptly as practicable after such formation or acquisition, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to each parcel of real property owned or held by the entity that is the subject of such formation or acquisition title reports, surveys and engineering, soils and other reports, property condition assessments and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent.

(b)           Upon the acquisition of any property by any Loan Party, if such property, in the judgment of the Administrative Agent, shall not already be subject to a perfected Second Priority Lien (subject to Liens permitted pursuant to Section 7.01(i)) in favor of the Administrative Agent for the benefit of the Secured Parties, then the Borrowers shall, at the Borrowers’ expense:

(i)            within 10 days after such acquisition, furnish to the Administrative Agent a description of the property so acquired in detail satisfactory to the Administrative Agent,

(ii)           within 30 days after such acquisition, cause the applicable Loan Party to duly execute and deliver to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, joinders, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent, securing payment of all the Obligations of the applicable Loan Party under the Loan Documents and constituting Second Priority Liens on all such properties,

(iii)          within 45 days after such acquisition, cause the applicable Loan Party to take whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Second Priority Liens on such property, enforceable against all third parties,

(iv)          within 60 days after such acquisition, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters

71

contained in clauses (ii) and (iii) above and as to such other matters as the Administrative Agent may reasonably request, and

(v)           as promptly as practicable after any acquisition of a real property, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to such real property title reports, surveys and engineering, soils and other reports, property condition assessments, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent,

(c)           Upon the request of the Administrative Agent following the occurrence and during the continuance of a Default, the Borrowers shall, at the Borrowers’ expense:

(i)            within 10 days after such request, furnish to the Administrative Agent a description of the real and personal properties of the Loan Parties and their respective Subsidiaries in detail satisfactory to the Administrative Agent,

(ii)           within 30 days after such request, duly execute and deliver, and cause each Loan Party (if it has not already done so) to duly execute and deliver, to the Administrative Agent deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and other security and pledge agreements, as specified by and in form and substance satisfactory to the Administrative Agent (including, subject to the Intercreditor Agreement, delivery of all pledged Equity Interests and pledged debt in and of such Subsidiary to the First Lien Administrative Agent, and other instruments of the type specified in Section 4.01(a)(v)), securing payment of all the Obligations of the applicable Loan Party under the Loan Documents and constituting Second Priority Liens on all such properties,

(iii)          within 45 days after such request, take, and cause each Loan Party to take, whatever action (including the recording of mortgages, the filing of Uniform Commercial Code financing statements, the giving of notices and the endorsement of notices on title documents) may be necessary or advisable in the opinion of the Administrative Agent to vest in the Administrative Agent (or in any representative of the Administrative Agent designated by it) valid and subsisting Second Priority Liens on the properties purported to be subject to the deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and security and pledge agreements delivered pursuant to this Section 6.12, enforceable against all third parties in accordance with their terms,

(iv)          within 60 days after such request, deliver to the Administrative Agent, upon the request of the Administrative Agent in its sole discretion, a signed copy of a favorable opinion, addressed to the Administrative Agent and the other Secured Parties, of counsel for the Loan Parties acceptable to the Administrative Agent as to the matters contained in clauses (ii) and (iii) above, and as to such other matters as the Administrative Agent may reasonably request, and

72

(v)           as promptly as practicable after such request, deliver, upon the request of the Administrative Agent in its sole discretion, to the Administrative Agent with respect to each parcel of real property owned or held by either Borrowers or their respective Subsidiaries, title reports, surveys and engineering, soils and other reports, property condition assessments, and environmental assessment reports, each in scope, form and substance satisfactory to the Administrative Agent, provided, however, that to the extent that any Loan Party or any of its Subsidiaries shall have otherwise received any of the foregoing items with respect to such real property, such items shall, promptly after the receipt thereof, be delivered to the Administrative Agent.

(d)           At any time upon request of the Administrative Agent, promptly execute and deliver any and all further instruments and documents and take all such other action as the Administrative Agent may deem necessary or desirable in obtaining the full benefits of, or (as applicable) in perfecting and preserving the Liens of, such guaranties, deeds of trust, trust deeds, deeds to secure debt, mortgages, leasehold mortgages, leasehold deeds of trust, and other security and pledge agreements.

6.13         Compliance with Environmental Laws.  Comply, and cause all lessees and other Persons operating or occupying its properties to comply, in all material respects, with all applicable Environmental Laws and Environmental Permits; obtain and renew all Environmental Permits necessary for its operations and properties; and conduct any investigation, study, sampling and testing, and undertake any cleanup, removal, remedial or other action necessary to remove and clean up all Hazardous Materials from any of its properties, in accordance with the requirements of all Environmental Laws; provided, however, that neither Borrower nor any of their respective Subsidiaries shall be required to undertake any such cleanup, removal, remedial or other action to the extent that its obligation to do so is being contested in good faith and by proper proceedings and appropriate reserves are being maintained with respect to such circumstances in accordance with GAAP.

6.14         Preparation of Environmental/Seismic Reports.

(a)           At the request of the Required Lenders from time to time, provide to the Lenders within 60 days after such request, at the expense of the Borrowers, an environmental site assessment report for any of its properties described in such request, prepared by an environmental consulting firm acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance, removal or remedial action in connection with any Hazardous Materials on such properties; without limiting the generality of the foregoing, if the Administrative Agent determines at any time that a material risk exists that any such report will not be provided within the time referred to above, the Administrative Agent may retain an environmental consulting firm to prepare such report at the expense of the Borrowers, and each Borrower hereby grants and agrees to cause any Subsidiary that owns any property described in such request to grant at the time of such request to the Administrative Agent, the Lenders, such firm and any agents or representatives thereof an irrevocable non-exclusive license, subject to the rights of tenants, to enter onto their respective properties to undertake such an assessment.

73

(b)           Within 30 days following its request therefor, the Borrowers shall deliver to the Administrative Agent a written evaluation and report with a current cost estimate to bring the real properties described in the Mortgages into compliance with Seismic Compliance Laws.

6.15         Further Assurances.  Promptly upon request by the Administrative Agent, or any Lender through the Administrative Agent, (a) correct any material defect or error that may be discovered in any Loan Document or in the execution, acknowledgment, filing or recordation thereof and (b) do, execute, acknowledge, deliver, record, re-record, file, re-file, register and re-register any and all such further acts, deeds, certificates, assurances and other instruments as the Administrative Agent, or any Lender through the Administrative Agent, may reasonably require from time to time in order to (i) carry out more effectively the purposes of the Loan Documents, (ii) to the fullest extent permitted by applicable law, subject any Loan Party’s or any of its Subsidiaries’ properties, assets, rights or interests to the Liens now or hereafter intended to be covered by any of the Collateral Documents, (iii) perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and any of the Liens intended to be created thereunder and (iv) assure, convey, grant, assign, transfer, preserve, protect and confirm more effectively unto the Secured Parties the rights granted or now or hereafter intended to be granted to the Secured Parties under any Loan Document or under any other instrument executed in connection with any Loan Document to which any Loan Party or any of its Subsidiaries is or is to be a party, and cause each of its Subsidiaries to do so.

6.16         Compliance with Terms of Leaseholds.  Make all payments and otherwise perform all obligations in respect of all leases of real property to which either Borrower or any of their respective Subsidiaries is a party, keep such leases in full force and effect and not allow such leases to lapse or be terminated or any rights to renew such leases to be forfeited or cancelled, notify the Administrative Agent of any default by any party with respect to such leases and cooperate with the Administrative Agent in all respects to cure any such default, and cause each of its Subsidiaries to do so, except, in any case, where the failure to do so, either individually or in the aggregate, could not be reasonably likely to have a Material Adverse Effect.

6.17         Interest Rate Hedging.  Within sixty (60) days of the Closing Date, the Borrowers shall enter into and maintain for at least two years following the Closing Date, interest rate Swap Contracts with Persons acceptable to the Administrative Agent, covering a notional amount of not less than fifty percent (50%) of the aggregate Term Loan and First Lien Term Loan and otherwise with terms and conditions reasonably satisfactory to the Administrative Agent.

6.18         Material Contracts.  Perform and observe all the terms and provisions of each Material Contract to be performed or observed by it, maintain each such Material Contract in full force and effect, enforce each such Material Contract in accordance with its terms, take all such action to such end as may be from time to time requested by the Administrative Agent and, upon request of the Administrative Agent, make to each other party to each such Material Contract such demands and requests for information and reports or for action as any Loan Party or any of its Subsidiaries is entitled to make under such Material Contract, and cause each of its Subsidiaries to do so.

74

6.19         Post-Closing Covenants.

(a)   Within 30 days following the Closing Date (provided that the Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver to the Administrative Agent evidence satisfactory to the Administrative Agent in its sole discretion that each Loan Party that participates in Medicare or Medicaid has properly filed CMS Form 855 with CMS.

(b)   Within 30 days following the Closing Date (provided that the Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver to the Administrative Agent evidence satisfactory to the Administrative Agent in its sole discretion that (i) each lien set forth on Schedule 5.08(b) noted for termination has been terminated and (ii) Alta Healthcare Building Corporation, a California corporation, has been dissolved by the California Secretary of State.

(c)   As soon as possible following the Closing Date, but in any event no later than September 15, 2007, the Borrowers shall have filed, or shall have caused its appropriate Subsidiary to file, tax returns for Alta Heathcare Systems, Inc., and its Subsidiaries for such entities’ 2003 tax year.

(d)   Within 15 days following the Closing Date (provided that the First Lien Administrative Agent may extend such deadline in its sole discretion), the Borrowers shall deliver, or shall cause their appropriate Subsidiaries to deliver to the First Lien Administrative Agent, in each case, in form and substance satisfactory to the First Lien Administrative Agent, deposit account control agreements and/or collection account agreements (as applicable) for all accounts held with Wells Fargo Bank, National Association (or any Affiliate thereof).

ARTICLE VII
NEGATIVE COVENANTS

So long as any Term Loan or other Obligation hereunder shall remain unpaid or unsatisfied, neither Borrower shall, nor shall either Borrower permit any Subsidiary to, directly or indirectly:

7.01         Liens.  Create, incur, assume or suffer to exist any Lien upon any of its property, assets or revenues, whether now owned or hereafter acquired, or sign or file or suffer to exist under the Uniform Commercial Code of any jurisdiction a financing statement that names either Borrower or any of their respective Subsidiaries as debtor, or assign any accounts or other right to receive income, other than the following:

(a)   Liens pursuant to any Loan Document;

(b)   Liens existing on the date hereof and listed on Schedule 5.08(b) and any renewals or extensions thereof, provided that (i) the property covered thereby is not changed, (ii) the amount secured or benefited thereby is not increased except as

75

contemplated by Section 7.02(d), (iii) the direct or any contingent obligor with respect thereto is not changed, and (iv) any renewal or extension of the obligations secured or benefited thereby is permitted by Section 7.02(d);

(c)   Liens for taxes not yet due or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person in accordance with GAAP;

(d)   carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other like Liens arising in the ordinary course of business which are not overdue for a period of more than 30 days or which are being contested in good faith and by appropriate proceedings diligently conducted, if adequate reserves with respect thereto are maintained on the books of the applicable Person;

(e)   pledges or deposits in the ordinary course of business in connection with workers’ compensation, unemployment insurance and other social security legislation, other than any Lien imposed by ERISA;

(f)    deposits to secure the performance of bids, trade contracts and leases (other than Indebtedness), statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature incurred in the ordinary course of business;

(g)   easements, rights-of-way, restrictions and other similar encumbrances affecting real property which, in the aggregate, are not substantial in amount, and which do not in any case materially detract from the value of the property subject thereto or materially interfere with the ordinary conduct of the business of the applicable Person;

(h)   Liens securing judgments for the payment of money not constituting an Event of Default under Section 8.01(h);

(i)    Liens securing Indebtedness permitted under Section 7.02(f); provided that (i) such Liens do not at any time encumber any property other than the property financed by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed the cost or fair market value, whichever is lower, of the property being acquired on the date of acquisition;

(j)    other Liens securing Indebtedness permitted under Section 7.02 outstanding in an aggregate principal amount not to exceed $2,500,000, provided that no such Lien shall extend to or cover any Collateral;

(k)   Liens in favor of any lender to Brotman Medical Center, Inc. on the shares held by Prospect Hospital Advisory Services, Inc. in Brotman Medical Center, Inc.; and

(l)    Liens securing Indebtedness permitted under Section 7.02(i).

7.02         Indebtedness.  Create, incur, assume or suffer to exist any Indebtedness, except:

76

(a)   obligations (contingent or otherwise) existing or arising under any Swap Contract, provided that (i) such obligations are (or were) entered into by such Person in the ordinary course of business for the purpose of directly mitigating risks associated with fluctuations in interest rates or foreign exchange rates and (ii) such Swap Contract does not contain any provision exonerating the non-defaulting party from its obligation to make payments on outstanding transactions to the defaulting party;

(b)   Indebtedness of a Guarantor owed to a Borrower or another Guarantor, or owed by a Borrower to a Guarantor or the other Borrower, which Indebtedness shall be on terms (including subordination terms) acceptable to the Administrative Agent;

(c)   Indebtedness under the Loan Documents;

(d)   Indebtedness outstanding on the date hereof and listed on Schedule 7.02 and any refinancings, refundings, renewals or extensions thereof; provided that the amount of such Indebtedness is not increased at the time of such refinancing, refunding, renewal or extension except by an amount equal to a reasonable premium or other reasonable amount paid, and fees and expenses reasonably incurred, in connection with such refinancing and by an amount equal to any existing commitments unutilized thereunder and the direct or any contingent obligor with respect thereto is not changed, as a result of or in connection with such refinancing, refunding, renewal or extension; and provided, still further, that the terms relating to principal amount, amortization, maturity, collateral (if any) and subordination (if any), and other material terms taken as a whole, of any such refinancing, refunding, renewing or extending Indebtedness, and of any agreement entered into and of any instrument issued in connection therewith, are no less favorable in any material respect to the Loan Parties or the Lenders than the terms of any agreement or instrument governing the Indebtedness being refinanced, refunded, renewed or extended and the interest rate applicable to any such refinancing, refunding, renewing or extending Indebtedness does not exceed the then applicable market interest rate;

(e)   Guarantees of either Borrower or any Subsidiary thereof in respect of Indebtedness otherwise permitted hereunder of any Loan Party;

(f)    Indebtedness in respect of Capitalized Leases, Synthetic Lease Obligations and purchase money obligations for fixed or capital assets within the limitations set forth in Section 7.01(i); provided, however, that the aggregate amount of all such Indebtedness at any one time outstanding shall not exceed $2,500,000;

(g)   Indebtedness of any Person that becomes a Subsidiary of either Borrower after the date hereof in accordance with the terms of Section 7.03(h), which Indebtedness is existing at the time such Person becomes a Subsidiary of such Borrower (other than Indebtedness incurred solely in contemplation of such Person’s becoming a Subsidiary of such Borrower);

(h)   letters of credit required under any Capitated Contract in favor of an HMO and any renewals thereof required by such HMO under the terms of the Capitated Contract; and

77

(i)    Indebtedness of the Borrowers and Guarantors under the First Lien Loan Documents in an aggregate principal amount not to exceed at any time the Maximum First Lien Indebtedness.

7.03         Investments.  Make or hold any Investments, except:

(a)   Investments held by either Borrower or any of their respective Subsidiaries in the form of Cash Equivalents;

(b)   (i) Investments by either Borrower or any of their respective Subsidiaries in their respective Subsidiaries (other than an Excluded Subsidiary) outstanding on the date hereof and (ii) additional Investments by either Borrower or their respective Subsidiaries in Loan Parties (other than Holdings and the Excluded Subsidiary);

(c)   Investments consisting of extensions of credit in the nature of accounts receivable or notes receivable arising from the grant of trade credit in the ordinary course of business, and Investments received in satisfaction or partial satisfaction thereof from financially troubled account debtors to the extent reasonably necessary in order to prevent or limit loss;

(d)   Guarantees permitted by Section 7.02;

(e)   Investments existing on the date hereof (other than those referred to in Section 7.03(b)(i)) and set forth on Schedule 5.08(e);

(f)    Investments by the Borrowers in Swap Contracts permitted under Section 7.02(a);

(g)   the purchase or other acquisition of all of the Equity Interests in, or all or substantially all of the property of, any Person that, upon the consummation thereof, will be wholly-owned directly by either of the Borrowers or one or more of their wholly-owned Subsidiaries (including as a result of a merger or consolidation); provided that, with respect to each purchase or other acquisition made pursuant to this Section 7.03(g):

(i)            any such newly-created or acquired Subsidiary shall comply with the requirements of Section 6.12;

(ii)           the lines of business of the Person to be (or the property of which is to be) so purchased or otherwise acquired shall be substantially the same lines of business as one or more of the principal businesses of either of the Borrowers or their respective Subsidiaries in the ordinary course;

(iii)          such purchase or other acquisition shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrowers and their Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or the persons performing similar functions) of such Borrower or such

78

Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Responsible Officer);

(iv)          the total cash and noncash consideration (including all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith but excluding all Equity Interests permitted to be issued under the terms of this Agreement issued or transferred to the sellers thereof) paid by or on behalf of the respective Borrower and its Subsidiaries for any such purchase or other acquisition, when aggregated with the total cash and noncash consideration paid by or on behalf of the Borrowers and their Subsidiaries for all other purchases and other acquisitions made by the Borrowers and their Subsidiaries pursuant to this Section 7.03(g) during the term of this Agreement, shall not exceed $6,125,000;

(v)           (A) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (B) immediately after giving effect to such purchase or other acquisition, Holdings and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such purchase or other acquisition had been consummated as of the first day of the fiscal period covered thereby; and

(vi)          the Borrowers shall have delivered to the Administrative Agent and each Lender, at least five Business Days prior to the date on which any such purchase or other acquisition is to be consummated, a certificate of a Responsible Officer, in form and substance reasonably satisfactory to the Administrative Agent and the Required Lenders, certifying that all of the requirements set forth in this subsection (h) have been satisfied or will be satisfied on or prior to the consummation of such purchase or other acquisition;

(h)   Investments by the Borrowers and their Subsidiaries (other than the Excluded Subsidiary) not otherwise permitted under this Section 7.03 in an aggregate amount not to exceed $2,500,000; provided that, with respect to each Investment made pursuant to this Section 7.03(h):

(i)            such Investment shall not include or result in any contingent liabilities that could reasonably be expected to be material to the business, financial condition, operations or prospects of the Borrowers and their Subsidiaries, taken as a whole (as determined in good faith by the board of directors (or persons performing similar functions) of such Borrower or such Subsidiary if the board of directors is otherwise approving such transaction and, in each other case, by a Responsible Officer);

79

(ii)           such Investment shall be in property that is part of, or in lines of business that are, substantially the same lines of business as one or more of the principal businesses of the Borrowers and their Subsidiaries in the ordinary course;

(iii)          any determination of the amount of such Investment shall include all cash and noncash consideration (including the fair market value of all Equity Interests issued or transferred to the sellers thereof, all indemnities, earnouts and other contingent payment obligations to, and the aggregate amounts paid or to be paid under noncompete, consulting and other affiliated agreements with, the sellers thereof, all write-downs of property and reserves for liabilities with respect thereto and all assumptions of debt, liabilities and other obligations in connection therewith) paid by or on behalf of the respective Borrower in connection with such Investment; and

(iv)          (A) immediately before and immediately after giving pro forma effect to any such purchase or other acquisition, no Default shall have occurred and be continuing and (B) immediately after giving effect to such purchase or other acquisition, Holdings and its Subsidiaries shall be in pro forma compliance with all of the covenants set forth in Section 7.11, such compliance to be determined on the basis of the financial information most recently delivered to the Administrative Agent and the Lenders pursuant to Section 6.01(a) or (b) as though such Investment had been consummated as of the first day of the fiscal period covered thereby; and

(i)    other Investments not exceeding $2,500,000 in the aggregate in any fiscal year of Holdings.

7.04         Fundamental Changes.  Merge, dissolve, liquidate, consolidate with or into another Person, or Dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now owned or hereafter acquired) to or in favor of any Person, except that, so long as no Default exists or would result therefrom:

(a)   other than where prohibited under applicable Law (including Health Care Law), any Subsidiary (other than an Excluded Subsidiary) may merge with (i) any Borrower, provided that the respective Borrower shall be the continuing or surviving Person, or (ii) any one or more other Subsidiaries, provided that (A) when any Loan Party (other than Holdings) is merging with another Subsidiary, such Loan Party shall be the continuing or surviving Person and (B) the PMG Loan Parties may not merge with Holdings or any other Subsidiary outside the PMG Loan Party group;

(b)   to the extent permitted under all applicable Law, any Subsidiary may Dispose of all or substantially all of its assets (upon voluntary liquidation or otherwise) to either Borrower or to another Loan Party;

(c)   Holdings and its Subsidiaries may consummate the Merger;

80

(d)           in connection with any acquisition permitted under Section 7.03, any Subsidiary of either Borrower (other than an Excluded Subsidiary) may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided that (i) the Person surviving such merger shall be a wholly-owned Subsidiary of either Borrower and (ii) in the case of any such merger to which any Loan Party (other than a Borrower) is a party, such Loan Party is the surviving Person; and

(e)           so long as no Default has occurred and is continuing or would result therefrom, any Subsidiary of a Borrower (other than PMG or an Excluded Subsidiary) may merge into or consolidate with any other Person or permit any other Person to merge into or consolidate with it; provided, however, that in each case, immediately after giving effect thereto in the case of any such merger to which any Loan Party is a party, such Loan Party is the surviving corporation.

7.05         Dispositions.  Make any Disposition or enter into any agreement to make any Disposition, except:

(a)     Dispositions of obsolete, surplus or worn out property, whether now owned or hereafter acquired, in the ordinary course of business;

(b)     Dispositions of inventory in the ordinary course of business;

(c)     Dispositions of equipment to the extent that (i) such property is exchanged for credit against the purchase price of similar replacement property or (ii) the proceeds of such Disposition are reasonably promptly applied to the purchase price of such replacement property;

(d)     Dispositions of property by any Subsidiary to either Borrower or to a wholly-owned Subsidiary (other than an Excluded Subsidiary); provided that if the transferor of such property is a Guarantor, the transferee thereof must either be a Borrower or a Guarantor;

(e)     Dispositions permitted by Section 7.04; and

(f)      Dispositions (other than of real property) by the Borrowers and any of their Subsidiaries not otherwise permitted under this Section 7.05; provided that (i) at the time of such Disposition, no Default shall exist or would result from such Disposition, (ii) the aggregate book value of all property Disposed of in reliance on this clause (f) in any fiscal year shall not exceed $2,500,000 and (iii) the purchase price for such asset shall be paid to such Borrower or such Subsidiary solely in cash.

provided, however, that any Disposition pursuant to Section 7.05(a) through Section 7.05(f) shall be for fair market value.

7.06         Restricted Payments.  Declare or make, directly or indirectly, any Restricted Payment, or incur any obligation (contingent or otherwise) to do so, or issue or sell any Equity Interests or accept any capital contributions, except that, so long as no Default shall

81

have occurred and be continuing at the time of any action described below or would result therefrom:

(a)           each Subsidiary (other than a Borrower) may make Restricted Payments to (i) the Borrowers and (ii) any Subsidiaries of either Borrower that are Guarantors;

(b)           each Borrower and each Subsidiary may declare and make dividend payments or other distributions payable solely in the common stock or other common Equity Interests of such Person;

(c)           PMG may make payments to Holdings in an amount not to exceed an amount necessary to permit Holdings to pay (i) reasonable and customary corporate and operating expenses (including reasonable out-of-pocket expenses for legal, administrative and accounting services provided by third parties, and compensation, benefits and other amounts payable to officers and employees in connection with their employment in the ordinary course of business and to board of director observers and (ii) franchise fees or similar taxes and fees required to maintain its corporate existence;

(d)           Restricted Payments by any Loan Party or its Subsidiary to any other Loan Party in an amount necessary to fund federal and state income taxes attributable to the taxable income of such Loan Party for the sole purpose of funding such tax payments;

(e)           Holdings may issue and sell its common Equity Interests;

(f)            Holdings may issue preferred Equity Interests; provided, that such preferred equity may not (i) require the payment of any dividends (other than dividends payable solely in shares of Holdings’ common stock or additional Holdings’ preferred stock meeting the requirements of this Section 7.06(f)), (ii) mature or be mandatorily redeemable or subject to mandatory repurchase or redemption or repurchase, in each case in whole or in part and whether upon the occurrence of any event, pursuant to a sinking fund obligation on a fixed date or otherwise (including as the result of a failure to maintain or achieve any financial performance standards) or (c) be convertible or exchangeable, automatically or at the option of any holder thereof, into any Indebtedness or other assets, other than Holdings’ common stock or additional Holdings’ preferred stock meeting the requirements of this Section 7.06(f)).

7.07         Change in Nature of Business; Limitations on Excluded Subsidiary.

(a)           Engage in any material line of business substantially different from those lines of business conducted by the Borrowers and their respective Subsidiaries on the date hereof or any business substantially related or incidental thereto.

(b)           With respect to the Excluded Subsidiary, enter into any business, operations or activities other than dissolving such Excluded Subsidiary in accordance with Section 6.19.

7.08         Transactions with Affiliates.  Enter into any transaction of any kind with any Affiliate of either Borrower, whether or not in the ordinary course of business, other than on

82

fair and reasonable terms substantially as favorable to such Borrower or such Subsidiary as would be obtainable by such Borrower or such Subsidiary at the time in a comparable arm’s length transaction with a Person other than an Affiliate; provided that the foregoing restriction shall not apply to transactions between or among the Loan Parties.

7.09         Burdensome Agreements.  Except where required under applicable Laws, enter into or permit to exist any Contractual Obligation (other than this Agreement, any other Loan Document or any First Lien Loan Document) that (a) limits the ability (i) of any Subsidiary to make Restricted Payments to the Borrowers or any Guarantor or to otherwise transfer property to or invest in the Borrowers or any Guarantor, except for any agreement in effect (A) on the date hereof and set forth on Schedule 7.09 or (B) at the time any Subsidiary becomes a Subsidiary of either Borrower, so long as such agreement was not entered into solely in contemplation of such Person becoming a Subsidiary of such Borrower, (ii) of any Subsidiary to Guarantee the Indebtedness of the Borrowers or (iii) of either Borrower or any Subsidiary to create, incur, assume or suffer to exist Liens on property of such Person; provided, however, that this clause (iii) shall not prohibit any negative pledge incurred or provided in favor of any holder of Indebtedness permitted under Section 7.02(f) solely to the extent any such negative pledge relates to the property financed by or the subject of such Indebtedness; or (b) requires the grant of a Lien to secure an obligation of such Person if a Lien is granted to secure another obligation of such Person.

7.10         Use of Proceeds.  Use the proceeds of the Term Loans, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry margin stock (within the meaning of Regulation U of the FRB) or to extend credit to others for the purpose of purchasing or carrying margin stock or to refund indebtedness originally incurred for such purpose.

7.11         Financial Covenants.

(a)           Consolidated Leverage Ratio.  Permit the Consolidated Leverage Ratio at any time during any period of four fiscal quarters of Holdings set forth below to be greater than the ratio set forth below opposite such period:

Four Fiscal Quarters Ending	Maximum Consolidated Leverage Ratio
Closing Date through March 31, 2008	4.00:1.00
April 1, 2008 through December 31, 2008	3.50:1.00
January 1, 2009 and each fiscal quarter ending thereafter	3.00:1.00

(b)           Consolidated Fixed Charge Coverage Ratio.  Permit the Consolidated Fixed Charge Coverage Ratio as of the end of any fiscal quarter of Holdings to be less than 1.10 to 1.00.

(c)           Consolidated Membership.  (i) Permit the aggregate Membership of the Loan Parties, as of the end of any calendar month to be less than 85% of such aggregate

83

Membership as of the end of the previous calendar month or permit the aggregate Membership of the Loan Parties, for any fiscal quarter to be less than 85% of the aggregate Membership from the prior Fiscal Quarter unless any such decline shall have resulted from the Borrowers’ termination of an existing contract and the Borrowers (a) shall have provided the Administrative Agent with notice of such termination of such contract contemporaneously with the delivery of such notice to the counterparty and (b) shall have delivered to Administrative Agent, prior to giving  the notice of termination, projections satisfactory to the Required Lenders confirming that the Borrowers will remain in compliance with this Agreement and that such termination will not impair the Borrowers’ ability to repay its Obligations hereunder; or (ii) permit the aggregate monthly revenues for the Loan Parties, in any calendar month to be less than 85% of the average aggregate monthly revenues for the consecutive three-month period ending as of such month, or permit the aggregate revenue for any Fiscal Quarter of the Loan Parties, to be less than 85% of the aggregate revenue for the preceding Fiscal Quarter.

7.12         Capital Expenditures.  Make or become legally obligated to make any Capital Expenditure, except for Capital Expenditures in the ordinary course of business not exceeding $8,000,000 (the “Maximum Capital Expenditure”), in the aggregate for the Borrowers and their respective Subsidiaries during each fiscal year; provided, however, that so long as no Default has occurred and is continuing or would result from such expenditure, any portion of the Maximum Capital Expenditure, if not expended in the fiscal year for which it is permitted, may be carried over for expenditure in the next following fiscal year; and provided, further, if any such amount is so carried over, it will be deemed used in the applicable subsequent fiscal year before the Maximum Capital Expenditure allocated for such fiscal year.

7.13         Amendments of Organization Documents.  Amend any of its Organization Documents in any manner adverse to the Administrative Agent or the Lenders.

7.14         Accounting Changes.  Make any change in (a) accounting policies or reporting practices, except as required by GAAP, or (b) fiscal year.

7.15         Prepayments, Etc. of Indebtedness.  Prepay, redeem, purchase, defease or otherwise satisfy prior to the scheduled maturity thereof in any manner, or make any payment in violation of any subordination terms of, any Indebtedness, except (a) the prepayment of the Term Loans in accordance with the terms of this Agreement and (b) regularly scheduled or required repayments or redemptions of Indebtedness set forth in Schedule 7.02 in accordance with any applicable Subordination Agreement and refinancings and refundings of such Indebtedness in compliance with Section 7.02(d).

7.16         Amendment, Etc. of Related Documents and Indebtedness.  (a)  Cancel or terminate any Related Document or consent to or accept any cancellation or termination thereof, (b) amend, modify or change in any manner any term or condition of any Related Document or give any consent, waiver or approval thereunder, (c) waive any default under or any breach of any term or condition of any Related Document, (d) take any other action in connection with any Related Document that would impair the value of the interest or rights of any Loan Party thereunder or that would impair the rights or interests of the Administrative Agent or any Lender, (e) amend, modify or change in any manner any term or condition of any Indebtedness set forth in Schedule 7.02, except for any refinancing, refunding, renewal or extension thereof permitted

84

by Section 7.02(d), or (f) amend, modify, supplement or otherwise change, or consent to any amendment, modification, supplement or change to, any First Lien Loan Document, except pursuant to the terms of the Intercreditor Agreement.

7.17         Designation of Senior Debt.  Designate any Indebtedness (other than the Indebtedness under the Loan Documents) of either Borrower or any of their respective Subsidiaries as “Designated Senior Debt” (or any similar term) under any agreement.

ARTICLE VIII
EVENTS OF DEFAULT AND REMEDIES

8.01         Events of Default.  Any of the following shall constitute an Event of Default:

(a)        Non-Payment.  Either Borrower or any other Loan Party fails to (i) pay when and as required to be paid herein, any amount of principal of any Term Loan, or (ii) pay within three days after the same becomes due, any interest on any Term Loan, or any fee due hereunder, or (iii) pay within five days after the same becomes due, any other amount payable hereunder or under any other Loan Document; or

(b)        Specific Covenants.  (i) Either Borrower fails to perform or observe (or fails to cause any Subsidiary thereof to perform and observe) any term, covenant or agreement contained in any of Section 6.01, 6.02, 6.03, 6.05, 6.08, 6.10, 6.11, 6.12, 6.14, 6.17, 6.19 or Article VII, (ii) any of the Guarantors fails to perform or observe any term, covenant or agreement contained in the Guaranty or (iii) any of the Loan Parties fails to perform or observe any term, covenant or agreement contained in the Collateral Agreement or the respective Mortgages to which it is a party; or

(c)        Other Defaults.  Any Loan Party fails to perform or observe any other covenant or agreement (not specified in Section 8.01(a) or (b) above) contained in any Loan Document on its part to be performed or observed and such failure continues for 30 days; or

(d)        Representations and Warranties.  Any representation, warranty, certification or statement of fact made or deemed made by or on behalf of the Borrowers or any other Loan Party herein, in any other Loan Document, or in any document delivered in connection herewith or therewith shall be incorrect or misleading when made or deemed made; or

(e)        Cross-Default.

(i)         Any Loan Party or any Subsidiary thereof (A) fails to make any payment when due after giving effect to any applicable notice and cure periods (whether by scheduled maturity, required prepayment, acceleration, demand, or otherwise) in respect of any Indebtedness or Guarantee (other than Indebtedness hereunder and Indebtedness under Swap Contracts) having an aggregate principal amount (including undrawn committed or available amounts and including amounts owing to all creditors under any combined or syndicated credit arrangement) of more than the Threshold Amount,

85

(B) fails to observe or perform any other agreement or condition relating to any such Indebtedness or Guarantee or contained in any instrument or agreement evidencing, securing or relating thereto, or any other event occurs after giving effect to any applicable notice and cure period, the effect of which default or other event is to cause, or to permit the holder or holders of such Indebtedness or the beneficiary or beneficiaries of such Guarantee (or a trustee or agent on behalf of such holder or holders or beneficiary or beneficiaries) to cause, with the giving of notice if required, such Indebtedness to be demanded or to become due or to be repurchased, prepaid, defeased or redeemed (automatically or otherwise), or an offer to repurchase, prepay, defease or redeem such Indebtedness to be made, prior to its stated maturity, or such Guarantee to become payable or cash collateral in respect thereof to be demanded, or (C) incurs a loss or has a material breach or other occurrence with respect to a Material Contract which would be likely to result in a Material Adverse Effect; or

(ii)           there occurs under any Swap Contract an Early Termination Date (as defined in such Swap Contract) resulting from (A) any event of default under such Swap Contract as to which a Loan Party or any Subsidiary thereof is the Defaulting Party (as defined in such Swap Contract) or (B) any Termination Event (as so defined) under such Swap Contract as to which a Loan Party or any Subsidiary thereof is an Affected Party (as so defined) and, in either event, the Swap Termination Value owed by such Loan Party or such Subsidiary as a result thereof is greater than the Threshold Amount; or

(iii)          (A) any First Lien Event of Default shall have occurred and remain continuing sixty (60) days after the First Lien Administrative Agent has received notice thereof; or (B) a First Lien Event of Default shall have occurred and remain continuing and the First Lien Obligations are accelerated pursuant to Section 8.02(a) of the First Lien Credit Agreement with respect to such First Lien Event of Default; or

(iv)          any (A) Collection Account Agreement is terminated without the prior written consent of the Administrative Agent or (B) any Loan Party shall give notice to the depositary bank under any Collection Account Agreement amending, waiving, rescinding, revoking or terminating the instructions previously given for the disposition of funds deposited into the applicable deposit accounts without the prior written consent of the Administrative Agent; or

(f)            Insolvency Proceedings, Etc.  Any Loan Party or any Subsidiary thereof institutes or consents to the institution of any proceeding under any Debtor Relief Law, or makes an assignment for the benefit of creditors; or applies for or consents to the appointment of any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer for it or for all or any material part of its property; or any receiver, trustee, custodian, conservator, liquidator, rehabilitator or similar officer is appointed without the application or consent of such Person and the appointment continues undischarged or unstayed for 60 calendar days; or any proceeding under any Debtor Relief Law relating to any such Person or to all or any material part of its property is instituted without the consent of such Person and continues undismissed or unstayed for 60 calendar days, or an order for relief is entered in any such proceeding; or

86

(g)     Inability to Pay Debts; Attachment.  (i) Any Loan Party or any Subsidiary thereof becomes unable or admits in writing its inability or fails generally to pay its debts as they become due, or (ii) any writ or warrant of attachment or execution or similar process is issued or levied against all or any material part of the property of any such Person and is not released, vacated or fully bonded within 30 days after its issue or levy; or

(h)     Judgments.  There is entered against any Loan Party or any Subsidiary thereof (i) one or more final judgments or orders for the payment of money in an aggregate amount (as to all such judgments and orders) exceeding the Threshold Amount (to the extent not covered by (A) independent third-party insurance as to which the insurer (1) is rated at least “A” by A.M. Best Company, (2) has been notified of the potential claim and (3) does not dispute coverage or (B) indemnification proceeds actually received by the applicable Loan Party pursuant to the Merger Agreement to the extent not required to be reimbursed by any Loan Party), or (ii) any one or more non-monetary final judgments that have, or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and, in either case, (A) enforcement proceedings are commenced by any creditor upon such judgment or order, or (B) there is a period of 10 consecutive days during which a stay of enforcement of such judgment, by reason of a pending appeal or otherwise, is not in effect; or

(i)      ERISA.  (i) An ERISA Event occurs with respect to a Pension Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in liability of either Borrower under Title IV of ERISA to the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in excess of the Threshold Amount, or (ii) either Borrower or any ERISA Affiliate fails to pay when due, after the expiration of any applicable grace period, any installment payment with respect to its withdrawal liability under Section 4201 of ERISA under a Multiemployer Plan in an aggregate amount in excess of the Threshold Amount; or

(j)      Invalidity of Loan Documents.  Any provision of any Loan Document, at any time after its execution and delivery and for any reason other than as expressly permitted hereunder or thereunder or satisfaction in full of all the Obligations, ceases to be in full force and effect; or any Loan Party or any other Person contests in any manner the validity or enforceability of any provision of any Loan Document; or any Loan Party denies that it has any or further liability or obligation under any provision of any Loan Document, or purports to revoke, terminate or rescind any provision of any Loan Document; or

(k)     Change of Control.  There occurs any Change of Control; or

(l)      Collateral Documents.  Any Collateral Document after delivery thereof pursuant to Section 4.01 or 6.12 shall for any reason (other than pursuant to the terms thereof) cease to create a valid and perfected Second Priority Lien (subject to Liens permitted by Section 7.01) on the Collateral purported to be covered thereby; or

87

(m)    Material Permits and Licenses.  The loss, suspension or revocation of, or failure to renew, any license, accreditation or Permit now held or hereafter acquired by any Loan Party or any Subsidiary thereof if such loss, suspension, revocation or failure to renew would have a Material Adverse Effect; or the occurrence of any other Material Adverse Effect; or

(n)     Material Contracts.  Any Material Contract the loss of which could reasonably be expected to have a Material Adverse Effect is terminated or fails to be in full force and effect for any reason without being replaced by a Material Contract reasonably satisfactory to the Administrative Agent at the time of its termination or failure to be in full force and effect, or any breach, a default or an event of default occurs under any Material Contract which is not remedied within ten (10) days after its occurrence; or

(o)     Subordination.  (i)  The subordination provisions of the documents evidencing or governing any subordinated Indebtedness (collectively, the “Subordinated Provisions”) shall, in whole or in part, terminate, cease to be effective or cease to be legally valid, binding and enforceable against any holder of the applicable subordinated Indebtedness; or (ii) either Borrower or any other Loan Party shall, directly or indirectly, disavow or contest in any manner (A) the effectiveness, validity or enforceability of any of the Subordination Provisions, (B) that the Subordination Provisions exist for the benefit of the Administrative Agent and the Lenders or (C) that all payments of principal of or premium and interest on the applicable subordinated Indebtedness, or realized from the liquidation of any property of any Loan Party, shall be subject to any of the Subordination Provisions;

(p)     Financial Solvency Requirements. Any Loan Party fails to comply with the California Department of Managed Care financial solvency regulations, if applicable; or

(q)     Indictment.  The indictment or, as the Administrative Agent may reasonably and in good faith determine, the threatened indictment by any Governmental Authority of any Loan Party or any Subsidiary or Affiliate of a Loan Party, in either case, as to which there is a reasonable probability of an adverse determination under any criminal statute, or commencement or threatened commencement of criminal or civil proceedings against a Loan Party or any Subsidiary or Affiliate of a Loan Party, pursuant to which statute or proceeding the penalties or remedies sought or available include forfeiture of (i) any material portion of the Collateral, or (ii) any other assets of a Loan Party that are necessary or material to the conduct of its business.

8.02   Remedies upon Event of Default.  Subject to the terms of the Intercreditor Agreement, if any Event of Default occurs and is continuing, the Administrative Agent shall, at the request of, or may, with the consent of, the Required Lenders, take any or all of the following actions:

(a)     declare the unpaid principal amount of all outstanding Term Loans, all interest accrued and unpaid thereon, and all other amounts owing or payable hereunder or under any other Loan Document to be immediately due and payable, without presentment,

88

demand, protest or other notice of any kind, all of which are hereby expressly waived by the Borrowers; and

(b)     exercise on behalf of itself and the Lenders all rights and remedies available to it and the Lenders under the Loan Documents;

provided, however, that upon the occurrence of an actual or deemed entry of an order for relief with respect to either Borrower under the Bankruptcy Code of the United States, the unpaid principal amount of all outstanding Term Loans and all interest and other amounts as aforesaid shall automatically become due and payable without further act of the Administrative Agent or any Lender.

8.03         Application of Funds.  After the exercise of remedies provided for in Section 8.02 (or after the Term Loans have automatically become immediately due and payable), any amounts received on account of the Obligations shall be applied by the Administrative Agent in the following order:

First, to payment of that portion of the Obligations constituting fees, indemnities, expenses and other amounts (including fees, charges and disbursements of counsel to the Administrative Agent and amounts payable under Article III) payable to the Administrative Agent in its capacity as such;

Second, to payment of that portion of the Obligations constituting fees, indemnities and other amounts (other than principal and interest) payable to the Lenders (including fees, charges and disbursements of counsel to the respective Lenders (including fees and time charges for attorneys who may be employees of any Lender) and amounts payable under Article III, ratably among them in proportion to the respective amounts described in this clause Second payable to them;

Third, to payment of that portion of the Obligations constituting interest on the Term Loans and other Obligations, ratably among the Lenders in proportion to the respective amounts described in this clause Third payable to them;

Fourth, to payment of that portion of the Obligations constituting unpaid principal of the Term Loans and amounts owing under Secured Hedge Agreements and Secured Cash Management Agreements, ratably among the Lenders, the Hedge Banks and the Cash Management Banks in proportion to the respective amounts described in this clause Fourth held by them; and

Last, the balance, if any, after all of the Obligations have been indefeasibly paid in full, to the Borrowers or as otherwise required by Law.

89

ARTICLE IX
ADMINISTRATIVE AGENT

9.01         Appointment and Authority.

(a)           Each of the Lenders hereby irrevocably appoints Bank of America to act on its behalf as the Administrative Agent hereunder and under the other Loan Documents and authorizes the Administrative Agent to take such actions on its behalf and to exercise such powers as are delegated to the Administrative Agent by the terms hereof or thereof, together with such actions and powers as are reasonably incidental thereto.  The provisions of this Article are solely for the benefit of the Administrative Agent and the Lenders, and neither Borrower nor any other Loan Party shall have rights as a third party beneficiary of any of such provisions.

(b)           The Administrative Agent shall also act as the “collateral agent” and/or “control agent” under the Loan Documents, and each of the Lenders (in its capacities as a Lender, potential Hedge Bank and potential Cash Management Bank) hereby irrevocably appoints and authorizes the Administrative Agent to act as the agent of such Lender for purposes of acquiring, holding and enforcing any and all Liens on Collateral granted by any of the Loan Parties to secure any of the Obligations, together with such powers and discretion as are reasonably incidental thereto.  In this connection, the Administrative Agent, as “collateral agent” and/or “control agent” and any co-agents, sub-agents and attorneys-in-fact appointed by the Administrative Agent pursuant to Section 9.05 for purposes of holding or enforcing any Lien on the Collateral (or any portion thereof) granted under the Collateral Documents, or for exercising any rights and remedies thereunder at the direction of the Administrative Agent), shall be entitled to the benefits of all provisions of this Article IX and Article X (including Section 10.04(c), as though such co-agents, sub-agents and attorneys-in-fact were the “collateral agent” or “control agent” under the Loan Documents) as if set forth in full herein with respect thereto.

9.02         Rights as a Lender.  The Person serving as the Administrative Agent hereunder shall have the same rights and powers in its capacity as a Lender as any other Lender and may exercise the same as though it were not the Administrative Agent and the term “Lender” or “Lenders” shall, unless otherwise expressly indicated or unless the context otherwise requires, include the Person serving as the Administrative Agent hereunder in its individual capacity.  Such Person and its Affiliates may accept deposits from, lend money to, act as the financial advisor or in any other advisory capacity for and generally engage in any kind of business with either Borrower or any Subsidiary or other Affiliate thereof as if such Person were not the Administrative Agent hereunder and without any duty to account therefor to the Lenders.

9.03         Exculpatory Provisions.  The Administrative Agent shall not have any duties or obligations except those expressly set forth herein and in the other Loan Documents.  Without limiting the generality of the foregoing, the Administrative Agent:

(a)     shall not be subject to any fiduciary or other implied duties, regardless of whether a Default has occurred and is continuing;

(b)     shall not have any duty to take any discretionary action or exercise any discretionary powers, except discretionary rights and powers expressly contemplated hereby or by the other Loan Documents that the Administrative Agent is required to exercise as directed in writing by the Required Lenders (or such other number or percentage of the Lenders as shall be expressly provided for herein or in the other Loan Documents), provided that the Administrative Agent shall not be required to take any

90

action that, in its opinion or the opinion of its counsel, may expose the Administrative Agent to liability or that is contrary to any Loan Document or applicable law; and

(c)     shall not, except as expressly set forth herein and in the other Loan Documents, have any duty to disclose, and shall not be liable for the failure to disclose, any information relating to the Borrowers or any of their respective Affiliates that is communicated to or obtained by the Person serving as the Administrative Agent or any of its Affiliates in any capacity.

The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 10.01 and 8.02) or (ii) in the absence of its own gross negligence or willful misconduct.  The Administrative Agent shall be deemed not to have knowledge of any Default unless and until notice describing such Default is given to the Administrative Agent by the Borrower Agent or a Lender.

The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document, or the creation, perfection or priority of any Lien purported to be created by the Collateral Documents, (v) the value or the sufficiency of any Collateral, or (v) the satisfaction of any condition set forth in Article IV or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.

91

9.04         Reliance by Administrative Agent.  The Administrative Agent shall be entitled to rely upon, and shall not incur any liability for relying upon, any notice, request, certificate, consent, statement, instrument, document or other writing (including any electronic message, Internet or intranet website posting or other distribution) believed by it to be genuine and to have been signed, sent or otherwise authenticated by the proper Person.  The Administrative Agent also may rely upon any statement made to it orally or by telephone and believed by it to have been made by the proper Person, and shall not incur any liability for relying thereon.  In determining compliance with any condition hereunder to the making of a Term Loan that by its terms must be fulfilled to the satisfaction of a Lender, the Administrative Agent may presume that such condition is satisfactory to such Lender unless the Administrative Agent shall have received notice to the contrary from such Lender prior to the making of such Term Loan.  The Administrative Agent may consult with legal counsel (who may be counsel for the Borrowers), independent accountants and other experts selected by it, and shall not be liable for any action taken or not taken by it in accordance with the advice of any such counsel, accountants or experts.

9.05         Delegation of Duties.  The Administrative Agent may perform any and all of its duties and exercise its rights and powers hereunder or under any other Loan Document by or through any one or more sub-agents appointed by the Administrative Agent.  The Administrative Agent and any such sub-agent may perform any and all of its duties and exercise its rights and powers by or through their respective Related Parties.  The exculpatory provisions of this Article shall apply to any such sub-agent and to the Related Parties of the Administrative Agent and any such sub-agent, and shall apply to their respective activities in connection with the syndication of the credit facility provided for herein as well as activities as Administrative Agent.

9.06         Resignation of Administrative Agent.  The Administrative Agent may at any time give notice of its resignation to the Lenders and the Borrower Agent.  Upon receipt of any such notice of resignation, the Required Lenders shall have the right, in consultation with the Borrower Agent, to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States.  If no such successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may on behalf of the Lenders, appoint a successor Administrative Agent meeting the qualifications set forth above; provided that if the Administrative Agent shall notify the Borrower Agent and the Lenders that no qualifying Person has accepted such appointment, then such resignation shall nonetheless become effective in accordance with such notice and (a) the retiring Administrative Agent shall be discharged from its duties and obligations hereunder and under the other Loan Documents (except that in the case of any collateral security held by the Administrative Agent on behalf of the Lenders under any of the Loan Documents, the retiring Administrative Agent shall continue to hold such collateral security until such time as a successor Administrative Agent is appointed) and (b) all payments, communications and determinations provided to be made by, to or through the Administrative Agent shall instead be made by or to each Lender directly, until such time as the Required Lenders appoint a successor Administrative Agent as provided for above in this Section.  Upon the acceptance of a successor’s appointment as Administrative Agent hereunder, such successor shall succeed to and become vested with all of the rights, powers, privileges and duties of the

92

retiring (or retired) Administrative Agent, and the retiring Administrative Agent shall be discharged from all of its duties and obligations hereunder or under the other Loan Documents (if not already discharged therefrom as provided above in this Section).  The fees payable by the Borrowers to a successor Administrative Agent shall be the same as those payable to its predecessor unless otherwise agreed between the Borrowers and such successor.  After the retiring Administrative Agent’s resignation hereunder and under the other Loan Documents, the provisions of this Article and Section 10.04 shall continue in effect for the benefit of such retiring Administrative Agent, its sub-agents and their respective Related Parties in respect of any actions taken or omitted to be taken by any of them while the retiring Administrative Agent was acting as Administrative Agent.

9.07         Non-Reliance on Administrative Agent and Other Lenders.  Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement.  Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender or any of their Related Parties and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement, any other Loan Document or any related agreement or any document furnished hereunder or thereunder.

9.08         Intercreditor Agreement.  Each of the Lenders hereby acknowledges that it has received and reviewed the Intercreditor Agreement and agrees to be bound by the terms thereof.  Each Lender (and each person that becomes a Lender hereunder pursuant to Section 10.06) hereby (i) acknowledges that Bank of America is acting under the Intercreditor Agreement in multiple capacities as the Administrative Agent, the First Lien Administrative Agent and the Control Agent (as defined in the Intercreditor Agreement) and (ii) waives any conflict of interest, now contemplated or arising hereafter, in connection therewith and agrees not to assert against Bank of America any claims, cause of action, damages or liabilities of whatever kind or nature relating thereto.  Each Lender (and each Person that becomes a Lender hereunder pursuant to Section 10.06) hereby authorizes and directs Bank of America to enter into the Intercreditor Agreement on behalf of such Lender and agrees that Bank of America, in its various capacities thereunder, may take such actions on its behalf as is contemplated by the terms of the Intercreditor Agreement.  Notwithstanding the foregoing, at any time during which the Administrative Agent hereunder is also the First Lien Administrative Agent, upon the occurrence and during the continuance of an Event of Default, Lenders holding 66 2/3rds percent of the aggregate outstanding Loans (excluding, solely for purposes of this provision, the Administrative Agent to the extent that it is also a Lender hereunder and any Loans held by the Administrative Agent as a Lender hereunder) may, by affirmative written consent, elect, in consultation with the Borrower Agent, to remove the Administrative Agent under this Agreement and to appoint a successor, which shall be a bank with an office in the United States, or an Affiliate of any such bank with an office in the United States.

9.09         No Other Duties, Etc.  Anything herein to the contrary notwithstanding, none of the Bookrunners, Arrangers or other titled entities listed on the cover page hereof shall have any powers, duties or responsibilities under this Agreement or any of the other Loan Documents, except in its capacity, as applicable, as the Administrative Agent or a Lender.

93

9.10         Administrative Agent May File Proofs of Claim.  In case of the pendency of any proceeding under any Debtor Relief Law or any other judicial proceeding relative to any Loan Party, the Administrative Agent (irrespective of whether the principal of any Term Loan shall then be due and payable as herein expressed or by declaration or otherwise and irrespective of whether the Administrative Agent shall have made any demand on either Borrower) shall be entitled and empowered, by intervention in such proceeding or otherwise

(a)   to file and prove a claim for the whole amount of the principal and interest owing and unpaid in respect of the Term Loans and all other Obligations that are owing and unpaid and to file such other documents as may be necessary or advisable in order to have the claims of the Lenders and the Administrative Agent (including any claim for the reasonable compensation, expenses, disbursements and advances of the Lenders and the Administrative Agent and their respective agents and counsel and all other amounts due the Lenders and the Administrative Agent under Sections 2.09 and 10.04) allowed in such judicial proceeding; and

(b)   to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same;

and any custodian, receiver, assignee, trustee, liquidator, sequestrator or other similar official in any such judicial proceeding is hereby authorized by each Lender to make such payments to the Administrative Agent and, if the Administrative Agent shall consent to the making of such payments directly to the Lenders, to pay to the Administrative Agent any amount due for the reasonable compensation, expenses, disbursements and advances of the Administrative Agent and its agents and counsel, and any other amounts due the Administrative Agent under Sections 2.09 and 10.04.

Nothing contained herein shall be deemed to authorize the Administrative Agent to authorize or consent to or accept or adopt on behalf of any Lender any plan of reorganization, arrangement, adjustment or composition affecting the Obligations or the rights of any Lender to authorize the Administrative Agent to vote in respect of the claim of any Lender or in any such proceeding.

9.11         Collateral and Guaranty Matters.  The Lenders irrevocably authorize the Administrative Agent at its option and in its discretion,

(a)   to release any Lien on any property granted to or held by the Administrative Agent under any Loan Document (i) upon payment in full of all Obligations (other than contingent indemnification obligations), (ii) that is sold or to be sold as part of or in connection with any sale permitted hereunder or under any other Loan Document, or (iii)  if approved, authorized or ratified in writing in accordance with Section 10.01;

(b)   to release any Guarantor from its obligations under the Guaranty if such Person ceases to be a Subsidiary as a result of a transaction permitted hereunder; and

(c)   to subordinate any Lien on any property granted to or held by the Administrative Agent under any Loan Document to the holder of any Lien on such property that is permitted by Section 7.01(i).

94

Upon request by the Administrative Agent at any time, the Required Lenders will confirm in writing the Administrative Agent’s authority to release or subordinate its interest in particular types or items of property, or to release any Guarantor from its obligations under the Guaranty pursuant to this Section 9.11.  In each case as specified in this Section 9.11, the Administrative Agent will, at the Borrowers’ expense, execute and deliver to the applicable Loan Party such documents as such Loan Party may reasonably request to evidence the release of such item of Collateral from the assignment and security interest granted under the Collateral Documents or to subordinate its interest in such item, or to release such Guarantor from its obligations under the Guaranty, in each case in accordance with the terms of the Loan Documents and this Section 9.11.

ARTICLE X

MISCELLANEOUS

10.01       Amendments, Etc.  No amendment or waiver of any provision of this Agreement or any other Loan Document, and no consent to any departure by either Borrower or any other Loan Party therefrom, shall be effective unless in writing signed by the Required Lenders and the Borrowers or the applicable Loan Party, as the case may be, and acknowledged by the Administrative Agent, and each such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given; provided, however, that no such amendment, waiver or consent shall:

(a)   waive any condition set forth in Section 4.01 (other than Section 4.01(b)(i) or (c)), without the written consent of each Lender;

(b)   postpone any date fixed by this Agreement or any other Loan Document for any payment (excluding mandatory prepayments) of principal, interest, fees or other amounts due to the Lenders (or any of them) hereunder or under such other Loan Document without the written consent of each Lender entitled to such payment;

(c)   reduce the principal of, or the rate of interest specified herein on, any Term Loan, or (subject to clause (ii) of the second proviso to this Section 10.01) any fees or other amounts payable hereunder or under any other Loan Document without the written consent of each Lender entitled to such amount; provided, however, that only the consent of the Required Lenders shall be necessary (i) to amend the definition of “Default Rate” or to waive any obligation of the Borrowers to pay interest at the Default Rate or (ii) to amend any financial covenant hereunder (or any defined term used therein) even if the effect of such amendment would be to reduce the rate of interest on any Term Loan or to reduce any fee payable hereunder;

(d)   change (i) Section 8.03 in a manner that would alter the pro rata sharing of payments required thereby without the written consent of each Lender or (ii) the order of application of any prepayment of Term Loans from the application thereof set forth in the applicable provisions of Section 2.05(b) or 2.06(c), respectively, in any manner that materially and adversely affects the Lenders under the Facility without the written consent of the Required Lenders;

95

(e)   change any provision of this Section 10.01 or the definition of “Required Lenders” or any other provision hereof specifying the number or percentage of Lenders required to amend, waive or otherwise modify any rights hereunder or make any determination or grant any consent hereunder, without the written consent of each Lender or;

(f)    release all or substantially all of the Collateral in any transaction or series of related transactions, without the written consent of each Lender;

(g)   release all or substantially all of the value of the Guaranty, without the written consent of each Lender, except to the extent the release of any Subsidiary from the Guaranty is permitted pursuant to Section 9.11 (in which case such release may be made by the Administrative Agent acting alone); or

(h)   impose any greater restriction on the ability of any Lender to assign any of its rights or obligations hereunder without the written consent of the Required Lenders;

and provided, further, that (i) no amendment, waiver or consent shall, unless in writing and signed by the Administrative Agent in addition to the Lenders required above, affect the rights or duties of the Administrative Agent under this Agreement or any other Loan Document; and (ii) the Fee Letter may be amended, or rights or privileges thereunder waived, in a writing executed only by the parties thereto.  Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder.

10.02       Notices; Effectiveness; Electronic Communications.

(a)  Notices Generally.  Except in the case of notices and other communications expressly permitted to be given by telephone (and except as provided in subsection (b) below), all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier as follows, and all notices and other communications expressly permitted hereunder to be given by telephone shall be made to the applicable telephone number, as follows:

(i)            if to the Borrower Agent (on behalf of the Borrowers) or the Administrative Agent, to the address, telecopier number, electronic mail address or telephone number specified for such Person on Schedule 10.02; and

(ii)           if to any other Lender, to the address, telecopier number, electronic mail address or telephone number specified in its Administrative Questionnaire.

Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next business day for the recipient).  Notices delivered through electronic communications to the extent provided in subsection (b) below shall be effective as provided in such subsection (b).

96

(b)           Electronic Communications.  Notices and other communications to the Lenders hereunder may be delivered or furnished by electronic communication (including e-mail and Internet or intranet websites) pursuant to procedures approved by the Administrative Agent, provided that the foregoing shall not apply to notices to any Lender pursuant to Article II if such Lender has notified the Administrative Agent that it is incapable of receiving notices under such Article by electronic communication.  The Administrative Agent or the Borrower Agent may, in its discretion, agree to accept notices and other communications to it hereunder by electronic communications pursuant to procedures approved by it, provided that approval of such procedures may be limited to particular notices or communications.

Unless the Administrative Agent otherwise prescribes, (i) notices and other communications sent to an e-mail address shall be deemed received upon the sender’s receipt of an acknowledgement from the intended recipient (such as by the “return receipt requested” function, as available, return e-mail or other written acknowledgement), provided that if such notice or other communication is not sent during the normal business hours of the recipient, such notice or communication shall be deemed to have been sent at the opening of business on the next business day for the recipient, and (ii) notices or communications posted to an Internet or intranet website shall be deemed received upon the deemed receipt by the intended recipient at its e-mail address as described in the foregoing clause (i) of notification that such notice or communication is available and identifying the website address therefor.

(c)           The Platform.  THE PLATFORM IS PROVIDED “AS IS” AND “AS AVAILABLE.”  THE AGENT PARTIES (AS DEFINED BELOW) DO NOT WARRANT THE ACCURACY OR COMPLETENESS OF THE BORROWER MATERIALS OR THE ADEQUACY OF THE PLATFORM, AND EXPRESSLY DISCLAIM LIABILITY FOR ERRORS IN OR OMISSIONS FROM THE BORROWER MATERIALS.  NO WARRANTY OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY, INCLUDING ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, NON-INFRINGEMENT OF THIRD PARTY RIGHTS OR FREEDOM FROM VIRUSES OR OTHER CODE DEFECTS, IS MADE BY ANY AGENT PARTY IN CONNECTION WITH THE BORROWER MATERIALS OR THE PLATFORM.  In no event shall the Administrative Agent or any of its Related Parties (collectively, the “Agent Parties”) have any liability to either Borrower, any Lender or any other Person for losses, claims, damages, liabilities or expenses of any kind (whether in tort, contract or otherwise) arising out of either Borrower’s or the Administrative Agent’s transmission of Borrower Materials through the Internet, except to the extent that such losses, claims, damages, liabilities or expenses are determined by a court of competent jurisdiction by a final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Agent Party; provided, however, that in no event shall any Agent Party have any liability to either Borrower, any Lender or any other Person for indirect, special, incidental, consequential or punitive damages (as opposed to direct or actual damages).

(d)           Change of Address, Etc.  Each of the Borrowers and the Administrative Agent may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the other parties hereto.  Each other Lender may change its address, telecopier or telephone number for notices and other communications hereunder by notice to the Borrowers and the Administrative Agent.  In addition, each Lender agrees to notify

97

the Administrative Agent from time to time to ensure that the Administrative Agent has on record (i) an effective address, contact name, telephone number, telecopier number and electronic mail address to which notices and other communications may be sent and (ii) accurate wire instructions for such Lender.  Furthermore, each Public Lender agrees to cause at least one individual at or on behalf of such Public Lender to at all times have selected the “Private Side Information” or similar designation on the content declaration screen of the Platform in order to enable such Public Lender or its delegate, in accordance with such Public Lender’s compliance procedures and applicable Law, including United States Federal and state securities Laws, to make reference to Borrower Materials that are not made available through the “Public Side Information” portion of the Platform and that may contain material non-public information with respect to the Borrowers or their securities for purposes of United States Federal or state securities laws.

(e)           Reliance by Administrative Agent and Lenders.  The Administrative Agent and the Lenders shall be entitled to rely and act upon any notices (including telephonic Committed Loan Notices) purportedly given by or on behalf of either Borrower even if (i) such notices were not made in a manner specified herein, were incomplete or were not preceded or followed by any other form of notice specified herein, or (ii) the terms thereof, as understood by the recipient, varied from any confirmation thereof.  Each Borrower (jointly and severally) shall indemnify the Administrative Agent, each Lender and the Related Parties of each of them from all losses, costs, expenses and liabilities resulting from the reliance by such Person on each notice purportedly given by or on behalf of either Borrower.  All telephonic notices to and other telephonic communications with the Administrative Agent may be recorded by the Administrative Agent, and each of the parties hereto hereby consents to such recording.

10.03       No Waiver; Cumulative Remedies.  No failure by any Lender or the Administrative Agent to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided, and provided under each other Loan Document, are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

10.04       Expenses; Indemnity; Damage Waiver.

(a)  Costs and Expenses.  The Borrowers, jointly and severally, shall pay (i) all reasonable out-of-pocket expenses incurred by the Administrative Agent and its Affiliates (including the reasonable fees, charges and disbursements of counsel for the Administrative Agent), in connection with the syndication of the credit facility provided for herein, the preparation, negotiation, execution, delivery and administration of this Agreement and the other Loan Documents or any amendments, modifications or waivers of the provisions hereof or thereof (whether or not the transactions contemplated hereby or thereby shall be consummated) and (ii)  all reasonable out-of-pocket expenses incurred by the Administrative Agent or any Lender (including the reasonable fees, charges and disbursements of any counsel for the Administrative Agent or any Lender), and shall pay all fees and time charges for attorneys who may be employees of the Administrative Agent or any Lender, in connection with the

98

enforcement or protection of its rights (A) in connection with this Agreement and the other Loan Documents, including its rights under this Section, or (B) in connection with Term Loans made, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Term Loans.

(b)           Indemnification by the Borrowers.  The Borrowers, jointly and severally, shall indemnify the Administrative Agent (and any sub-agent thereof), each Lender and each Related Party of any of the foregoing Persons (each such Person being called an “Indemnitee”) against, and hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses (including the reasonable fees, charges and disbursements of any counsel for any Indemnitee), and shall indemnify and hold harmless each Indemnitee from all fees and time charges and disbursements for attorneys who may be employees of any Indemnitee, incurred by any Indemnitee or asserted against any Indemnitee by any third party or by the Borrowers or any other Loan Party arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement, any other Loan Document or any agreement or instrument contemplated hereby or thereby, the performance by the parties hereto of their respective obligations hereunder or thereunder or the consummation of the transactions contemplated hereby or thereby, or, in the case of the Administrative Agent (and any sub-agent thereof) and its Related Parties only, the administration of this Agreement and the other Loan Documents, (ii) any Term Loan or the use or proposed use of the proceeds therefrom, (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by either Borrower or any of their respective Subsidiaries, or any Environmental Liability related in any way to either Borrower or any of their respective Subsidiaries, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory, whether brought by a third party or by either Borrower or any other Loan Party or any of either Borrower’s or such Loan Party’s directors, shareholders or creditors, and regardless of whether any Indemnitee is a party thereto; provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses (x) are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such Indemnitee or (y) result from a claim brought by either Borrower or any other Loan Party against an Indemnitee for breach in bad faith of such Indemnitee’s obligations hereunder or under any other Loan Document, if such Borrower or such Loan Party has obtained a final and nonappealable judgment in its favor on such claim as determined by a court of competent jurisdiction.

(c)           Reimbursement by Lenders.  To the extent that either Borrower for any reason fails to indefeasibly pay any amount required under subsection (a) or (b) of this Section to be paid by it to the Administrative Agent (or any sub-agent thereof) or any Related Party of any of the foregoing, each Lender severally agrees to pay to the Administrative Agent (or any such sub-agent) or such Related Party, as the case may be, such Lender’s Applicable Percentage (determined as of the time that the applicable unreimbursed expense or indemnity payment is sought) of such unpaid amount, provided that the unreimbursed expense or indemnified loss, claim, damage, liability or related expense, as the case may be, was incurred by or asserted against the Administrative Agent (or any such sub-agent) in its capacity as such, or against any Related Party of any of the foregoing acting for the Administrative Agent (or any such

99

sub-agent) in connection with such capacity.  The obligations of the Lenders under this subsection (c) are subject to the provisions of Section 2.12(d).

(d)           Waiver of Consequential Damages, Etc.  To the fullest extent permitted by applicable law, neither Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Term Loan or the use of the proceeds thereof.  No Indemnitee referred to in subsection (b) above shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed to such unintended recipients by such Indemnitee through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby other than for direct or actual damages resulting from the gross negligence or willful misconduct of such Indemnitee as determined by a final and nonappealable judgment of a court of competent jurisdiction.

(e)           Payments.  All amounts due under this Section shall be payable not later than ten Business Days after demand therefor.

(f)            Survival.  The agreements in this Section shall survive the resignation of the Administrative Agent, the replacement of any Lender, and the repayment, satisfaction or discharge of all Obligations.

10.05       Payments Set Aside.  To the extent that any payment by or on behalf of either Borrower is made to the Administrative Agent or any Lender, or the Administrative Agent or any Lender exercises its right of setoff, and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or such Lender in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Law or otherwise, then (a) to the extent of such recovery, the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such setoff had not occurred, and (b) each Lender severally agrees to pay to the Administrative Agent upon demand its applicable share (without duplication) of any amount so recovered from or repaid by the Administrative Agent, plus interest thereon from the date of such demand to the date such payment is made at a rate per annum equal to the Federal Funds Rate from time to time in effect.  The obligations of the Lenders under clause (b) of the preceding sentence shall survive the payment in full of the Obligations and the termination of this Agreement.

10.06       Successors and Assigns.

(a)  Successors and Assigns Generally.  The provisions of this Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that neither Borrower may assign or otherwise transfer any of its respective rights or obligations hereunder without the prior written consent of the Administrative Agent and each Lender and no Lender may assign or otherwise transfer any of its

100

rights or obligations hereunder except (i) to an assignee in accordance with the provisions of Section 10.06(b), (ii) by way of participation in accordance with the provisions of Section 10.06(d), or (iii) by way of pledge or assignment of a security interest subject to the restrictions of Section 10.06(f) (and any other attempted assignment or transfer by any party hereto shall be null and void).  Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby, Participants to the extent provided in subsection (d) of this Section and, to the extent expressly contemplated hereby, the Related Parties of each of the Administrative Agent and the Lenders) any legal or equitable right, remedy or claim under or by reason of this Agreement.

(b)           Assignments by Lenders.  Any Lender may at any time assign to one or more assignees all or a portion of its rights and obligations under this Agreement (including all or a portion of its Term Loans at the time owing to it); provided that any such assignment shall be subject to the following conditions:

(i)            Minimum Amounts.

(A)  in the case of an assignment of the entire amount of the Term Loans at the time owing to it or in the case of an assignment to a Lender, an Affiliate of a Lender or an Approved Fund, no minimum amount need be assigned; and

(B)   in any case not described in subsection (b)(i)(A) of this Section, the principal outstanding balance of the Term Loans of the assigning Lender subject to each such assignment, determined as of the date the Assignment and Assumption with respect to such assignment is delivered to the Administrative Agent or, if “Trade Date” is specified in the Assignment and Assumption, as of the Trade Date, shall not be less than $1,000,000, unless each of the Administrative Agent and, so long as no Event of Default has occurred and is continuing, the Borrower Agent otherwise consents (each such consent not to be unreasonably withheld or delayed); provided, however, that concurrent assignments to members of an Assignee Group and concurrent assignments from members of an Assignee Group to a single Eligible Assignee (or to an Eligible Assignee and members of its Assignee Group) will be treated as a single assignment for purposes of determining whether such minimum amount has been met;

(ii)           Proportionate Amounts.  Each partial assignment shall be made as an assignment of a proportionate part of all the assigning Lender’s rights and obligations under this Agreement with respect to the Term Loans or the Term Commitment assigned;

(iii)          Required Consents.  No consent shall be required for any assignment except to the extent required by subsection (b)(i)(B) of this Section and, in addition:

(A)  the consent of the Borrower Agent (such consent not to be unreasonably withheld or delayed) shall be required unless (1) an Event of

101

Default has occurred and is continuing at the time of such assignment or (2) such assignment is to a Lender, an Affiliate of a Lender or an Approved Fund; and

(B)   the consent of the Administrative Agent (such consent not to be unreasonably withheld or delayed) shall be required for assignments in respect of any Term Loan to a Person that is not a Lender, an Affiliate of a Lender or an Approved Fund.

(iv)          Assignment and Assumption.  The parties to each assignment shall execute and deliver to the Administrative Agent an Assignment and Assumption, together with a processing and recordation fee in the amount of $3,500; provided, however, that the Administrative Agent may, in its sole discretion, elect to waive such processing and recordation fee in the case of any assignment.  The assignee, if it is not a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire.

(v)           No Assignment to Either Borrower.  No such assignment shall be made to either of the Borrowers or any of the Borrowers’ respective Affiliates or Subsidiaries.

(vi)          No Assignment to Natural Persons.  No such assignment shall be made to a natural person.

Subject to acceptance and recording thereof by the Administrative Agent pursuant to subsection (c) of this Section, from and after the effective date specified in each Assignment and Assumption, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption covering all of the assigning Lender’s rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 3.01, 3.04, 3.05 and 10.04 with respect to facts and circumstances occurring prior to the effective date of such assignment.  Upon request, the Borrowers (at their expense) shall execute and deliver a Note to the assignee Lender.  Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this subsection shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 10.06(d).

(c)           Register.  The Administrative Agent, acting solely for this purpose as an agent of the Borrowers, shall maintain at the Administrative Agent’s Office a copy of each Assignment and Assumption delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Term Commitments of, and principal amounts of the Term Loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”).  The entries in the Register shall be conclusive, and the Borrowers, the Administrative Agent and the Lenders may treat each Person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement, notwithstanding notice to the contrary.  The Register shall be available for inspection by the Borrowers and any Lender, at any reasonable time and from time to time upon reasonable prior notice.

102

(d)           Participations.  Any Lender may at any time, without the consent of, or notice to, the Borrowers or the Administrative Agent, sell participations to any Person (other than a natural person or the Borrowers or any of the Borrowers’ respective Affiliates or Subsidiaries) (each, a “Participant”) in all or a portion of such Lender’s rights and/or obligations under this Agreement (including all or a portion of the Term Loans owing to it); provided that (i) such Lender’s obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations and (iii) the Borrowers, the Administrative Agent and the Lenders shall continue to deal solely and directly with such Lender in connection with such Lender’s rights and obligations under this Agreement.  Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree to any amendment, waiver or other modification described in the first proviso to Section 10.01 that affects such Participant.  Subject to subsection (e) of this Section, each Borrower agrees that each Participant shall be entitled to the benefits of Sections 3.01, 3.04 and 3.05 to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 10.06(b).  To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 10.08 as though it were a Lender, provided such Participant agrees to be subject to Section 2.13 as though it were a Lender.

(e)           Limitations upon Participant Rights.  A Participant shall not be entitled to receive any greater payment under Section 3.01 or 3.04 than the applicable Lender would have been entitled to receive with respect to the participation sold to such Participant, unless the sale of the participation to such Participant is made with the Borrower Agent’s prior written consent.  A Participant that would be a Foreign Lender if it were a Lender shall not be entitled to the benefits of Section 3.01 unless the Borrower Agent is notified of the participation sold to such Participant and such Participant agrees, for the benefit of the Borrowers, to comply with Section 3.01(e) as though it were a Lender.

(f)            Certain Pledges.  Any Lender may at any time pledge or assign a security interest in all or any portion of its rights under this Agreement (including under its Note, if any) to secure obligations of such Lender, including any pledge or assignment to secure obligations to a Federal Reserve Bank; provided that no such pledge or assignment shall release such Lender from any of its obligations hereunder or substitute any such pledgee or assignee for such Lender as a party hereto.

(g)           Electronic Execution of Assignments.  The words “execution,” “signed,” “signature,” and words of like import in any Assignment and Assumption shall be deemed to include electronic signatures or the keeping of records in electronic form, each of which shall be of the same legal effect, validity or enforceability as a manually executed signature or the use of a paper-based recordkeeping system, as the case may be, to the extent and as provided for in any applicable law, including the Federal Electronic Signatures in Global and National Commerce Act, the New York State Electronic Signatures and Records Act, or any other similar state laws based on the Uniform Electronic Transactions Act.

103

10.07       Treatment of Certain Information; Confidentiality.  Each of the Administrative Agent and the Lenders agrees to maintain the confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its Affiliates and to its and its Affiliates’ respective partners, directors, officers, employees, agents, advisors and representatives (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority purporting to have jurisdiction over it (including any self-regulatory authority, such as the National Association of Insurance Commissioners), (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party hereto, (e) in connection with the exercise of any remedies hereunder or under any other Loan Document or any action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to (i) any assignee of or Participant in, or any prospective assignee of or Participant in, any of its rights or obligations under this or (ii) any actual or prospective counterparty (or its advisors) to any swap or derivative transaction relating to the Borrowers and their obligations, (g) with the consent of the Borrowers, (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Administrative Agent or any Lender or any of their respective Affiliates on a nonconfidential basis from a source other than the Borrowers or (i) subject to each such Person being informed of the confidential nature of the Information and to their agreement to keep such Information confidential on substantially the same terms as required by this Section, to (A) an investor or prospective investor in securities issued by an Approved Fund that also agrees that the Information shall be used solely for the purpose of evaluating an investment in such securities issued by the Approved Fund, (B) a trustee, collateral manager, servicer, backup servicer, noteholder or secured party in securities issued by an Approved Fund in connection with the administration, servicing and reporting on the assets serving as collateral for securities issued by an Approved Fund, or (C) a nationally recognized rating agency that requires access to information regarding the Loan Parties, the Loans and Loan Documents in connection with rating issued in respect of securities issued by an Approved Fund.

For purposes of this Section, “Information” means all information received from any Loan Party or any Subsidiary thereof relating to any Loan Party or any Subsidiary thereof or their respective businesses, other than any such information that is available to the Administrative Agent or any Lender on a nonconfidential basis prior to disclosure by any Loan Party or any Subsidiary thereof, provided that, in the case of information received from a Loan Party or any such Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential.  Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information.

Each of the Administrative Agent and the Lenders acknowledges that (a) the Information may include material non-public information concerning the Borrowers or a Subsidiary, as the case may be, (b) it has developed compliance procedures regarding the use of material non-public information and (c) it will handle such material non-public information in accordance with applicable Law, including United States Federal and state securities Laws.

104

10.08       Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Lender and each of their respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Lender or any such Affiliate to or for the credit or the account of either Borrower  against any and all of the obligations of such Borrower now or hereafter existing under this Agreement or any other Loan Document to such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Borrowers may be contingent or unmatured or are owed to a branch or office of such Lender different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Lender and its Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Lender or its Affiliates may have.  Each Lender agrees to notify the Borrowers and the Administrative Agent promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.  Notwithstanding the provisions of this Section 10.08, if at any time any Lender or any of its Affiliates maintains one or more deposit accounts for either Borrower or any other Loan Party into which Medicare and/or Medicaid receivables are deposited, such Person shall waive the right of setoff set forth herein.

10.09       Interest Rate Limitation.  Notwithstanding anything to the contrary contained in any Loan Document, the interest paid or agreed to be paid under the Loan Documents shall not exceed the maximum rate of non-usurious interest permitted by applicable Law (the “Maximum Rate”).  If the Administrative Agent or any Lender shall receive interest in an amount that exceeds the Maximum Rate, the excess interest shall be applied to the principal of the Term Loans or, if it exceeds such unpaid principal, refunded to the Borrowers.  In determining whether the interest contracted for, charged, or received by the Administrative Agent or a Lender exceeds the Maximum Rate, such Person may, to the extent permitted by applicable Law, (a) characterize any payment that is not principal as an expense, fee, or premium rather than interest, (b) exclude voluntary prepayments and the effects thereof, and (c) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the contemplated term of the Obligations hereunder.

10.10       Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

105

10.11       Survival of Representations and Warranties.  All representations and warranties made hereunder and in any other Loan Document or other document delivered pursuant hereto or thereto or in connection herewith or therewith shall survive the execution and delivery hereof and thereof.  Such representations and warranties have been or will be relied upon by the Administrative Agent and each Lender, regardless of any investigation made by the Administrative Agent or any Lender or on their behalf and notwithstanding that the Administrative Agent or any Lender may have had notice or knowledge of any Default at the time of Borrowing, and shall continue in full force and effect as long as any Term Loan or any other Obligation hereunder shall remain unpaid.

10.12       Severability.  If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

10.13       Replacement of Lenders.  If any Lender requests compensation under Section 3.04, or if the Borrowers are required to pay any additional amount to any Lender or any Governmental Authority for the account of any Lender pursuant to Section 3.01, or if any Lender is a Defaulting Lender, then the Borrowers may, at their sole expense and effort, upon notice to such Lender and the Administrative Agent by the Borrower Agent, require such Lender to assign and delegate, without recourse (in accordance with and subject to the restrictions contained in, and consents required by, Section 10.06), all of its interests, rights and obligations under this Agreement and the related Loan Documents to an assignee that shall assume such obligations (which assignee may be another Lender, if a Lender accepts such assignment), provided that:

(a)   the Borrowers shall have paid to the Administrative Agent the assignment fee specified in Section 10.06(b);

(b)   such Lender shall have received payment of an amount equal to the outstanding principal of its Term Loans, accrued interest thereon, accrued fees and all other amounts payable to it hereunder and under the other Loan Documents (including any amounts under Section 3.05) from the assignee (to the extent of such outstanding principal and accrued interest and fees) or the Borrowers (in the case of all other amounts);

(c)   in the case of any such assignment resulting from a claim for compensation under Section 3.04 or payments required to be made pursuant to Section 3.01, such assignment will result in a reduction in such compensation or payments thereafter; and

(d)   such assignment does not conflict with applicable Laws.

106

A Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.

10.14       Governing Law; Jurisdiction; Etc.  (a)  GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b)           SUBMISSION TO JURISDICTION.  EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT OR ANY LENDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER BORROWER OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(c)           WAIVER OF VENUE.  EACH BORROWER IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 10.02.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

107

10.15       Waiver of Jury Trial.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

10.16       California Judicial Reference.

If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) without limiting the generality of Section 10.04, the Borrowers shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

10.17       No Advisory or Fiduciary Responsibility.  In connection with all aspects of each transaction contemplated hereby (including in connection with any amendment, waiver or other modification hereof or of any other Loan Document), each Borrower acknowledges and agrees, and acknowledges its Affiliates’ understanding, that: (i) (A) the arranging and other services regarding this Agreement provided by the Administrative Agent and the Arranger are arm’s-length commercial transactions between each Borrower and their respective Affiliates, on the one hand, and the Administrative Agent and the Arranger, on the other hand, (B) each of the Borrowers has consulted its own legal, accounting, regulatory and tax advisors to the extent it has deemed appropriate, and (C) each of the Borrowers is capable of evaluating, and understands and accepts, the terms, risks and conditions of the transactions contemplated hereby and by the other Loan Documents; (ii) (A) the Administrative Agent and the Arranger each is and has been acting solely as a principal and, except as expressly agreed in writing by the relevant parties, has not been, is not, and will not be acting as an advisor, agent or fiduciary for either Borrowers or any of their respective Affiliates, or any other Person and (B) neither the Administrative Agent nor the Arranger has any obligation to either Borrower or any of their respective Affiliates with respect to the transactions contemplated hereby except those obligations expressly set forth herein and in the other Loan Documents; and (iii) the Administrative Agent and the Arranger and their respective Affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Borrowers and their respective Affiliates, and neither the

108

Administrative Agent nor the Arranger has any obligation to disclose any of such interests to either Borrower or any of their respective Affiliates.  To the fullest extent permitted by law, each of the Borrowers hereby waives and releases any claims that it may have against the Administrative Agent and the Arranger with respect to any breach or alleged breach of agency or fiduciary duty in connection with any aspect of any transaction contemplated hereby.

10.18       USA PATRIOT Act Notice.  Each Lender that is subject to the Act (as hereinafter defined) and the Administrative Agent (for itself and not on behalf of any Lender) hereby notifies the Borrowers that pursuant to the requirements of the USA PATRIOT Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)) (the “Act”), it is required to obtain, verify and record information that identifies each Loan Party, which information includes the name and address of each Loan Party and other information that will allow such Lender or the Administrative Agent, as applicable, to identify each Loan Party in accordance with the Act.

10.19       Intercreditor Agreement.  Until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), notwithstanding anything herein to the contrary, the lien and security interest granted to the Administrative Agent pursuant to any Loan Document and the exercise of any right or remedy in respect of the Collateral by the Administrative Agent hereunder or under any other Loan Document are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement, this Agreement and any other Loan Document, the terms of the Intercreditor Agreement shall govern and control with respect to any right or remedy.  Without limiting the generality of the foregoing, and notwithstanding anything herein to the contrary, all rights and remedies of the Administrative Agent (and the Secured Parties) shall be subject to the terms of the Intercreditor Agreement.  Without limiting the generality of the foregoing, and notwithstanding anything herein to the contrary, all rights and remedies with respect to the Collateral of the Administrative Agent (and the Secured Parties) shall be subject to the terms of the Intercreditor Agreement, and until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), (i) no Loan Party shall be required hereunder or under any other Loan Document to take any action with respect to the Collateral that is inconsistent with such Loan Parties’ obligations under the First Lien Loan Documents and (ii) any obligation of any Loan Party hereunder or under any other Loan Document with respect to the delivery or control of any Collateral, the novation of any lien on any certificate of title, bill of lading or other document, the giving of any notice to any bailee or other Person, the provision of voting rights or the obtaining of any consent of any Person, shall be deemed to be satisfied if the Loan Party complies with the requirements of the similar provision of the applicable First Lien Loan Document.  Until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), the Administrative Agent may not require any Loan Party to take any action with respect to the creation, perfection or priority of its security interest, whether pursuant to the express terms hereof or of any other Loan Document or pursuant to the further assurances provisions hereof or any other Loan Document, to the extent the First Lien Administrative Agent under the First Lien Loan Documents shall have required such Loan Party to take similar action, and delivery of any Collateral to the First Lien Administrative Agent pursuant to the First Lien Loan Documents shall satisfy any delivery requirement hereunder or under any other Loan Document.

109

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the date first above written.

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name:

Title:

PROSPECT MEDICAL GROUP, INC.

By:

Name:

Title:

[Prospect Medical Holdings, Inc. Second Lien Credit Agreement]

BANK OF AMERICA, N.A., as

Administrative Agent

By:

Name:

Title:

[Prospect Medical Holdings, Inc. Second Lien Credit Agreement]

BANK OF AMERICA, N.A., as a Lender

By:

Name:

Title:

[Prospect Medical Holdings, Inc. Second Lien Credit Agreement]

EX-10.33

Exhibit 10.33

EXECUTION COPY

FIRST LIEN COLLATERAL AGREEMENT

dated as of August 8, 2007

by and among

PROSPECT MEDICAL HOLDINGS, INC.

PROSPECT MEDICAL GROUP, INC.,

and certain of their Subsidiaries,

as Grantors,

in favor of

BANK OF AMERICA, N.A.,

as Administrative Agent

Table of Contents

			Page
ARTICLE I DEFINED TERMS			1
	SECTION 1.1	Terms Defined in the Uniform Commercial Code	1
	SECTION 1.2	Definitions	2
	SECTION 1.3	Other Interpretive Provisions	6
ARTICLE II SECURITY INTEREST			7
	SECTION 2.1	Grant of Security Interest	7
	SECTION 2.2	Grantors Remain Liable	8
ARTICLE III REPRESENTATIONS AND WARRANTIES			9
	SECTION 3.1	Existence, Qualification and Power; Compliance with Laws	9
	SECTION 3.2	Authorization; No Contravention; Binding Effect	9
	SECTION 3.3	Consents	9
	SECTION 3.4	Perfected First Priority Liens	10
	SECTION 3.5	Title, No Other Liens	10
	SECTION 3.6	State of Organization; Location of Inventory, Equipment and Fixtures; other Information	10
	SECTION 3.7	Accounts	11
	SECTION 3.8	Chattel Paper	11
	SECTION 3.9	Commercial Tort Claims	11
	SECTION 3.10	Deposit Accounts	11
	SECTION 3.11	Intellectual Property	12
	SECTION 3.12	Inventory	12
	SECTION 3.13	Investment Property; Partnership/LLC Interests	12
	SECTION 3.14	Instruments	13
	SECTION 3.15	Farm Products	13
	SECTION 3.16	Government Contracts	13
	SECTION 3.17	Aircraft	13
ARTICLE IV COVENANTS			13
	SECTION 4.1	Maintenance of Perfected Security Interest; Further Information	13
	SECTION 4.2	Maintenance of Insurance	13
	SECTION 4.3	Changes in Locations; Changes in Name or Structure	14
	SECTION 4.4	Required Notifications	14
	SECTION 4.5	Delivery Covenants	15
	SECTION 4.6	Control Covenants; Certain Excluded Deposit Accounts	15
	SECTION 4.7	Filing Covenants	16
	SECTION 4.8	Accounts	16
	SECTION 4.9	Intellectual Property	17
	SECTION 4.10	Investment Property; Partnership/LLC Interests.	18
	SECTION 4.11	Equipment	19
	SECTION 4.12	Vehicles	19
	SECTION 4.13	Government Contracts	19

i

	SECTION 4.14	Further Assurances	19
ARTICLE V REMEDIAL PROVISIONS			19
	SECTION 5.1	General Remedies	19
	SECTION 5.2	Specific Remedies	20
	SECTION 5.3	Registration Rights	22
	SECTION 5.4	Application of Proceeds	23
	SECTION 5.5	Waiver, Deficiency	24
ARTICLE VI THE ADMINISTRATIVE AGENT			24
	SECTION 6.1	Administrative Agent’s Appointment as Attorney-In-Fact	24
	SECTION 6.2	Duty of Administrative Agent	26
	SECTION 6.3	Authority of Administrative Agent	26
ARTICLE VII MISCELLANEOUS			26
	SECTION 7.1	Amendments, Waivers and Consents	26
	SECTION 7.2	Notices	26
	SECTION 7.3	No Waiver, Cumulative Remedies	26
	SECTION 7.4	Expenses, Indemnification, Waiver of Consequential Damages, etc.	27
	SECTION 7.5	Successors and Assigns	27
	SECTION 7.6	Survival of Indemnities	28
	SECTION 7.7	Right of Setoff	28
	SECTION 7.8	Counterparts; Integration; Effectiveness	28
	SECTION 7.9	Severability	28
	SECTION 7.10	Governing Law; Jurisdiction; Service of Process	29
	SECTION 7.11	Waiver of Jury Trial; California Judicial Reference	29
	SECTION 7.12	Injunctive Relief.	30
	SECTION 7.13	Acknowledgements	30
	SECTION 7.14	Releases	31
	SECTION 7.15	Additional Grantors	31
	SECTION 7.16	All Powers Coupled with Interest	31

ii

SCHEDULES:
Schedule 3.6	Exact Legal Name; Jurisdiction of Organization; Taxpayer Identification Number; Registered Organization Number; Mailing Address; Chief Executive Office and other Locations
Schedule 3.9	Commercial Tort Claims
Schedule 3.10	Deposit Accounts
Schedule 3.11	Intellectual Property
Schedule 3.13	Investment Property and Partnership/LLC Interests
Schedule 3.14	Instruments
EXHIBITS
Exhibit A	Form of Governmental Receivables Account Agreement

iii

FIRST LIEN COLLATERAL AGREEMENT (this “Agreement”), dated as of August 8, 2007 by and among PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), PROSPECT MEDICAL GROUP, INC., a California professional corporation (together with Holdings, the “Borrowers”), each of the Guarantors (as defined in the Credit Agreement referred to below) and identified on the signature pages hereto and any Additional Grantor (as defined below) who may become party to this Agreement (such Guarantors and Additional Grantors, collectively, with the Borrowers, the “Grantors”), in favor of BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) for the ratable benefit of the Secured Parties.

STATEMENT OF PURPOSE

Pursuant to the First Lien Credit Agreement, dated as of even date herewith by and among the Borrowers, the banks and other financial institutions from time to time party thereto (the “Lenders”) and the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), the Lenders have agreed to make Credit Extensions to the Borrowers upon the terms and subject to the conditions set forth therein.

Pursuant to the terms of a First Lien Guaranty of even date herewith, the Guarantors who are parties hereto have guaranteed the payment and performance of the Obligations.

It is a condition precedent to the obligation of the Lenders to make their respective Credit Extensions to the Borrowers under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent, for the ratable benefit of the Secured Parties.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrowers thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Secured Parties, as follows:

ARTICLE I

DEFINED TERMS

SECTION 1.1Terms Defined in the Uniform Commercial Code.

(a)The following terms when used in this Agreement shall have the meanings assigned to them in the UCC (as defined below) as in effect from time to time:  “Account”, “Account Debtor”, “Authenticate”, “Certificated Security”, “Chattel Paper”; “Commercial Tort Claim”, “Deposit Account”, “Documents”, “Electronic Chattel Paper”, “Equipment”, “Farm Products” “Fixture”, “General Intangible”, “Goods”, “Health-Care-Insurance Receivables”, “Instrument”, “Inventory”, “Investment Company Security”, “Investment Property”, “Letter of Credit Rights”, “Payment Intangibles”, “Proceeds”, “Record”, “Registered Organization”, “Security”, “Securities Entitlement”, “Securities Intermediary”, “Securities Account”, “Security”, “Supporting Obligation”, “Tangible Chattel Paper”, and “Uncertificated Security”.

(b)Terms defined in the UCC and not otherwise defined herein or in the Credit Agreement shall have the meaning assigned in the UCC as in effect from time to time.

SECTION 1.2Definitions.  The following terms when used in this Agreement shall have the meanings assigned to them below:

“Additional Grantor” means each Subsidiary of the Borrowers which hereafter becomes a Grantor pursuant to Section 7.15 (as required pursuant to Section 6.12 of the Credit Agreement).

“Agreement” means this Collateral Agreement, as amended, restated, supplemented or otherwise modified from time to time.

“Applicable Insolvency Laws” means all applicable Laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. Sections 544, 547, 548 and 550 and other “avoidance” provisions of Title 11 of the United States Code).

“Assignment of Claims Act” means the Assignment of Claims Act of 1940 (41 U.S.C. Section 15, 31 U.S.C.  Section 3737, and 31 U.S.C. Section 3727), including all amendments thereto and regulations promulgated thereunder.

“Brotman Shares” means the shares of common stock owned as of the date hereof issued by Brotman Medical Center, Inc., a California corporation, to Prospect Hospital Advisory Services, Inc.

“Capitated Contract Rights” means, collectively, all of the Loan Parties’ contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations and all proceeds therefrom.

“Collateral” has the meaning assigned thereto in Section 2.1.

“Collateral Account” means any collateral account established by the Administrative Agent as provided in Section 5.2.

“Collections” means all funds received from or on behalf of Obligors in payment of any amount owed with respect to Receivables.

“Control” means the manner in which “control” is achieved under the UCC with respect to any Collateral for which the UCC specifies a method of achieving “control”.

“Controlled Depository” has the meaning assigned thereto in Section 4.6.

“Controlled Intermediary” has the meaning assigned thereto in Section 4.6.

“Copyrights” means collectively, all of the following of any Grantor: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations and copyright applications anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all extensions, and renewals of any of the foregoing, (c) all income,

2

royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.

“Copyright Licenses” means any written agreement naming any Grantor as licensor or licensee, including, without limitation, those listed in Schedule 3.11, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

“Effective Endorsement and Assignment” means, with respect to any specific type of Collateral, all such endorsements, assignments and other instruments of transfer reasonably requested by the Administrative Agent with respect to the Security Interest granted in such Collateral, and in each case, in form and substance satisfactory to the Administrative Agent.

“Excess Collateral” has the meaning assigned thereto in Section 4.6(c).

“Excluded Deposit Account” means, collectively, (a) Deposit Accounts established solely for the purpose of funding payroll and other compensation and benefits to employees and (b) all Deposit Accounts into which Governmental Receivables are initially deposited.

“Fee-for-Service Receivables” means Receivables other than Capitated Contract Rights.

“Government Contract” means a contract between any Grantor and an agency, department or instrumentality of the United States or any state, municipal or local Governmental Authority located in the United States or all obligations of any such Governmental Authority arising under any Account now or hereafter owing by any such Governmental Authority, as account debtor, to any Grantor; provided, however, that such definition shall exclude all Government Reimbursement Programs.

“Governmental Receivable” means any Account that is payable pursuant to any Government Reimbursement Program.

“Government Reimbursement Program” means any program (a) relating to Medicare, (b) Medicaid, or (c) any other state or federal programs as payor or program administrated by the Centers for Medicare and Medicaid Services or any agent, administrator, intermediary or carrier for any of the foregoing.

“Grantors” has the meaning set forth in the Preamble of this Agreement.

“Intellectual Property” means collectively, all of the following of any Grantor: (a)  all systems software, applications software and internet rights, including, without limitation, screen displays and formats, internet domain names, web sites (including web links), program structures, sequence and organization, all documentation for such software, including, without limitation, user manuals, flowcharts, programmer’s notes, functional specifications, and operations manuals, all formulas, processes, ideas and know-how embodied in any of the foregoing, and all program materials, flowcharts, notes and outlines created in connection with

3

any of the foregoing, whether or not patentable or copyrightable, (b) concepts, discoveries, inventions, improvements and ideas, (c) any useful information relating to the items described in clause (a) or (b), including know-how, technology, engineering drawings, reports, design information, trade secrets, practices, laboratory notebooks, specifications, test procedures, maintenance manuals, research, development, manufacturing, marketing, merchandising, selling, purchasing and accounting, (d) Patents and Patent Licenses, Copyrights and Copyright Licenses, Trademarks and Trademark Licenses, and (e) other licenses to use any of the items described in the foregoing clauses (a), (b), (c) and (d) or any other similar items of such Grantor necessary for the conduct of its business.

“Issuer” means any issuer of any Investment Property or Partnership/LLC Interests (including, without limitation, any Issuer as defined in the UCC).

“Obligations” means with respect to the Borrowers, the meaning assigned thereto in the Credit Agreement, and with respect to each Guarantor, the obligations of such Guarantor under the Guaranty executed by such Guarantor and with respect to all Grantors, all liabilities and obligations of the Grantors hereunder and all liabilities and obligations of the Grantors with respect to overdrafts, returned items and related liabilities and all indemnification obligations under the Loan Documents now or hereafter owing by any Grantor to Bank of America, N.A., any Affiliate thereof or the Administrative Agent arising from or in connection with treasury, depositary or cash management services or in connection with any automated clearinghouse transfer of funds for the benefit of such Grantor.

“Obligors” means any person that is obligated  to make payment with respect to any Capitated Contract or other Receivables.

“Partnership/LLC Interests” means, with respect to any Grantor, the entire partnership, membership interest or limited liability company interest, as applicable, of such Grantor in each partnership, limited partnership or limited liability company owned thereby, including, without limitation, such Grantor’s capital account, its interest as a partner or member, as applicable, in the net cash flow, net profit and net loss, and items of income, gain, loss, deduction and credit of any such partnership, limited partnership or limited liability company, as applicable, such Grantor’s interest in all distributions made or to be made by any such partnership, limited partnership or limited liability company, as applicable, to such Grantor and all of the other economic rights, titles and interests of such Grantor as a partner or member, as applicable, of any such partnership, limited partnership or limited liability company, as applicable, whether set forth in the partnership agreement or membership agreement, as applicable, of such partnership, limited partnership or limited liability company, as applicable, by separate agreement or otherwise.

“Patents” means collectively, all of the following of any Grantor: (a) all patents, rights and interests in patents, patent disclosures, patentable inventions and patent applications anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all improvements thereto, reissues, continuations (in whole or in part), divisionals, reexaminations and renewals and extensions of any of the foregoing, (c) all income, royalties, damages or payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future

4

infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.

“Patent License” means all agreements now or hereafter in existence, whether written, implied or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 3.11 hereto.

“Patient Lists” means all records, documents, lists, electronic media or any other method of recordation that shows in any way any Person to whom Loan Parties supply medical services, medication, medical supplies, or professional services, the name and mailing address of such Person, a complete and accurate description of the medical services, medication, medical supply item or professional service that is supplied to such Person, the physician at whose direction such medical services, medication, medical supply or professional service is delivered, and all other information Loan Parties used in the course of Loan Parties’ ordinary course of business to supply such Person with medical services, medication, medical supplies or professional service.

“Permitted Liens” means the Liens permitted by Section 7.01(a)-(i) and (k) of the Credit Agreement.

 “Receivables” means any right to payment, whether constituting an account, chattel paper, instrument, general intangible, payment intangible or health-care insurance receivable, Capitated Contract Rights, Fee-for-Service Receivable, Governmental Receivable or otherwise, arising from the sale, rental or lease of healthcare goods or equipment, or the provision of services and any ancillary sales, including all rights and remedies to payment relating thereto, together with any and all proceeds in any way derived, directly or indirectly therefrom.  The term “Receivables” shall include amounts due under capitation and similar agreements, amounts due any Loan Party for cost adjustments or undercharges for prior services, amounts due as any part of a disproportionate share or risk share payment, workmen’s compensation claims, and any other claims to payment held by any Loan Party.

“Restricted Securities Collateral” has the meaning assigned thereto in Section 5.3.

“Securities Act” means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.

“Security Interests” means the security interests granted pursuant to Article II, as well as all other security interests created or assigned as additional security for the Obligations pursuant to the provisions of the Credit Agreement.

“Trademarks” means collectively all of the following of any Grantor: (a) all trademarks, rights and interests in trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, service marks, logos, other business identifiers, together with translations, adaptations, derivations and combinations thereof, prints and labels on which any of the foregoing have appeared or appear, whether registered or unregistered, all registrations and recordings thereof, and all applications in connection therewith (other than each application to register any trademark or service mark prior to the filing under applicable Law of a verified statement of use for such trademark or service mark) anywhere in

5

the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all extensions and renewals of any of the foregoing, (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing (including the goodwill) throughout the world.

“Trademark License” means any agreement now or hereafter in existence, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 3.11.

“UCC” means the Uniform Commercial Code as in effect in the State of New York, as amended or modified from time to time.

“Vehicles” means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title under the laws of any state, all tires and all other appurtenances to any of the foregoing.

SECTION 1.3Other Interpretive Provisions.  Terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement.  With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:  (a) the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined, (b) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, (c) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (d) the word “will” shall be construed to have the same meaning and effect as the word “shall”, (e) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document, as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (f) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns, (g) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (h) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (i) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (j) the term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form, (k) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including”, (l) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document and (k) where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.  To the extent that a direct conflict between the provisions

6

of this Agreement and the provisions of the Credit Agreement (other than with respect to any provision of this Agreement relating to the grant, pledge and assignment of the Security Interest in the Collateral or the exercise of remedies with respect thereto), the Credit Agreement shall govern.

SECTION 1.4 Intercreditor Agreement.  Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Secured Parties, pursuant to this Agreement, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Secured Parties, under this Agreement, are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

ARTICLE II

SECURITY INTEREST

SECTION 2.1Grant of Security Interest.  Each Grantor hereby grants, pledges and collaterally assigns to the Administrative Agent, for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor’s right, title and interest in the following property, now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest, and wherever located or deemed located (collectively, the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations:

(a)all Accounts including, without limitation, all “Health Care Insurance Receivables”, all Receivables (including all Capitated Contract Rights) and all Collections and other payments and proceeds with regard thereto;

(b)all cash and currency;

(c)all Chattel Paper;

(d)all Commercial Tort Claims identified on Schedule 3.9;

(e)all Deposit Accounts;

(f)all Documents;

(g)all Equipment;

(h)all Fixtures;

(i)all General Intangibles, including all Payment Intangibles, any disproportionate share settlements, risk share settlements, cost report settlements, capitation

7

settlement payments or other distributions to any Loan Party related to the Collateral or any portion thereof or the related contracts;

(j)all Instruments;

(k)all Intellectual Property;

(l)all Inventory;

(m)all Investment Property (other than the Brotman Shares);

(n)all Letter of Credit Rights;

(o)all licenses, Permits and governmental authorizations, including all operating and medical licenses and permits, including any certificates of need, provider contracts, general certifications and other similar type authorizations;

(p)all Vehicles;

(q)all Goods and all other personal property not otherwise described above;

(r)to the extent not prohibited by applicable Health Care Laws all books and records pertaining to the Collateral and all customer lists and Patient Lists;

(s)to the extent not otherwise included, all Proceeds, insurance claims and products of any and all of the foregoing and all collateral security and Supporting Obligations (as now or hereafter defined in the UCC) and other rights to payment not otherwise included in the foregoing given by any Person with respect to any of the foregoing.

provided, that (i) any Security Interest on any Equity Interests issued by any Foreign Subsidiary shall be limited to 66% of all issued and outstanding shares of all classes of Equity Interests of first tier Foreign Subsidiaries, (ii) the Security Interests granted herein shall not extend to, and the term “Collateral” shall not include, any rights under any lease, contract or agreement (including, without limitation, any license for Intellectual Property) to the extent that the granting of a security interest therein is specifically prohibited in writing by, or would constitute an event of default under or would grant a party a termination right under any agreement governing such right unless such prohibition is not enforceable or is otherwise ineffective under applicable Law.  Notwithstanding any of the foregoing, such proviso shall not affect, limit, restrict or impair the grant by any Grantor of a Security Interest in any Account or any money or other amounts due and payable to any Grantor or to become due and payable to any Grantor under such lease, contract or agreement.

Notwithstanding the foregoing, the payment and performance of the Obligations shall not be secured by any Swap Contract between any Grantor and any Secured Party.

SECTION 2.2Grantors Remain Liable. Anything herein to the contrary notwithstanding: (a) each Grantor shall remain liable to perform all of its duties and obligations under the contracts and agreements included in the Collateral to the same extent as if this Agreement had not been executed, (b) the exercise by Administrative Agent of any of the

8

rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, (c) neither the Administrative Agent nor any other Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Administrative Agent or any other Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder, and (d) neither the Administrative Agent nor any other Secured Party shall have any liability in contract or tort for any Grantor’s acts or omissions.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrowers thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each other Secured Party that:

SECTION 3.1Existence, Qualification and Power; Compliance with Laws.  Each Grantor (a) is a corporation, partnership or limited liability company duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental permits, licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and Related Documents to which it is a party, and (c) is duly qualified and is licensed, and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clauses (b)(i) or (c), to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect.

SECTION 3.2Authorization; No Contravention; Binding Effect.  The execution, delivery and performance by each Grantor of each Loan Document and Related Document to which such Person is or is to be a party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.  This Agreement constitutes, and each other Loan Document and Related Document when so delivered will constitute, a legal, valid and binding obligation of the Grantors enforceable in accordance with its terms.

SECTION 3.3Consents.  No approval, consent, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against any Grantor or any Issuer of this Agreement, except (a) as may be required by laws affecting the offering and sale of securities generally, (b) filings with the United

9

States Copyright Office and/or the United States Patent and Trademark Office, (c) filings under the UCC and/or the Assignment of Claims Act and (d) as may be required with respect to Vehicles represented by a certificate of title.

SECTION 3.4Perfected First Priority Liens.  Each financing statement naming any Grantor as a debtor is in appropriate form for filing in the appropriate filing offices specified on Schedule 3.6.  The Security Interests granted pursuant to this Agreement (a) constitute valid security interests in all of the Collateral in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for the Obligations, and (b):  (i) when UCC financing statements (or foreign equivalents) containing an adequate description of the Collateral shall have been filed in the offices specified in Schedule 3.6, will constitute perfected security interests in all right, title and interest of such Grantor in the Collateral to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other Liens and rights of others therein except for Permitted Liens; (ii) when each Copyright security agreement has been filed with the United States Copyright Office, will constitute perfected security interests in all right, title and interest of such Grantor in the Intellectual Property therein described, prior to all other Liens and rights of others therein except for Permitted Liens; and (iii) when each control agreement has been executed and delivered to the Administrative Agent, will constitute perfected security interests in all right, title and interest of the Grantors in the Deposit Accounts and Securities Accounts, as applicable, subject thereto, prior to all other Liens and rights of others therein and subject to no adverse claims except for Permitted Liens.

SECTION 3.5Title, No Other Liens.  Except for the Security Interests, each Grantor owns each item of the Collateral free and clear of any and all Liens or claims other than Permitted Encumbrances and the other Liens permitted under the Loan Documents.  No financing statement under the UCC of any state (or any foreign equivalent) which names a Grantor as debtor or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or in connection with Permitted Encumbrances and the other Liens permitted under the Loan Documents.  No Collateral is in the possession or Control of any Person asserting any claim thereto or security interest therein, except that (a) the Administrative Agent or its designee may have possession or Control of Collateral as contemplated hereby, (b) a depositary bank may have Control of a Deposit Account owned by a Grantor at such depositary bank and a Securities Intermediary may have Control over a Securities Account owned by a Grantor at such Securities Intermediary, in each case subject to the terms of any Deposit Account control agreement or Securities Account control agreement, as applicable, and to the extent required by Section 4, in favor of the Administrative Agent, and (c) a bailee, consignee or other Person may have possession of the Collateral as contemplated by, and so long as, the applicable Grantors have complied to the satisfaction of the Administrative Agent with the applicable provisions of Section 4.6(c).

SECTION 3.6State of Organization; Location of Inventory, Equipment and Fixtures; other Information.

(a)The exact legal name of each Grantor is set forth on Schedule 3.6.

10

(b)Each Grantor is a Registered Organization organized under the laws of the state identified on Schedule 3.6 under such Grantor’s name.  The taxpayer identification number and Registered Organization number of each Grantor is set forth on Schedule 3.6 under such Grantor’s name.

(c)All Collateral consisting of Inventory, Equipment and Fixtures (whether now owned or hereafter acquired) is (or will be) located at the locations specified on Schedule 3.6, except as otherwise permitted hereunder.

(d)The mailing address, chief place of business, chief executive office and office where each Grantor keeps its books and records relating to the Accounts, Documents, General Intangibles, Instruments and Investment Property in which it has any interest is located at the locations specified on Schedule 3.6 under such Grantor’s name.  No Grantor has any other places of business except those separately set forth on Schedule 3.6 under such Grantor’s name.  No Grantor does business nor has done business during the past five years under any trade name or fictitious business name except as disclosed on Schedule 3.6 under such Grantor’s name.  Except as disclosed on Schedule 3.6 under such Grantor’s name, no Grantor has acquired assets from any Person, other than assets acquired in the ordinary course of such Grantor’s business, during the past five years.

SECTION 3.7Accounts.  Each existing Account constitutes, and each hereafter arising Account will constitute, the legally valid and binding obligation of the applicable Account Debtor.  The amount represented by each Grantor to the Administrative Agent as owing by each Account Debtor is, or will be, the correct amount actually and unconditionally owing, except for ordinary course cash discounts and allowances where applicable.  No Account Debtor has any defense, set-off, claim or counterclaim against any Grantor that can be asserted against the Administrative Agent, whether in any proceeding to enforce the Administrative Agent’s rights in the Collateral or otherwise except defenses, setoffs, claims or counterclaims that are not, in the aggregate, material to the value of the Accounts.  None of the Accounts is, nor will any hereafter arising Account be, evidenced by a promissory note or other Instrument (other than a check) that has not been pledged to the Administrative Agent in accordance with the terms hereof.

SECTION 3.8Chattel Paper.  As of the date hereof, no Grantor holds any Chattel Paper in the ordinary course of its business.

SECTION 3.9Commercial Tort Claims.  As of the date hereof, all Commercial Tort Claims owned by any Grantor are listed on Schedule 3.9.

SECTION 3.10Deposit Accounts.  As of the date hereof, all Deposit Accounts (including, without limitation, cash management accounts that are Deposit Accounts), securities accounts and lockboxes (including the: (a) owner of the account, (b) name and address of financial institution or securities broker where such accounts are located, (c) account numbers and (d) purpose or use of such account) owned by any Grantor are listed on Schedule 3.10.

11

SECTION 3.11Intellectual Property.

(a)As of the date hereof, all Copyright registrations, Copyright applications, issued Patents, Patent applications, Trademark registrations and Trademark applications owned by any Grantor in its own name on the date hereof is listed on Schedule 3.11.

(b)Except as set forth in Schedule 3.11 on the date hereof, none of the Intellectual Property owned by any Grantor is the subject of any written licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor, except as could not reasonably be expected to have a Material Adverse Effect.

(c)Each Grantor owns, or possesses the right to use, all of the Trademarks, Copyrights, Patents, franchises, licenses and other Intellectual Property rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person.  All applications, registrations and grants for all material Patents, Trademarks and Copyrights of each Grantor and to the knowledge of each Grantor, all applications, registrations and grants for any material licensed Intellectual Property are valid, subsisting and enforceable, are in good standing, all required filings with any relevant governmental intellectual property office have been made and all required filing, registration, maintenance and other fees have been paid.  To the best knowledge of each Grantor, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Grantor infringes upon any rights held by any other Person.  No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of each Grantor, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

SECTION 3.12Inventory.  Collateral consisting of Inventory is of good and merchantable quality, free from any material defects.  To the knowledge of each Grantor, none of such Inventory is subject to any licensing, Patent, Trademark, trade name or Copyright with any Person that restricts any Grantor’s ability to manufacture and/or sell such Inventory.  The completion of the manufacturing process of such Inventory by a Person other than the applicable Grantor would be permitted under any contract to which such Grantor is a party or to which the Inventory is subject.

SECTION 3.13Investment Property; Partnership/LLC Interests.

(a)As of the date hereof, all Investment Property (including, without limitation, Securities Accounts and cash management accounts that are Investment Property) and all Partnership/LLC Interests owned by any Grantor are listed on Schedule 3.13.

(b)All Investment Property and all Partnership/LLC Interests issued by any Issuer to any Grantor (i) have been duly and validly issued and, if applicable, are fully paid and nonassessable, (ii) are beneficially owned as of record by such Grantor and (ii) constitute all the issued and outstanding Equity Interests of such Issuer issued to such Grantor.

(c)None of the Partnership/LLC Interests (i) are traded on a Securities exchange or in Securities markets, (ii) by their terms expressly provide that they are Securities

12

governed by Article 8 of the UCC, (iii) are Investment Company Securities or (iv) are held in a Securities Account.

SECTION 3.14Instruments.  As of the date hereof, no Grantor holds any Instruments or is named a payee of any promissory note or other evidence of indebtedness other than as set forth on Schedule 3.14.

SECTION 3.15Farm Products.  None of the Collateral constitutes, or is the Proceeds of, Farm Products.

SECTION 3.16Government Contracts.  As of the date hereof, no Grantor is party to any Government Contract with a Governmental Authority under which such Governmental Authority, as account debtor, owes a monetary obligation to any Grantor under any account.

SECTION 3.17Aircraft.  None of the Collateral constitutes, or is the proceeds of, (i) an aircraft, airframe, aircraft engine or related property, (ii) aircraft lease or (iii) any other interest in or to any of the foregoing.

ARTICLE IV

COVENANTS

Until the Obligations shall have been paid in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 7.1, each Grantor covenants and agrees that:

SECTION 4.1Maintenance of Perfected Security Interest; Further Information.

(a)Each Grantor shall maintain the Security Interest created by this Agreement as a first priority perfected Security Interest (subject only to Permitted Liens) and shall defend such Security Interest against the claims and demands of all Persons whomsoever (other than holders of Permitted Liens).

(b)Each Grantor will furnish to the Administrative Agent upon the Administrative Agent’s reasonable request statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Administrative Agent may reasonably request, all in reasonable detail.

SECTION 4.2Maintenance of Insurance.

(a)Each Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Collateral against loss by fire, explosion, theft, fraud and such other casualties, including business interruption, as may be reasonably satisfactory to the Administrative Agent in amounts and with deductibles at least as favorable as those generally maintained by businesses of similar size engaged in similar activities and (ii) insuring such Grantor and the Administrative Agent, for the ratable benefit of the Secured

13

Parties, against liability for hazards, risks and liability to persons and property relating to the Collateral, in amounts and with deductibles at least as favorable as those generally maintained by businesses of similar size engaged in similar activities, such policies to be in such form and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders.

(b)All insurance referred to in subsection (a) above shall (i) name the Administrative Agent, for the ratable benefit of the Secured Parties, as loss payee (to the extent covering risk of loss or damage to tangible property) and as an additional insured as its interests may appear (to the extent covering any other risk), (ii) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days after receipt by the Administrative Agent of written notice thereof and (iii) be reasonably satisfactory in all other respects to the Administrative Agent.

(c)Upon the request of the Administrative Agent from time to time, each Grantor shall deliver to the Administrative Agent and the Lenders periodic information from a reputable insurance broker with respect to the insurance referred to in this Section 4.2.

SECTION 4.3Changes in Locations; Changes in Name or Structure.  No Grantor will, except upon thirty (30) days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional financing statements (executed if necessary for any particular filing jurisdiction) and other instruments and documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the Security Interests and (b) if applicable, a written supplement to the Schedules of this Agreement:

(i)permit any Deposit Account (other than Excluded Deposit Accounts) to be held by or at a depositary bank other than the depositary bank that held such Deposit Account as of the date hereof as set forth on Schedule 3.10;

(ii)permit any Investment Property (other than Certificated Securities delivered to the Administrative Agent pursuant to Section 4.5) to be held by a Securities Intermediary other than the Securities Intermediary that held such Investment Property as of the date hereof as set forth on Schedule 3.13;

(iii)permit any of the Inventory, Equipment or Fixtures to be kept at a location other than those listed on Schedule 3.6, except as otherwise permitted hereunder;

(iv)change its jurisdiction of organization or the location of its chief executive office from that identified on Schedule 3.6; or

(v)change its legal name, identity or corporate or organizational structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement would become misleading.

SECTION 4.4Required Notifications.  Each Grantor shall promptly notify the Administrative Agent, in writing, of: (a) any Lien (other than Permitted Encumbrances and the other Liens permitted under the Loan Documents) on any of the

14

Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies hereunder, (b) the occurrence of any other event which could reasonably be expected to have a Material Adverse Effect on the aggregate value of the Collateral or on the Security Interests, (c) any Collateral which, to the knowledge of such Grantor, constitutes a Government Contract, and (d) the acquisition or ownership by such Grantor of any (i) Commercial Tort Claim, (ii) Deposit Account, or (iii) Investment Property after the date hereof.

SECTION 4.5Delivery Covenants.  Each Grantor will deliver and pledge to the Administrative Agent, for the ratable benefit of the Secured Parties, all Certificated Securities, Partnership/LLC Interests evidenced by a certificate, negotiable Documents, Instruments, and Tangible Chattel Paper owned or held by such Grantor, in each case, together with an Effective Endorsement and Assignment and all Supporting Obligations, as applicable, unless such delivery and pledge has been waived in writing by the Administrative Agent.

SECTION 4.6Control Covenants; Certain Excluded Deposit Accounts.

(a)Each Grantor shall instruct (and otherwise use its commercially reasonable efforts to cause) (i) each depositary bank holding a Deposit Account (other than Excluded Deposit Accounts) owned by such Grantor and (ii) each Securities Intermediary holding any Investment Property owned by such Grantor, to execute and deliver a control agreement, sufficient to provide the Administrative Agent with Control of such Deposit Account and otherwise in form and substance satisfactory to the Administrative Agent (any such depositary bank executing and delivering any such control agreement, a “Controlled Depositary”, and any such Securities Intermediary executing and delivering any such control agreement, a “Controlled Intermediary”).  In the event any such depositary bank or Securities Intermediary refuses to execute and deliver such control agreement, the Administrative Agent, in its sole discretion, may require the applicable Deposit Account and Investment Property to be transferred to the Administrative Agent or a Controlled Depositary or Controlled Intermediary, as applicable.  After the date hereof, all Deposit Accounts (other than Excluded Deposit Accounts) and all Investment Property will be maintained with the Administrative Agent or with a Controlled Depository or a Controlled Intermediary, as applicable.

(b)Each Grantor shall instruct each depositary bank holding a Deposit Account into which Governmental Receivables are initially deposited to execute and deliver an  account agreement substantially in the form of Exhibit A attached hereto or such other form as the Administrative Agent shall prescribe.  In the event any such depositary bank refuses to execute and deliver such an agreement, the Administrative Agent, in its sole discretion, may require the applicable Deposit Account to be transferred to the Administrative Agent.  After the date hereof, all Deposit Accounts into which Governmental Receivables are initially deposited will be maintained with the Administrative Agent or with a depositary institution subject to an account agreement (as set forth above), as applicable.

(c)Each Grantor will take such actions and deliver all such agreements as are requested by the Administrative Agent to provide the Administrative Agent with Control of all Letter of Credit Rights and Electronic Chattel Paper owned or held by such Grantor, including, without limitation, with respect to any such Electronic Chattel Paper, by having the

15

Administrative Agent identified as the assignee on the Record(s) pertaining to the single authoritative copy thereof.

(d)If any Collateral (other than Collateral specifically subject to the provisions of Sections 4.6(a), 4.6(b) and 4.6(c)), exceeding in value $200,000 in the aggregate (such Collateral exceeding such amount, the “Excess Collateral”) is at any time in the possession or control of any consignee, warehouseman, bailee (other than a carrier transporting Inventory to a purchaser in the ordinary course of business), processor, or any other third party, such Grantor shall notify such Person in writing of the Security Interests created hereby, shall use its commercially reasonable efforts to obtain such Person’s written agreement in writing to hold all such Collateral for the Administrative Agent’s account subject to the Administrative Agent’s instructions, and shall cause such Person to issue and deliver to the Administrative Agent warehouse receipts, bills of lading or any similar documents relating to such Collateral to the Administrative Agent together with an Effective Endorsement and Assignment; provided that if such Grantor is not able to obtain such agreement and cause the delivery of such items, the Administrative Agent, in its sole discretion, may require such Excess Collateral to be moved to another location specified thereby.  Further, each Grantor shall perfect and protect such Grantor’s ownership interests in all Inventory stored with a consignee against creditors of the consignee by filing and maintaining financing statements against the consignee reflecting the consignment arrangement filed in all appropriate filing offices, providing any written notices required to notify any prior creditors of the consignee of the consignment arrangement, and taking such other actions as may be appropriate to perfect and protect such Grantor’s interests in such inventory under Section 2-326, Section 9-103, Section 9-324 and Section 9-505 of the UCC (and any foreign equivalent) or otherwise.  All such financing statements filed pursuant to this
Section 4.6(d) shall be assigned, on the face thereof, to the Administrative Agent, for the ratable benefit of the Secured Parties.

SECTION 4.7Filing Covenants.  Pursuant to Section 9-509 of the UCC and any other applicable Law, each Grantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent determines appropriate to perfect the Security Interests of the Administrative Agent under this Agreement.  Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of Collateral that describes such property in any other manner as the Administrative Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the Security Interest in the Collateral granted herein, including, without limitation, describing such property as “all assets” or “all personal property.”  Further, a photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction.  Each Grantor hereby authorizes, ratifies and confirms all financing statements and other filing or recording documents or instruments filed by Administrative Agent prior to the date of this Agreement.

SECTION 4.8Accounts.

(a)Other than in the ordinary course of business consistent with its past practice, no Grantor will (i) grant any extension of the time of payment of any Account, (ii) compromise or settle any Account for less than the full amount thereof, (iii) release, wholly or

16

partially, any Account Debtor, (iv) allow any credit or discount whatsoever on any Account or (v) amend, supplement or modify any Account in any manner that could reasonably be likely to adversely affect the value thereof.

(b)Each Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of any material Account.

(c)The Administrative Agent shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications.  At any time and from time to time, upon the Administrative Agent’s request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts.

SECTION 4.9Intellectual Property.

(a)Except as could not reasonably be expected to have a Material Adverse Effect, each Grantor (either itself or through licensees) (i) will use each registered Trademark (owned by such Grantor) and Trademark for which an application (owned by such Grantor) is pending, to the extent reasonably necessary to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) will maintain products and services offered under such Trademark at a level substantially consistent with the quality of such products and services as of the date hereof, (iii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark could reasonably be expected to become invalidated or impaired in any way, (iv) will not (and will not permit any licensee or sublicensee thereof to) do any act, or knowingly omit to do any act, whereby any Patent owned by such Grantor would reasonably be expected to become forfeited, abandoned or dedicated to the public, (v) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any registered Copyright owned by such Grantor or Copyright for which an application is pending (owned by such Grantor) could reasonably be expected to become invalidated or otherwise impaired and (vi) will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain.

(b)Each Grantor will notify the Administrative Agent and the Lenders promptly if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property owned or licensed by such Grantor may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor’s or its licensor’s ownership of, or the validity of, any material Intellectual Property owned or licensed by such Grantor or such Grantor’s right to register the same or to license, or own and maintain the same.

17

(c)Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent within five (5) Business Days after the last day of the fiscal quarter in which such filing occurs.  Upon request of the Administrative Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the security interest of the Secured Parties in any material Copyright, Patent or Trademark and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby.

(d)Each Grantor will take all reasonable and necessary steps, at such Grantor’s sole cost and expense, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.

(e)In the event that any material Intellectual Property owned or licensed by a Grantor is infringed, misappropriated or diluted by a third party, the applicable Grantor shall (i) at such Grantor’s sole cost and expense, take such actions as such Grantor shall reasonably deem appropriate under the circumstances or allowable pursuant to such Grantor’s license agreement  to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns of such infringement, misappropriation or dilution.

SECTION 4.10Investment Property; Partnership/LLC Interests.

(a)Without the prior written consent of the Administrative Agent, no Grantor will (i) vote to enable, or take any other action to permit, any applicable Issuer to issue any Investment Property or Partnership/LLC Interests, except for such additional Investment Property or Partnership/LLC Interests that will be subject to the Security Interest granted herein in favor of the Secured Parties, or (ii) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any Investment Property or Partnership/LLC Interests or Proceeds thereof.  The Grantors will defend the right, title and interest of the Administrative Agent in and to any Investment Property and Partnership/LLC Interests against the claims and demands of all Persons whomsoever.

(b)If any Grantor shall become entitled to receive or shall receive (i) any Certificated Securities (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the ownership interests of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any Investment Property, or otherwise in respect thereof, or (ii) any sums paid upon or in respect of any Investment Property upon the liquidation or dissolution of any Issuer, such Grantor shall accept the same as the agent of the Secured Parties, hold the same in trust for the Secured Parties, segregated from other funds of such Grantor, and promptly deliver the same

18

to the Administrative Agent, on behalf of the Secured Parties, in accordance with the terms hereof.

SECTION 4.11Equipment.  Each Grantor will maintain each item of Equipment in good working order and condition (reasonable wear and tear and obsolescence excepted), and generally in accordance with any manufacturer’s manual, and will as quickly as practicable provide all maintenance, service and repairs necessary for such purpose and will promptly furnish to the Administrative Agent a statement respecting any material loss or damage to any of the Equipment.

SECTION 4.12Vehicles.  Upon the occurrence and during the continuance of an Event of Default, at the request of the Administrative Agent, all applications for certificates of title or ownership indicating the Administrative Agent’s first priority Lien on the Vehicle (subject to any Permitted Liens) covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction which the Administrative Agent shall deem reasonably advisable to perfect its Liens on the Vehicles; provided that with respect to Vehicles subject to Permitted Liens, no such application or other documentation shall be required.  Prior thereto, each certificate of title or ownership relating to each Vehicle shall be maintained by the applicable Grantor in accordance with applicable Law to reflect the ownership interest of such Grantor.

SECTION 4.13Government Contracts.  Each Grantor shall promptly notify the Administrative Agent, in writing, if it enters into any Government Contract with a Governmental Authority under which such Governmental Authority, as account debtor, owes a material monetary obligation to any Grantor under any Account.

SECTION 4.14Further Assurances.  Upon the request of the Administrative Agent and at the sole expense of the Grantors, each Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) the assignment of any Material Contract, (ii) with respect to Government Contracts, assignment agreements and notices of assignment, in form and substance satisfactory to the Administrative Agent, duly executed by any Grantors party to such Government Contract in compliance with the Assignment of Claims Act (and/or analogous state or other applicable Law), and (iii) all applications, certificates, instruments, registration statements, and all other documents and papers the Administrative Agent may reasonably request and as may be required by law in connection with the obtaining of any consent, approval, registration, qualification, or authorization of any Person deemed necessary or appropriate for the effective exercise of any rights under this Agreement.

ARTICLE V

REMEDIAL PROVISIONS

SECTION 5.1General Remedies.  If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them under applicable Law in this

19

Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC or any other applicable Law.  Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any other Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  The Administrative Agent may disclaim any warranties in connection with any sale or other disposition of the Collateral, including, without limitation, any warranties of title, possession, quiet enjoyment and the like.  The Administrative Agent or any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released.  Each Grantor further agrees, at the Administrative Agent’s request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere.  To the fullest extent permitted by applicable Law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any other Secured Party arising out of the exercise by them of any rights hereunder except to the extent any such claims, damages, or demands result solely from the gross negligence or willful misconduct of the Administrative Agent or any other Secured Party, in each case against whom such claim is asserted.  If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.

SECTION 5.2Specific Remedies.

(a)The Administrative Agent hereby authorizes each Grantor to collect such Grantor’s Accounts in the ordinary course of its business; provided that, the Administrative Agent may curtail or terminate such authority at any time after the occurrence and during the continuance of an Event of Default.

(b)Upon the occurrence and during the continuance of an Event of Default:

(i)the Administrative Agent may communicate with Account Debtors of any Account subject to a Security Interest and, upon the request of the Administrative Agent, each Grantor shall notify (such notice to be in form and substance satisfactory to the Administrative Agent) its Account Debtors and parties to the Material Contracts subject to a Security Interest that such Accounts and the Material Contracts have been assigned to the Administrative Agent, for the ratable benefit of the Secured Parties;

20

(ii)           each Grantor shall forward to the Administrative Agent, on the last Business Day of each week, deposit slips related to all cash, money, checks or any other similar items of payment received by the Grantor during such week, and, if requested by the Administrative Agent, copies of such checks or any other similar items of payment, together with a statement showing the application of all payments on the Collateral during such week and a collection report with regard thereto, in form and substance satisfactory to the Administrative Agent;

(iii)          the Administrative Agent may deliver such notices and instructions in accordance with control agreements covering Deposit Accounts (other than Excluded Accounts) and/or Securities Accounts.  In addition, whenever any Grantor shall receive any cash, money, checks or any other similar items of payment relating to any Collateral (including any Proceeds of any Collateral), subject to the terms of any Permitted Liens, such Grantor agrees that it will, within one (1) Business Day of such receipt, deposit all such items of payment into the Collateral Account or in a Deposit Account (other than an Excluded Deposit Account) at a Controlled Depositary, and until such Grantor shall deposit such cash, money, checks or any other similar items of payment in the Collateral Account or in a Deposit Account (other than an Excluded Deposit Account) at a Controlled Depositary, such Grantor shall hold such cash, money, checks or any other similar items of payment in trust for the Secured Parties and as property of the Secured Parties, separate from the other funds of such Grantor, and the Administrative Agent shall have the right to transfer or direct the transfer of the balance of each Deposit Account (other than an Excluded Deposit Account) to the Collateral Account.  All such Collateral and Proceeds of Collateral received by the Administrative Agent hereunder shall be held by the Administrative Agent in the Collateral Account as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 5.4;

(iv)          the Administrative Agent shall have the right to receive any and all cash dividends, payments or distributions made in respect of any Investment Property, any Partnership/LLC Interests or any other Proceeds paid in respect of any Investment Property or any Partnership/LLC Interests, and any or all of any Investment Property or any Partnership/LLC Interests shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Investment Property or such Partnership/LLC Interests at any meeting of shareholders, partners or members of the relevant Issuers and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property or such Partnership/LLC Interests as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property or any and all of the Partnership/LLC Interests upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate, partnership or company structure of any Issuer or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Investment Property or such Partnership/LLC Interests, and in connection therewith, the right to deposit and deliver any and all of the Investment Property or any and all of the Partnership/LLC Interests with any committee, depositary, transfer agent, registrar or

21

other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it; but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and the Administrative Agent and the other Secured Parties shall not be responsible for any failure to do so or delay in so doing.  In furtherance thereof, each Grantor hereby authorizes and instructs each Issuer with respect to any Collateral consisting of Investment Property and Partnership/LLC Interests to (i) comply with any instruction received by it from the Administrative Agent in writing that (A) states that an Event of Default has occurred and is continuing and (B) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying following receipt of such notice and prior to notice that such Event of Default is no longer continuing, and (ii) except as otherwise expressly permitted hereby, pay any dividends, distributions or other payments with respect to any Investment Property, or any Partnership/LLC Interests directly to the Administrative Agent; and

(v)           the Administrative Agent shall be entitled to (but shall not be required to):  (A) proceed to perform any and all obligations of the applicable Grantor under any Material Contract and exercise all rights of such Grantor thereunder as fully as such Grantor itself could, (B) do all other acts which the Administrative Agent may deem necessary or proper to protect its Security Interest granted hereunder, provided such acts are not inconsistent with or in violation of the terms of any of the Credit Agreement, of the other Loan Documents or applicable Law, and (C) sell, assign or otherwise transfer any Material Contract in accordance with the Credit Agreement, the other Loan Documents and applicable Law, subject, however, to the prior approval of each other party to such Material Contract, to the extent required under the Material Contract.

(c)           Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 5.2(b), each Grantor shall be permitted to receive all cash dividends, payments or other distributions made in respect of any Investment Property and any Partnership/LLC Interests, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and other corporate, company and partnership rights with respect to any Investment Property and any Partnership/LLC Interests; provided that, no vote shall be cast or other corporate, company and partnership right exercised or other action taken which, in the Administrative Agent’s reasonable judgment, would impair the Collateral in any material respect or which would result in a Default or Event of Default under any provision of the Credit Agreement, this Agreement or any other Loan Document.

SECTION 5.3                 Registration Rights.

(a)           If the Administrative Agent shall determine that in order to exercise its right to sell any or all of the Collateral it is necessary or advisable to have such Collateral registered under the provisions of the Securities Act (any such Collateral, the “Restricted Securities Collateral”), the relevant Grantor will cause each applicable Issuer (and the officers and directors thereof) to (i) execute and deliver all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Administrative Agent,

22

necessary or advisable to register such Restricted Securities Collateral, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its commercially reasonable efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of such Restricted Securities Collateral, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto.  Each Grantor agrees to cause each applicable Issuer (and the officers and directors thereof) to comply with the provisions of the securities or “Blue Sky” laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section II (a) of the Securities Act.

(b)           Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Restricted Securities Collateral, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner.  The Administrative Agent shall be under no obligation to delay a sale of any of the Restricted Securities Collateral for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

(c)           Each Grantor agrees to use its commercially reasonable efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Restricted Securities Collateral valid and binding and in compliance with any and all other applicable Laws.  Each Grantor further agrees that a breach of any of the covenants contained in this Section 5.3 will cause irreparable injury to the Administrative Agent and the other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 5.3 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement.

SECTION 5.4                 Application of Proceeds.  At such intervals as may be agreed upon by the Borrowers and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent’s election, the Administrative Agent may apply all or any part of the Collateral or any Proceeds of the Collateral in payment in whole or in part of the Obligations (after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including, without limitation, reasonable

23

attorneys’ fees and disbursements) in accordance with Section 8.03 of the Credit Agreement.  Only after (i) the payment by the Administrative Agent of any other amount required by any provision of applicable Law, including, without limitation, Section 9-610 and Section 9-615 of the UCC and (ii) the payment in full of the Obligations and the termination of the Commitments, shall the Administrative Agent account for the surplus, if any, to any Grantor, or to whomever may be lawfully entitled to receive the same (if such Person is not a Grantor).

SECTION 5.5                 Waiver, Deficiency.  Each Grantor hereby waives, to the extent permitted by applicable Law, all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable Law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof.  Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any other Secured Party to collect such deficiency.

ARTICLE VI

THE ADMINISTRATIVE AGENT

SECTION 6.1                 Administrative Agent’s Appointment as Attorney-In-Fact.

(a)           Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following upon the occurrence and during the continuation of an Event of Default:

(i)            in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account or Material Contract subject to a Security Interest or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such moneys due under any Account or Material Contract subject to a Security Interest or with respect to any other Collateral whenever payable;

(ii)           in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Administrative Agent’s and the Secured Parties’ security interest in such Intellectual Property and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby;

24

(iii)          pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)          execute, in connection with any sale provided for in this Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)           (A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (B) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (F) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (G) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (H) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Security Interests of the Secured Parties therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

(b)           If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement in accordance with the provisions of Section 6.1(a).

(c)           The expenses of the Administrative Agent incurred in connection with actions taken pursuant to the terms of this Agreement, together with interest thereon at a rate per annum equal to the Default Rate for Base Rate Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand.

(d)           Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof in accordance with Section 6.1(a).  All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created hereby are released.

25

SECTION 6.2                 Duty of Administrative Agent.  The sole duty of the Administrative Agent with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account.  Neither the Administrative Agent, any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Administrative Agent and the other Secured Parties hereunder are solely to protect the interests of the Administrative Agent and the other Secured Parties in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers.  The Administrative Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

SECTION 6.3                 Authority of Administrative Agent.  Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement to make any inquiry respecting such authority.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1                 Amendments, Waivers and Consents.  None of the terms, covenants, agreements or conditions of this Agreement may be amended, supplemented or otherwise modified, nor may they be waived, nor may any consent be given, except in accordance with Section 10.01 of the Credit Agreement.

SECTION 7.2                 Notices.  All notices and communications hereunder shall be given to the addresses and otherwise made in accordance with Section 10.02 of the Credit Agreement; provided that notices and communications to the Grantors shall be directed to the Borrower Agent, at the address set forth in Section 10.02 of the Credit Agreement.

SECTION 7.3                 No Waiver, Cumulative Remedies.  No failure by any Secured Party to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver

26

thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided and provided under each other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

SECTION 7.4                 Expenses, Indemnification, Waiver of Consequential Damages, etc..

(a)           Each Grantor, jointly and severally, shall pay all out-of-pocket expenses incurred by the Administrative Agent and each other Secured Party pursuant to, and in accordance with, the applicable provisions of Section 10.04 of the Credit Agreement.

(b)           Each Grantor, jointly and severally, shall indemnify each Indemnitee pursuant to, and in accordance with, Section 10.04 of the Credit Agreement.

(c)           Notwithstanding anything to the contrary contained in this Agreement, to the fullest extent permitted by applicable Law, no Grantor shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Credit Extensions or the use of the proceeds thereof.

(d)           No Indemnitee referred to in this Section 7.4 shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

(e)           Each Grantor agrees to pay, and to save the Administrative Agent and the other Secured Parties harmless from, any and all liabilities with respect to, or resulting from any such Grantor’s delay in paying, any and all stamp, excise, sales withholding or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Agreement.

(f)            All amounts due under this Section 7.4 shall be payable promptly after demand therefor.

SECTION 7.5                 Successors and Assigns.  The provisions of this Agreement shall be binding upon and shall inure to the benefit of each Grantor (and shall bind all Persons who become bound as a Grantor to this Agreement), the Administrative Agent and the other Secured Parties and their respective successors and permitted assigns; provided that no Grantor may assign or otherwise, transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and the Lenders (except as otherwise provided by the Credit Agreement).

27

SECTION 7.6                 Survival of Indemnities.  Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the other Secured Parties are entitled under the provisions of Section 7.4 and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the other Secured Parties against events arising after such termination as well as before.

SECTION 7.7                     Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Secured Party and each of its respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Secured Party or any such Affiliate to or for the credit or the account of such Grantor against any and all of the obligations of such Grantor now or hereafter existing under this Agreement or any other Loan Document to such Secured Party irrespective of whether or not such Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations of such Grantor may be contingent or unmatured or are owed to a branch or office of such Secured Party different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Secured Party and its respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Secured Party or its respective Affiliates may have.  Each Secured Party agrees to notify such Grantor and the Administrative Agent promptly after any such set off and application; provided that the failure to give such notice shall not affect the validity of such set off and application.  Notwithstanding the provisions of this Section 7.7, if at any time any Secured Party or any of its Affiliates maintains one or more deposit accounts for either Borrower or any other Loan Party into which Medicare and/or Medicaid receivables are deposited, such Person shall waive the right of setoff set forth herein.

SECTION 7.8                 Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  This Agreement shall become effective when it shall have been executed by the Administrative Agent and when the Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 7.9                 Severability.  If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or

28

unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 7.10               Governing Law; Jurisdiction; Service of Process.

(a)           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

(b)           Submission to Jurisdiction.  Each Grantor irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in Borough of Manhattan and the United States District Court of the Southern District of New York, and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable Law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law.  Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Grantor or its properties in the courts of any jurisdiction.

(c)           Waiver of Venue.  Each Grantor irrevocably and unconditionally waives, to the fullest extent permitted by applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)           Service of Process.  Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 10.02 of the Credit Agreement.  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable Law.

(e)           Appointment of the Borrower Agent as Agent for the Grantors.  Each Grantor hereby irrevocably appoints and authorizes the Borrower Agent to act as its agent for service of process and notices required to be delivered under this Agreement or under the other Loan Documents, it being understood and agreed that receipt by the Borrower Agent of any summons, notice or other similar item shall be deemed effective receipt by each Grantor and its Subsidiaries.

SECTION 7.11               Waiver of Jury Trial; California Judicial Reference.

(a)           Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT

29

IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

(b)           California Judicial Reference.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) the Grantors, on a joint and several basis, shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

SECTION 7.12               Injunctive Relief.  The Grantors recognize that, in the event the Grantors fail to perform, observe or discharge any of their obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Administrative Agent and the other Secured Parties.  Therefore, the Grantors agree that the Administrative Agent and the other Secured Parties, at the option of the Administrative Agent and the other Secured Parties, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

SECTION 7.13               Acknowledgements.

(a)           Each Grantor hereby acknowledges that:  (i) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party, (ii) it has received a copy of the Credit Agreement and has reviewed and understands same, (iii) neither the Administrative Agent nor any other Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor, and (iv) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby or thereby among the Secured Parties or among the Grantors and the Secured Parties.

30

(b)           Each Issuer party to this Agreement acknowledges receipt of a copy of this Agreement and agrees to be bound thereby and to comply with the terms thereof insofar as such terms are applicable to it.  Each Issuer agrees to provide such notices to the Administrative Agent as may be necessary to give full effect to the provisions of this Agreement.

SECTION 7.14                   Releases.

(a)           At such time as the Obligations shall have been paid in full in cash and the Commitments have been terminated, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors.  At the request and sole expense of any Grantor following any such termination, the Administrative Agent shall deliver to such Grantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

(b)           If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable to evidence the release of the Liens created hereby on such Collateral.  In the event that all the Equity Interests of any Grantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement, then, at the request of the Borrower Agent and at the expense of the Grantors, such Grantor shall be released from its obligations hereunder; provided that the Borrower Agent shall have delivered to the Administrative Agent, at least ten (10) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Grantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower Agent stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

SECTION 7.15                   Additional Grantors.  Each Subsidiary of the Borrowers that is required to become a party to this Agreement pursuant to Section 6.12 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of a joinder agreement in form and substance satisfactory to the Administrative Agent.

SECTION 7.16                   All Powers Coupled with Interest.  All powers of attorney and other authorizations granted to the Secured Parties, the Administrative Agent and any Persons designated by the Administrative Agent or any other Secured Party pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied, any of the Commitments remain in effect or the Term Facility or Revolving Credit Facility have not been terminated.

[Signature Pages to Follow]

31

IN WITNESS WHEREOF, the parties hereto have caused this First Lien Collateral Agreement to be executed under seal by their duly authorized officers, all as of the day and year first written above.

[                                            ], as Grantor
By:
	Name:
	Title:
[                                            ], as Grantor and Issuer
By:
	Name:
	Title:

[Signature Pages Continue]

BANK OF AMERICA, N.A.,

as Administrative Agent

By:

Name:

Title:

SCHEDULE 3.6

to

Collateral Agreement

Exact Legal Name; Jurisdiction of Organization; Taxpayer Identification Number; Registered

Organization Number; Mailing Address; Chief Executive Office and other Locations

SCHEDULE 3.9

to

Collateral Agreement

Commercial Tort Claims

SCHEDULE 3.10

to

Collateral Agreement

Deposit Accounts

Grantor Financial Institution Account Number Address of Financial
Institution Account Purpose

SCHEDULE 3.11

to

Collateral Agreement

Intellectual Property

1.             The listing of Trademarks (as defined in the Collateral Agreement) should include: (a) the Trademark; (b) Registration Number or Serial Number; (c) the Owner; (d) the Filing Date; (e) the Registration Date (if applicable); (f) the Date Affidavit of Use and/or Renewal is Due; and (g) Whether the Affidavit of Use and/or Renewal has been filed.

2.             The listing of Trademark Licenses (as defined in the Collateral Agreement) should include: (a) Name and Address of Licensee/Licensor; (b) Date; (c) List of each Trademark Licensed/Assigned; and (d) Description of product to which license/assignment applies.

3.             The listing of Patents (as defined in the Collateral Agreement) should include: (a) Country; (b) Patent Number; (c) Issue Date; (d) Inventor(s); (e) Title of Invention; (f) Dates on which Maintenance Fees were paid;  and (g) Identity of Party Paying Maintenance Fees.

4.             The listing of Patent (as defined in the Collateral Agreement) applications should include:  (a) Application Number; (b) Filing Date; (c) Inventors; and (d) Title of Invention.

5.             The listing of Patent Licenses (as defined in the Collateral Agreement) should include:  (a) Name and Address of Licensee/Licensor; (b) Date; (c) List of each Patent Licensed/Assigned; and (d) Description of product to which license/assignment applies

6.             The listing of Copyrights (as defined in the Collateral Agreement) should include: (a) Registration Number; (b) Registration Date; (c) Title as listed in Registration; (d) Publication Date; (e) Creation Date; (f) Author; and(g) Subject Matter Covered.

7.             The listing of Copyright Licenses (as defined in the Collateral Agreement) should include: (a) Name and Address of Licensee/Licensor; (b) Date; (c) Work Licensed or Assigned.

SCHEDULE 3.13

to

Collateral Agreement

Investment Property and Partnership/LLC Interests

Certificated Securities:

[Grantor]:

Name of Issuer Class and Series Par Value Certificate Number Percentage of
Ownership Interests of
such Class and Series

Securities Accounts (including cash management accounts that are Investment Property) and Uncertificated Securities:

[Grantor]:

Financial Institution Account Number Address of Financial
Institution Account Purpose

Name of Issuer Class and Series Par Value Percentage of Ownership
Interests of such Class and Series

Partnerships/LLC Interests:

[Grantor]:

Name of Issuer
(including identification of 
type of entity) Type of Ownership Interest Certificate Number
(if any) Percentage of Ownership
Interests of such Type

SCHEDULE 3.14

to

Collateral Agreement

Instruments

EXHIBIT A

to

Collateral Agreement

Form of Governmental Receivables Account Agreement

EX-10.34

Exhibit 10.34

EXECUTION COPY

SECOND LIEN COLLATERAL AGREEMENT

dated as of August 8, 2007

by and among

PROSPECT MEDICAL HOLDINGS, INC.

PROSPECT MEDICAL GROUP, INC.,

and certain of their Subsidiaries,

as Grantors,

in favor of

BANK OF AMERICA, N.A.,

as Administrative Agent

Table of Contents

		Page
ARTICLE I DEFINED TERMS		1
SECTION 1.1	Terms Defined in the Uniform Commercial Code.	1
SECTION 1.2	Definitions	2
SECTION 1.3	Other Interpretive Provisions	6
ARTICLE II SECURITY INTEREST		7
SECTION 2.1	Grant of Security Interest	7
SECTION 2.2	Grantors Remain Liable	9
ARTICLE III REPRESENTATIONS AND WARRANTIES		9
SECTION 3.1	Existence, Qualification and Power; Compliance with Laws	9
SECTION 3.2	Authorization; No Contravention; Binding Effect	9
SECTION 3.3	Consents	10
SECTION 3.4	Perfected Second Priority Liens	10
SECTION 3.5	Title, No Other Liens	10
SECTION 3.6	State of Organization; Location of Inventory, Equipment and Fixtures; other Information	11
SECTION 3.7	Accounts	11
SECTION 3.8	Chattel Paper	11
SECTION 3.9	Commercial Tort Claims	11
SECTION 3.10	Deposit Accounts	11
SECTION 3.11	Intellectual Property	12
SECTION 3.12	Inventory	12
SECTION 3.13	Investment Property; Partnership/LLC Interests	12
SECTION 3.14	Instruments	13
SECTION 3.15	Farm Products	13
SECTION 3.16	Government Contracts	13
SECTION 3.17	Aircraft	13
ARTICLE IV COVENANTS		13
SECTION 4.1	Maintenance of Perfected Security Interest; Further Information	13
SECTION 4.2	Maintenance of Insurance	13
SECTION 4.3	Changes in Locations; Changes in Name or Structure	14
SECTION 4.4	Required Notifications	14
SECTION 4.5	Delivery Covenants	15
SECTION 4.6	Control Covenants; Certain Excluded Deposit Accounts	15
SECTION 4.7	Filing Covenants	16
SECTION 4.8	Accounts	16
SECTION 4.9	Intellectual Property	17
SECTION 4.10	Investment Property; Partnership/LLC Interests.	18
SECTION 4.11	Equipment	19
SECTION 4.12	Vehicles	19
SECTION 4.13	Government Contracts	19

i

SECTION 4.14	Further Assurances	19
ARTICLE V REMEDIAL PROVISIONS		20
SECTION 5.1	General Remedies	20
SECTION 5.2	Specific Remedies	20
SECTION 5.3	Registration Rights	23
SECTION 5.4	Application of Proceeds	24
SECTION 5.5	Waiver, Deficiency	24
ARTICLE VI THE ADMINISTRATIVE AGENT		24
SECTION 6.1	Administrative Agent’s Appointment as Attorney-In-Fact	24
SECTION 6.2	Duty of Administrative Agent	26
SECTION 6.3	Authority of Administrative Agent	26
ARTICLE VII MISCELLANEOUS		26
SECTION 7.1	Amendments, Waivers and Consents	26
SECTION 7.2	Notices	27
SECTION 7.3	No Waiver, Cumulative Remedies	27
SECTION 7.4	Expenses, Indemnification, Waiver of Consequential Damages, etc.	27
SECTION 7.5	Successors and Assigns	28
SECTION 7.6	Survival of Indemnities	28
SECTION 7.7	Right of Setoff	28
SECTION 7.8	Counterparts; Integration; Effectiveness	28
SECTION 7.9	Severability	29
SECTION 7.10	Governing Law; Jurisdiction; Service of Process	29
SECTION 7.11	Waiver of Jury Trial; California Judicial Reference	30
SECTION 7.12	Injunctive Relief.	30
SECTION 7.13	Acknowledgements	31
SECTION 7.14	Releases	31
SECTION 7.15	Additional Grantors	31
SECTION 7.16	All Powers Coupled with Interest	32

ii

SCHEDULES:
Schedule 3.6	Exact Legal Name; Jurisdiction of Organization; Taxpayer Identification Number; Registered Organization Number; Mailing Address; Chief Executive Office and other Locations
Schedule 3.9	Commercial Tort Claims
Schedule 3.10	Deposit Accounts
Schedule 3.11	Intellectual Property
Schedule 3.13	Investment Property and Partnership/LLC Interests
Schedule 3.14	Instruments
EXHIBITS
Exhibit A	Form of Governmental Receivables Account Agreement

iii

SECOND LIEN COLLATERAL AGREEMENT (this “Agreement”), dated as of August 8, 2007 by and among PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), PROSPECT MEDICAL GROUP, INC., a California professional corporation (together with Holdings, the “Borrowers”), each of the Guarantors (as defined in the Credit Agreement referred to below) and identified on the signature pages hereto and any Additional Grantor (as defined below) who may become party to this Agreement (such Guarantors and Additional Grantors, collectively, with the Borrowers, the “Grantors”), in favor of BANK OF AMERICA, N.A., as Administrative Agent (in such capacity, the “Administrative Agent”) for the ratable benefit of the Secured Parties.

STATEMENT OF PURPOSE

Pursuant to the Second Lien Credit Agreement, dated as of even date herewith by and among the Borrowers, the banks and other financial institutions from time to time party thereto (the “Lenders”) and the Administrative Agent (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), the Lenders have agreed to make Credit Extensions to the Borrowers upon the terms and subject to the conditions set forth therein.

Pursuant to the terms of a Second Lien Guaranty of even date herewith, the Guarantors who are parties hereto have guaranteed the payment and performance of the Obligations.

It is a condition precedent to the obligation of the Lenders to make their respective Credit Extensions to the Borrowers under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Administrative Agent, for the ratable benefit of the Secured Parties.

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties hereto, and to induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrowers thereunder, each Grantor hereby agrees with the Administrative Agent, for the ratable benefit of the Secured Parties, as follows:

ARTICLE I

DEFINED TERMS

SECTION 1.1             Terms Defined in the Uniform Commercial Code.

(a)           The following terms when used in this Agreement shall have the meanings assigned to them in the UCC (as defined below) as in effect from time to time:  “Account”, “Account Debtor”, “Authenticate”, “Certificated Security”, “Chattel Paper”; “Commercial Tort Claim”, “Deposit Account”, “Documents”, “Electronic Chattel Paper”, “Equipment”, “Farm Products” “Fixture”, “General Intangible”, “Goods”, “Health-Care-Insurance Receivables”, “Instrument”, “Inventory”, “Investment Company Security”, “Investment Property”, “Letter of Credit Rights”, “Payment Intangibles”, “Proceeds”, “Record”, “Registered Organization”, “Security”, “Securities Entitlement”, “Securities Intermediary”, “Securities Account”, “Security”, “Supporting Obligation”, “Tangible Chattel Paper”, and “Uncertificated Security”.

(b)           Terms defined in the UCC and not otherwise defined herein or in the Credit Agreement shall have the meaning assigned in the UCC as in effect from time to time.

SECTION 1.2                 Definitions.  The following terms when used in this Agreement shall have the meanings assigned to them below:

“Additional Grantor” means each Subsidiary of the Borrowers which hereafter becomes a Grantor pursuant to Section 7.15 (as required pursuant to Section 6.12 of the Credit Agreement).

“Agreement” means this Collateral Agreement, as amended, restated, supplemented or otherwise modified from time to time.

“Applicable Insolvency Laws” means all applicable Laws governing bankruptcy, reorganization, arrangement, adjustment of debts, relief of debtors, dissolution, insolvency, fraudulent transfers or conveyances or other similar laws (including, without limitation, 11 U.S.C. Sections 544, 547, 548 and 550 and other “avoidance” provisions of Title 11 of the United States Code).

“Assignment of Claims Act” means the Assignment of Claims Act of 1940 (41 U.S.C. Section 15, 31 U.S.C.  Section 3737, and 31 U.S.C. Section 3727), including all amendments thereto and regulations promulgated thereunder.

“Brotman Shares” means the shares of common stock owned as of the date hereof issued by Brotman Medical Center, Inc., a California corporation, to Prospect Hospital Advisory Services, Inc.

“Capitated Contract Rights” means, collectively, all of the Loan Parties’ contracts whether presently existing or hereafter executed between Loan Parties and various health maintenance organizations and all proceeds therefrom.

“Collateral” has the meaning assigned thereto in Section 2.1.

“Collateral Account” means any collateral account established by the Administrative Agent as provided in Section 5.2.

“Collections” means all funds received from or on behalf of Obligors in payment of any amount owed with respect to Receivables.

“Control” means the manner in which “control” is achieved under the UCC with respect to any Collateral for which the UCC specifies a method of achieving “control”.

“Controlled Depository” has the meaning assigned thereto in Section 4.6.

“Controlled Intermediary” has the meaning assigned thereto in Section 4.6.

“Copyrights” means collectively, all of the following of any Grantor: (a) all copyrights, rights and interests in copyrights, works protectable by copyright, copyright registrations and copyright applications anywhere in the world, including, without limitation, those listed on

2

Schedule 3.11 hereto, (b) all extensions, and renewals of any of the foregoing, (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.

“Copyright Licenses” means any written agreement naming any Grantor as licensor or licensee, including, without limitation, those listed in Schedule 3.11, granting any right under any Copyright, including, without limitation, the grant of rights to manufacture, distribute, exploit and sell materials derived from any Copyright.

“Effective Endorsement and Assignment” means, with respect to any specific type of Collateral, all such endorsements, assignments and other instruments of transfer reasonably requested by the Administrative Agent with respect to the Security Interest granted in such Collateral, and in each case, in form and substance satisfactory to the Administrative Agent.

“Excess Collateral” has the meaning assigned thereto in Section 4.6(c).

“Excluded Deposit Account” means, collectively, (a) Deposit Accounts established solely for the purpose of funding payroll and other compensation and benefits to employees and (b) all Deposit Accounts into which Governmental Receivables are initially deposited.

“Fee-for-Service Receivables” means Receivables other than Capitated Contract Rights.

“First Lien Secured Parties” means the secured parties under the First Lien Collateral Documents.

“Government Contract” means a contract between any Grantor and an agency, department or instrumentality of the United States or any state, municipal or local Governmental Authority located in the United States or all obligations of any such Governmental Authority arising under any Account now or hereafter owing by any such Governmental Authority, as account debtor, to any Grantor; provided, however, that such definition shall exclude all Government Reimbursement Programs.

“Governmental Receivable” means any Account that is payable pursuant to any Government Reimbursement Program.

“Government Reimbursement Program” means any program (a) relating to Medicare, (b) Medicaid, or (c) any other state or federal programs as payor or program administrated by the Centers for Medicare and Medicaid Services or any agent, administrator, intermediary or carrier for any of the foregoing.

“Grantors” has the meaning set forth in the Preamble of this Agreement.

“Intellectual Property” means collectively, all of the following of any Grantor: (a)  all systems software, applications software and internet rights, including, without limitation, screen displays and formats, internet domain names, web sites (including web links), program

3

structures, sequence and organization, all documentation for such software, including, without limitation, user manuals, flowcharts, programmer’s notes, functional specifications, and operations manuals, all formulas, processes, ideas and know-how embodied in any of the foregoing, and all program materials, flowcharts, notes and outlines created in connection with any of the foregoing, whether or not patentable or copyrightable, (b) concepts, discoveries, inventions, improvements and ideas, (c) any useful information relating to the items described in clause (a) or (b), including know-how, technology, engineering drawings, reports, design information, trade secrets, practices, laboratory notebooks, specifications, test procedures, maintenance manuals, research, development, manufacturing, marketing, merchandising, selling, purchasing and accounting, (d) Patents and Patent Licenses, Copyrights and Copyright Licenses, Trademarks and Trademark Licenses, and (e) other licenses to use any of the items described in the foregoing clauses (a), (b), (c) and (d) or any other similar items of such Grantor necessary for the conduct of its business.

“Issuer” means any issuer of any Investment Property or Partnership/LLC Interests (including, without limitation, any Issuer as defined in the UCC).

“Obligations” means with respect to the Borrowers, the meaning assigned thereto in the Credit Agreement, and with respect to each Guarantor, the obligations of such Guarantor under the Guaranty executed by such Guarantor and with respect to all Grantors, all liabilities and obligations of the Grantors hereunder and all liabilities and obligations of the Grantors with respect to overdrafts, returned items and related liabilities and all indemnification obligations under the Loan Documents now or hereafter owing by any Grantor to Bank of America, N.A., any Affiliate thereof or the Administrative Agent arising from or in connection with treasury, depositary or cash management services or in connection with any automated clearinghouse transfer of funds for the benefit of such Grantor.

“Obligors” means any person that is obligated  to make payment with respect to any Capitated Contract or other Receivables.

“Partnership/LLC Interests” means, with respect to any Grantor, the entire partnership, membership interest or limited liability company interest, as applicable, of such Grantor in each partnership, limited partnership or limited liability company owned thereby, including, without limitation, such Grantor’s capital account, its interest as a partner or member, as applicable, in the net cash flow, net profit and net loss, and items of income, gain, loss, deduction and credit of any such partnership, limited partnership or limited liability company, as applicable, such Grantor’s interest in all distributions made or to be made by any such partnership, limited partnership or limited liability company, as applicable, to such Grantor and all of the other economic rights, titles and interests of such Grantor as a partner or member, as applicable, of any such partnership, limited partnership or limited liability company, as applicable, whether set forth in the partnership agreement or membership agreement, as applicable, of such partnership, limited partnership or limited liability company, as applicable, by separate agreement or otherwise.

“Patents” means collectively, all of the following of any Grantor: (a) all patents, rights and interests in patents, patent disclosures, patentable inventions and patent applications anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all

4

improvements thereto, reissues, continuations (in whole or in part), divisionals, reexaminations and renewals and extensions of any of the foregoing, (c) all income, royalties, damages or payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing throughout the world.

“Patent License” means all agreements now or hereafter in existence, whether written, implied or oral, providing for the grant by or to any Grantor of any right to manufacture, use or sell any invention covered in whole or in part by a Patent, including, without limitation, any of the foregoing referred to in Schedule 3.11 hereto.

“Patient Lists” means all records, documents, lists, electronic media or any other method of recordation that shows in any way any Person to whom Loan Parties supply medical services, medication, medical supplies, or professional services, the name and mailing address of such Person, a complete and accurate description of the medical services, medication, medical supply item or professional service that is supplied to such Person, the physician at whose direction such medical services, medication, medical supply or professional service is delivered, and all other information Loan Parties used in the course of Loan Parties’ ordinary course of business to supply such Person with medical services, medication, medical supplies or professional service.

“Permitted Liens” means the Liens permitted by Section 7.01(a)-(i) and (k)-(l) of the Credit Agreement.

“Receivables” means any right to payment, whether constituting an account, chattel paper, instrument, general intangible, payment intangible or health-care insurance receivable, Capitated Contract Rights, Fee-for-Service Receivable, Governmental Receivable or otherwise, arising from the sale, rental or lease of healthcare goods or equipment, or the provision of services and any ancillary sales, including all rights and remedies to payment relating thereto, together with any and all proceeds in any way derived, directly or indirectly therefrom.  The term “Receivables” shall include amounts due under capitation and similar agreements, amounts due any Loan Party for cost adjustments or undercharges for prior services, amounts due as any part of a disproportionate share or risk share payment, workmen’s compensation claims, and any other claims to payment held by any Loan Party.

“Restricted Securities Collateral” has the meaning assigned thereto in Section 5.3.

“Securities Act” means the Securities Act of 1933, including all amendments thereto and regulations promulgated thereunder.

“Security Interests” means the security interests granted pursuant to Article II, as well as all other security interests created or assigned as additional security for the Obligations pursuant to the provisions of the Credit Agreement.

“Trademarks” means collectively all of the following of any Grantor: (a) all trademarks, rights and interests in trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, trade dress, service marks, logos, other business

5

identifiers, together with translations, adaptations, derivations and combinations thereof, prints and labels on which any of the foregoing have appeared or appear, whether registered or unregistered, all registrations and recordings thereof, and all applications in connection therewith (other than each application to register any trademark or service mark prior to the filing under applicable Law of a verified statement of use for such trademark or service mark) anywhere in the world, including, without limitation, those listed on Schedule 3.11 hereto, (b) all extensions and renewals of any of the foregoing, (c) all income, royalties, damages and payments now or hereafter due and/or payable under any of the foregoing or with respect to any of the foregoing, including, without limitation, damages or payments for past, present or future infringements of any of the foregoing, (d) the right to sue for past, present or future infringements of any of the foregoing and (e) all rights corresponding to any of the foregoing (including the goodwill) throughout the world.

“Trademark License” means any agreement now or hereafter in existence, whether written or oral, providing for the grant by or to any Grantor of any right to use any Trademark, including, without limitation, any of the foregoing referred to in Schedule 3.11.

“UCC” means the Uniform Commercial Code as in effect in the State of New York, as amended or modified from time to time.

“Vehicles” means all cars, trucks, trailers, construction and earth moving equipment and other vehicles covered by a certificate of title under the laws of any state, all tires and all other appurtenances to any of the foregoing.

SECTION 1.3             Other Interpretive Provisions.  Terms defined in the Credit Agreement and not otherwise defined herein shall have the meanings assigned thereto in the Credit Agreement.  With reference to this Agreement and each other Loan Document, unless otherwise specified herein or in such other Loan Document:  (a) the definitions of terms herein shall apply equally to the singular and plural forms of the terms defined, (b) whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms, (c) the words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation”, (d) the word “will” shall be construed to have the same meaning and effect as the word “shall”, (e) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document, as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (f) any reference herein to any Person shall be construed to include such Person’s permitted successors and assigns, (g) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (h) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement, (i) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights, (j) the term “documents” includes any and all instruments, documents, agreements, certificates, notices, reports, financial statements and other writings, however evidenced, whether in physical or electronic form, (k) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and

6

including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including”, (l) Section headings herein and in the other Loan Documents are included for convenience of reference only and shall not affect the interpretation of this Agreement or any other Loan Document and (k) where the context requires, terms relating to the Collateral or any part thereof, when used in relation to a Grantor, shall refer to such Grantor’s Collateral or the relevant part thereof.  To the extent that a direct conflict between the provisions of this Agreement and the provisions of the Credit Agreement (other than with respect to any provision of this Agreement relating to the grant, pledge and assignment of the Security Interest in the Collateral or the exercise of remedies with respect thereto), the Credit Agreement shall govern.

SECTION 1.4             Intercreditor Agreement.  Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Secured Parties, pursuant to this Agreement, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Secured Parties, under this Agreement, are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

ARTICLE II

SECURITY INTEREST

SECTION 2.1             Grant of Security Interest.  Each Grantor hereby grants, pledges and collaterally assigns to the Administrative Agent, for the ratable benefit of the Secured Parties, a security interest in, all of such Grantor’s right, title and interest in the following property, now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has or at any time in the future may acquire any right, title or interest, and wherever located or deemed located (collectively, the “Collateral”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations:

(a)           all Accounts including, without limitation, all “Health Care Insurance Receivables”, all Receivables (including all Capitated Contract Rights) and all Collections and other payments and proceeds with regard thereto;

(b)           all cash and currency;

(c)           all Chattel Paper;

(d)           all Commercial Tort Claims identified on Schedule 3.9;

(e)           all Deposit Accounts;

(f)            all Documents;

(g)           all Equipment;

7

(h)all Fixtures;

(i)all General Intangibles, including all Payment Intangibles, any disproportionate share settlements, risk share settlements, cost report settlements, capitation settlement payments or other distributions to any Loan Party related to the Collateral or any portion thereof or the related contracts;

(j)all Instruments;

(k)all Intellectual Property;

(l)all Inventory;

(m)all Investment Property (other than the Brotman Shares);

(n)all Letter of Credit Rights;

(o)all licenses, Permits and governmental authorizations, including all operating and medical licenses and permits, including any certificates of need, provider contracts, general certifications and other similar type authorizations;

(p)all Vehicles;

(q)all Goods and all other personal property not otherwise described above;

(r)to the extent not prohibited by applicable Health Care Laws all books and records pertaining to the Collateral and all customer lists and Patient Lists;

(s)to the extent not otherwise included, all Proceeds, insurance claims and products of any and all of the foregoing and all collateral security and Supporting Obligations (as now or hereafter defined in the UCC) and other rights to payment not otherwise included in the foregoing given by any Person with respect to any of the foregoing.

provided, that (i) any Security Interest on any Equity Interests issued by any Foreign Subsidiary shall be limited to 66% of all issued and outstanding shares of all classes of Equity Interests of first tier Foreign Subsidiaries, (ii) the Security Interests granted herein shall not extend to, and the term “Collateral” shall not include, any rights under any lease, contract or agreement (including, without limitation, any license for Intellectual Property) to the extent that the granting of a security interest therein is specifically prohibited in writing by, or would constitute an event of default under or would grant a party a termination right under any agreement governing such right unless such prohibition is not enforceable or is otherwise ineffective under applicable Law.  Notwithstanding any of the foregoing, such proviso shall not affect, limit, restrict or impair the grant by any Grantor of a Security Interest in any Account or any money or other amounts due and payable to any Grantor or to become due and payable to any Grantor under such lease, contract or agreement.

Notwithstanding the foregoing, the payment and performance of the Obligations shall not be secured by any Swap Contract between any Grantor and any Secured Party.

8

SECTION 2.2Grantors Remain Liable. Anything herein to the contrary notwithstanding: (a) each Grantor shall remain liable to perform all of its duties and obligations under the contracts and agreements included in the Collateral to the same extent as if this Agreement had not been executed, (b) the exercise by Administrative Agent of any of the rights hereunder shall not release any Grantor from any of its duties or obligations under the contracts and agreements included in the Collateral, (c) neither the Administrative Agent nor any other Secured Party shall have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall the Administrative Agent or any other Secured Party be obligated to perform any of the obligations or duties of any Grantor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder, and (d) neither the Administrative Agent nor any other Secured Party shall have any liability in contract or tort for any Grantor’s acts or omissions.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

To induce the Administrative Agent and the Lenders to enter into the Credit Agreement and to induce the Lenders to make their respective Credit Extensions to the Borrowers thereunder, each Grantor hereby represents and warrants to the Administrative Agent and each other Secured Party that:

SECTION 3.1Existence, Qualification and Power; Compliance with Laws.  Each Grantor (a) is a corporation, partnership or limited liability company duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its incorporation or organization, (b) has all requisite power and authority and all requisite governmental permits, licenses, authorizations, consents and approvals to (i) own or lease its assets and carry on its business and (ii) execute, deliver and perform its obligations under the Loan Documents and Related Documents to which it is a party, and (c) is duly qualified and is licensed, and in good standing under the Laws of each jurisdiction where its ownership, lease or operation of properties or the conduct of its business requires such qualification or license; except in each case referred to in clauses (b)(i) or (c), to the extent the failure to do so could not reasonably be expected to have a Material Adverse Effect.

SECTION 3.2Authorization; No Contravention; Binding Effect.  The execution, delivery and performance by each Grantor of each Loan Document and Related Document to which such Person is or is to be a party, have been duly authorized by all necessary corporate or other organizational action, and do not and will not (a) contravene the terms of any of such Person’s Organization Documents; (b) conflict with or result in any breach or contravention of, or the creation of any Lien under, or require any payment to be made under (i) any Contractual Obligation to which such Person is a party or affecting such Person or the properties of such Person or any of its Subsidiaries or (ii) any order, injunction, writ or decree of any Governmental Authority or any arbitral award to which such Person or its property is subject; or (c) violate any Law.  This Agreement constitutes, and each other Loan Document and Related Document when so delivered will constitute, a legal, valid and binding obligation of the Grantors enforceable in accordance with its terms.

9

SECTION 3.3Consents.  No approval, consent, exemption, authorization or other action by, or notice to, or filing with, any Governmental Authority or any other Person is necessary or required in connection with the execution, delivery or performance by, or enforcement against any Grantor or any Issuer of this Agreement, except (a) as may be required by laws affecting the offering and sale of securities generally, (b) filings with the United States Copyright Office and/or the United States Patent and Trademark Office, (c) filings under the UCC and/or the Assignment of Claims Act and (d) as may be required with respect to Vehicles represented by a certificate of title.

SECTION 3.4Perfected Second Priority Liens.  Each financing statement naming any Grantor as a debtor is in appropriate form for filing in the appropriate filing offices specified on Schedule 3.6.  The Security Interests granted pursuant to this Agreement (a) constitute valid security interests in all of the Collateral in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, as collateral security for the Obligations, and (b):  (i) when UCC financing statements (or foreign equivalents) containing an adequate description of the Collateral shall have been filed in the offices specified in Schedule 3.6, will constitute perfected security interests in all right, title and interest of such Grantor in the Collateral to the extent that a security interest therein may be perfected by filing pursuant to the UCC, prior to all other Liens and rights of others therein except for Permitted Liens; (ii) when each Copyright security agreement has been filed with the United States Copyright Office, will constitute perfected security interests in all right, title and interest of such Grantor in the Intellectual Property therein described, prior to all other Liens and rights of others therein except for Permitted Liens; and (iii) when each control agreement has been executed and delivered to the Administrative Agent, will constitute perfected security interests in all right, title and interest of the Grantors in the Deposit Accounts and Securities Accounts, as applicable, subject thereto, prior to all other Liens and rights of others therein and subject to no adverse claims except for Permitted Liens.

SECTION 3.5Title, No Other Liens.  Except for the Security Interests, each Grantor owns each item of the Collateral free and clear of any and all Liens or claims other than Permitted Encumbrances and the other Liens permitted under the Loan Documents.  No financing statement under the UCC of any state (or any foreign equivalent) which names a Grantor as debtor or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Administrative Agent, for the ratable benefit of the Secured Parties, pursuant to this Agreement or in connection with Permitted Encumbrances and the other Liens permitted under the Loan Documents.  No Collateral is in the possession or Control of any Person asserting any claim thereto or security interest therein, except that (a) the Administrative Agent or its designee may have possession or Control of Collateral as contemplated hereby, (b) a depositary bank may have Control of a Deposit Account owned by a Grantor at such depositary bank and a Securities Intermediary may have Control over a Securities Account owned by a Grantor at such Securities Intermediary, in each case subject to the terms of any Deposit Account control agreement or Securities Account control agreement, as applicable, and to the extent required by Section 4, in favor of the Administrative Agent, and (c) a bailee, consignee or other Person may have possession of the Collateral as contemplated by, and so long as, the applicable Grantors have complied to the satisfaction of the Administrative Agent with the applicable provisions of Section 4.6(c).

10

SECTION 3.6State of Organization; Location of Inventory, Equipment and Fixtures; other Information.

(a)The exact legal name of each Grantor is set forth on Schedule 3.6.

(b)Each Grantor is a Registered Organization organized under the laws of the state identified on Schedule 3.6 under such Grantor’s name.  The taxpayer identification number and Registered Organization number of each Grantor is set forth on Schedule 3.6 under such Grantor’s name.

(c)All Collateral consisting of Inventory, Equipment and Fixtures (whether now owned or hereafter acquired) is (or will be) located at the locations specified on Schedule 3.6, except as otherwise permitted hereunder.

(d)The mailing address, chief place of business, chief executive office and office where each Grantor keeps its books and records relating to the Accounts, Documents, General Intangibles, Instruments and Investment Property in which it has any interest is located at the locations specified on Schedule 3.6 under such Grantor’s name.  No Grantor has any other places of business except those separately set forth on Schedule 3.6 under such Grantor’s name.  No Grantor does business nor has done business during the past five years under any trade name or fictitious business name except as disclosed on Schedule 3.6 under such Grantor’s name.  Except as disclosed on Schedule 3.6 under such Grantor’s name, no Grantor has acquired assets from any Person, other than assets acquired in the ordinary course of such Grantor’s business, during the past five years.

SECTION 3.7Accounts.  Each existing Account constitutes, and each hereafter arising Account will constitute, the legally valid and binding obligation of the applicable Account Debtor.  The amount represented by each Grantor to the Administrative Agent as owing by each Account Debtor is, or will be, the correct amount actually and unconditionally owing, except for ordinary course cash discounts and allowances where applicable.  No Account Debtor has any defense, set-off, claim or counterclaim against any Grantor that can be asserted against the Administrative Agent, whether in any proceeding to enforce the Administrative Agent’s rights in the Collateral or otherwise except defenses, setoffs, claims or counterclaims that are not, in the aggregate, material to the value of the Accounts.  None of the Accounts is, nor will any hereafter arising Account be, evidenced by a promissory note or other Instrument (other than a check) that has not been pledged to the Administrative Agent in accordance with the terms hereof.

SECTION 3.8Chattel Paper.  As of the date hereof, no Grantor holds any Chattel Paper in the ordinary course of its business.

SECTION 3.9Commercial Tort Claims.  As of the date hereof, all Commercial Tort Claims owned by any Grantor are listed on Schedule 3.9.

SECTION 3.10Deposit Accounts.  As of the date hereof, all Deposit Accounts (including, without limitation, cash management accounts that are Deposit Accounts), securities accounts and lockboxes (including the: (a) owner of the account, (b) name and address of

11

financial institution or securities broker where such accounts are located, (c) account numbers and (d) purpose or use of such account) owned by any Grantor are listed on Schedule 3.10.

SECTION 3.11Intellectual Property.

(a)As of the date hereof, all Copyright registrations, Copyright applications, issued Patents, Patent applications, Trademark registrations and Trademark applications owned by any Grantor in its own name on the date hereof is listed on Schedule 3.11.

(b)Except as set forth in Schedule 3.11 on the date hereof, none of the Intellectual Property owned by any Grantor is the subject of any written licensing or franchise agreement pursuant to which such Grantor is the licensor or franchisor, except as could not reasonably be expected to have a Material Adverse Effect.

(c)Each Grantor owns, or possesses the right to use, all of the Trademarks, Copyrights, Patents, franchises, licenses and other Intellectual Property rights that are reasonably necessary for the operation of their respective businesses, without conflict with the rights of any other Person.  All applications, registrations and grants for all material Patents, Trademarks and Copyrights of each Grantor and to the knowledge of each Grantor, all applications, registrations and grants for any material licensed Intellectual Property are valid, subsisting and enforceable, are in good standing, all required filings with any relevant governmental intellectual property office have been made and all required filing, registration, maintenance and other fees have been paid.  To the best knowledge of each Grantor, no slogan or other advertising device, product, process, method, substance, part or other material now employed, or now contemplated to be employed, by any Grantor infringes upon any rights held by any other Person.  No claim or litigation regarding any of the foregoing is pending or, to the best knowledge of each Grantor, threatened, which, either individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect.

SECTION 3.12Inventory.  Collateral consisting of Inventory is of good and merchantable quality, free from any material defects.  To the knowledge of each Grantor, none of such Inventory is subject to any licensing, Patent, Trademark, trade name or Copyright with any Person that restricts any Grantor’s ability to manufacture and/or sell such Inventory.  The completion of the manufacturing process of such Inventory by a Person other than the applicable Grantor would be permitted under any contract to which such Grantor is a party or to which the Inventory is subject.

SECTION 3.13Investment Property; Partnership/LLC Interests.

(a)As of the date hereof, all Investment Property (including, without limitation, Securities Accounts and cash management accounts that are Investment Property) and all Partnership/LLC Interests owned by any Grantor are listed on Schedule 3.13.

(b)All Investment Property and all Partnership/LLC Interests issued by any Issuer to any Grantor (i) have been duly and validly issued and, if applicable, are fully paid and nonassessable, (ii) are beneficially owned as of record by such Grantor and (ii) constitute all the issued and outstanding Equity Interests of such Issuer issued to such Grantor.

12

(c)None of the Partnership/LLC Interests (i) are traded on a Securities exchange or in Securities markets, (ii) by their terms expressly provide that they are Securities governed by Article 8 of the UCC, (iii) are Investment Company Securities or (iv) are held in a Securities Account.

SECTION 3.14Instruments.  As of the date hereof, no Grantor holds any Instruments or is named a payee of any promissory note or other evidence of indebtedness other than as set forth on Schedule 3.14.

SECTION 3.15Farm Products.  None of the Collateral constitutes, or is the Proceeds of, Farm Products.

SECTION 3.16Government Contracts.  As of the date hereof, no Grantor is party to any Government Contract with a Governmental Authority under which such Governmental Authority, as account debtor, owes a monetary obligation to any Grantor under any account.

SECTION 3.17Aircraft.  None of the Collateral constitutes, or is the proceeds of, (i) an aircraft, airframe, aircraft engine or related property, (ii) aircraft lease or (iii) any other interest in or to any of the foregoing.

ARTICLE IV

COVENANTS

Until the Obligations shall have been paid in full and the Commitments terminated, unless consent has been obtained in the manner provided for in Section 7.1, each Grantor covenants and agrees that:

SECTION 4.1Maintenance of Perfected Security Interest; Further Information.

(a)Each Grantor shall maintain the Security Interest created by this Agreement as a Second Priority Lien (subject only to Permitted Liens) and shall defend such Security Interest against the claims and demands of all Persons whomsoever (other than holders of Permitted Liens).

(b)Each Grantor will furnish to the Administrative Agent upon the Administrative Agent’s reasonable request statements and schedules further identifying and describing the assets and property of such Grantor and such other reports in connection therewith as the Administrative Agent may reasonably request, all in reasonable detail.

SECTION 4.2Maintenance of Insurance.

(a)Each Grantor will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Collateral against loss by fire, explosion, theft, fraud and such other casualties, including business interruption, as may be reasonably satisfactory to the Administrative Agent in amounts and with deductibles at least as favorable as those generally maintained by businesses of similar size engaged in similar activities and (ii) insuring such Grantor and the Administrative Agent, for the ratable benefit of the Secured

13

Parties, against liability for hazards, risks and liability to persons and property relating to the Collateral, in amounts and with deductibles at least as favorable as those generally maintained by businesses of similar size engaged in similar activities, such policies to be in such form and having such coverage as may be reasonably satisfactory to the Administrative Agent and the Lenders.

(b)All insurance referred to in subsection (a) above shall (i) name the Administrative Agent, for the ratable benefit of the Secured Parties, as loss payee (to the extent covering risk of loss or damage to tangible property) and as an additional insured as its interests may appear (to the extent covering any other risk), (ii) provide that no cancellation, material reduction in amount or material change in coverage thereof shall be effective until at least thirty (30) days after receipt by the Administrative Agent of written notice thereof and (iii) be reasonably satisfactory in all other respects to the Administrative Agent.

(c)Upon the request of the Administrative Agent from time to time, each Grantor shall deliver to the Administrative Agent and the Lenders periodic information from a reputable insurance broker with respect to the insurance referred to in this Section 4.2.

SECTION 4.3Changes in Locations; Changes in Name or Structure.  No Grantor will, except upon thirty (30) days’ prior written notice to the Administrative Agent and delivery to the Administrative Agent of (a) all additional financing statements (executed if necessary for any particular filing jurisdiction) and other instruments and documents reasonably requested by the Administrative Agent to maintain the validity, perfection and priority of the Security Interests and (b) if applicable, a written supplement to the Schedules of this Agreement:

(i)permit any Deposit Account (other than Excluded Deposit Accounts) to be held by or at a depositary bank other than the depositary bank that held such Deposit Account as of the date hereof as set forth on Schedule 3.10;

(ii)permit any Investment Property (other than Certificated Securities delivered to the Administrative Agent pursuant to Section 4.5) to be held by a Securities Intermediary other than the Securities Intermediary that held such Investment Property as of the date hereof as set forth on Schedule 3.13;

(iii)permit any of the Inventory, Equipment or Fixtures to be kept at a location other than those listed on Schedule 3.6, except as otherwise permitted hereunder;

(iv)change its jurisdiction of organization or the location of its chief executive office from that identified on Schedule 3.6; or

(v)change its legal name, identity or corporate or organizational structure to such an extent that any financing statement filed by the Administrative Agent in connection with this Agreement would become misleading.

SECTION 4.4Required Notifications.  Each Grantor shall promptly notify the Administrative Agent, in writing, of: (a) any Lien (other than Permitted Encumbrances and the other Liens permitted under the Loan Documents) on any of the Collateral which would adversely affect the ability of the Administrative Agent to exercise any of its remedies

14

hereunder, (b) the occurrence of any other event which could reasonably be expected to have a Material Adverse Effect on the aggregate value of the Collateral or on the Security Interests, (c) any Collateral which, to the knowledge of such Grantor, constitutes a Government Contract, and (d) the acquisition or ownership by such Grantor of any (i) Commercial Tort Claim, (ii) Deposit Account, or (iii) Investment Property after the date hereof.

SECTION 4.5Delivery Covenants.  Each Grantor will deliver and pledge to the Administrative Agent, for the ratable benefit of the Secured Parties, all Certificated Securities, Partnership/LLC Interests evidenced by a certificate, negotiable Documents, Instruments, and Tangible Chattel Paper owned or held by such Grantor, in each case, together with an Effective Endorsement and Assignment and all Supporting Obligations, as applicable, unless such delivery and pledge has been waived in writing by the Administrative Agent.

SECTION 4.6Control Covenants; Certain Excluded Deposit Accounts.

(a)Each Grantor shall instruct (and otherwise use its commercially reasonable efforts to cause) (i) each depositary bank holding a Deposit Account (other than Excluded Deposit Accounts) owned by such Grantor and (ii) each Securities Intermediary holding any Investment Property owned by such Grantor, to execute and deliver a control agreement, sufficient to provide the Administrative Agent with Control of such Deposit Account and otherwise in form and substance satisfactory to the Administrative Agent (any such depositary bank executing and delivering any such control agreement, a “Controlled Depositary”, and any such Securities Intermediary executing and delivering any such control agreement, a “Controlled Intermediary”).  In the event any such depositary bank or Securities Intermediary refuses to execute and deliver such control agreement, the Administrative Agent, in its sole discretion, may require the applicable Deposit Account and Investment Property to be transferred to the Administrative Agent or a Controlled Depositary or Controlled Intermediary, as applicable.  After the date hereof, all Deposit Accounts (other than Excluded Deposit Accounts) and all Investment Property will be maintained with the Administrative Agent or with a Controlled Depository or a Controlled Intermediary, as applicable.

(b)Each Grantor shall instruct each depositary bank holding a Deposit Account into which Governmental Receivables are initially deposited to execute and deliver an  account agreement substantially in the form of Exhibit A attached hereto or such other form as the Administrative Agent shall prescribe.  In the event any such depositary bank refuses to execute and deliver such an agreement, the Administrative Agent, in its sole discretion, may require the applicable Deposit Account to be transferred to the Administrative Agent.  After the date hereof, all Deposit Accounts into which Governmental Receivables are initially deposited will be maintained with the Administrative Agent or with a depositary institution subject to an account agreement (as set forth above), as applicable.

(c)Each Grantor will take such actions and deliver all such agreements as are requested by the Administrative Agent to provide the Administrative Agent with Control of all Letter of Credit Rights and Electronic Chattel Paper owned or held by such Grantor, including, without limitation, with respect to any such Electronic Chattel Paper, by having the Administrative Agent identified as the assignee on the Record(s) pertaining to the single authoritative copy thereof.

15

(d)If any Collateral (other than Collateral specifically subject to the provisions of Sections 4.6(a), 4.6(b) and 4.6(c)), exceeding in value $200,000 in the aggregate (such Collateral exceeding such amount, the “Excess Collateral”) is at any time in the possession or control of any consignee, warehouseman, bailee (other than a carrier transporting Inventory to a purchaser in the ordinary course of business), processor, or any other third party, such Grantor shall notify such Person in writing of the Security Interests created hereby, shall use its commercially reasonable efforts to obtain such Person’s written agreement in writing to hold all such Collateral for the Administrative Agent’s account subject to the Administrative Agent’s instructions, and shall cause such Person to issue and deliver to the Administrative Agent warehouse receipts, bills of lading or any similar documents relating to such Collateral to the Administrative Agent together with an Effective Endorsement and Assignment; provided that if such Grantor is not able to obtain such agreement and cause the delivery of such items, the Administrative Agent, in its sole discretion, may require such Excess Collateral to be moved to another location specified thereby.  Further, each Grantor shall perfect and protect such Grantor’s ownership interests in all Inventory stored with a consignee against creditors of the consignee by filing and maintaining financing statements against the consignee reflecting the consignment arrangement filed in all appropriate filing offices, providing any written notices required to notify any prior creditors of the consignee of the consignment arrangement, and taking such other actions as may be appropriate to perfect and protect such Grantor’s interests in such inventory under Section 2-326, Section 9-103, Section 9-324 and Section 9-505 of the UCC (and any foreign equivalent) or otherwise.  All such financing statements filed pursuant to this Section 4.6(d) shall be assigned, on the face thereof, to the Administrative Agent, for the ratable benefit of the Secured Parties.

SECTION 4.7Filing Covenants.  Pursuant to Section 9-509 of the UCC and any other applicable Law, each Grantor authorizes the Administrative Agent to file or record financing statements and other filing or recording documents or instruments with respect to the Collateral without the signature of such Grantor in such form and in such offices as the Administrative Agent determines appropriate to perfect the Security Interests of the Administrative Agent under this Agreement.  Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of Collateral that describes such property in any other manner as the Administrative Agent may determine, in its sole discretion, is necessary, advisable or prudent to ensure the perfection of the Security Interest in the Collateral granted herein, including, without limitation, describing such property as “all assets” or “all personal property.”  Further, a photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction.  Each Grantor hereby authorizes, ratifies and confirms all financing statements and other filing or recording documents or instruments filed by Administrative Agent prior to the date of this Agreement.

SECTION 4.8Accounts.

(a)Other than in the ordinary course of business consistent with its past practice, no Grantor will (i) grant any extension of the time of payment of any Account, (ii) compromise or settle any Account for less than the full amount thereof, (iii) release, wholly or partially, any Account Debtor, (iv) allow any credit or discount whatsoever on any Account or

16

(v) amend, supplement or modify any Account in any manner that could reasonably be likely to adversely affect the value thereof.

(b)Each Grantor will deliver to the Administrative Agent a copy of each material demand, notice or document received by it that questions or calls into doubt the validity or enforceability of any material Account.

(c)The Administrative Agent shall have the right to make test verifications of the Accounts in any manner and through any medium that it reasonably considers advisable, and each Grantor shall furnish all such assistance and information as the Administrative Agent may require in connection with such test verifications.  At any time and from time to time, upon the Administrative Agent’s request and at the expense of the relevant Grantor, such Grantor shall cause independent public accountants or others satisfactory to the Administrative Agent to furnish to the Administrative Agent reports showing reconciliations, aging and test verifications of, and trial balances for, the Accounts.

SECTION 4.9Intellectual Property.

(a)Except as could not reasonably be expected to have a Material Adverse Effect, each Grantor (either itself or through licensees) (i) will use each registered Trademark (owned by such Grantor) and Trademark for which an application (owned by such Grantor) is pending, to the extent reasonably necessary to maintain such Trademark in full force free from any claim of abandonment for non-use, (ii) will maintain products and services offered under such Trademark at a level substantially consistent with the quality of such products and services as of the date hereof, (iii) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark could reasonably be expected to become invalidated or impaired in any way, (iv) will not (and will not permit any licensee or sublicensee thereof to) do any act, or knowingly omit to do any act, whereby any Patent owned by such Grantor would reasonably be expected to become forfeited, abandoned or dedicated to the public, (v) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any registered Copyright owned by such Grantor or Copyright for which an application is pending (owned by such Grantor) could reasonably be expected to become invalidated or otherwise impaired and (vi) will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain.

(b)Each Grantor will notify the Administrative Agent and the Lenders promptly if it knows, or has reason to know, that any application or registration relating to any material Intellectual Property owned or licensed by such Grantor may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding such Grantor’s or its licensor’s ownership of, or the validity of, any material Intellectual Property owned or licensed by such Grantor or such Grantor’s right to register the same or to license, or own and maintain the same.

17

(c)Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Administrative Agent within five (5) Business Days after the last day of the fiscal quarter in which such filing occurs.  Upon request of the Administrative Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Administrative Agent may reasonably request to evidence the security interest of the Secured Parties in any material Copyright, Patent or Trademark and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby.

(d)Each Grantor will take all reasonable and necessary steps, at such Grantor’s sole cost and expense, including, without limitation, in any proceeding before the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the material Intellectual Property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability.

(e)In the event that any material Intellectual Property owned or licensed by a Grantor is infringed, misappropriated or diluted by a third party, the applicable Grantor shall (i) at such Grantor’s sole cost and expense, take such actions as such Grantor shall reasonably deem appropriate under the circumstances or allowable pursuant to such Grantor’s license agreement  to protect such Intellectual Property and (ii) if such Intellectual Property is of material economic value, promptly notify the Administrative Agent after it learns of such infringement, misappropriation or dilution.

SECTION 4.10Investment Property; Partnership/LLC Interests.

(a)Without the prior written consent of the Administrative Agent, no Grantor will (i) vote to enable, or take any other action to permit, any applicable Issuer to issue any Investment Property or Partnership/LLC Interests, except for such additional Investment Property or Partnership/LLC Interests that will be subject to the Security Interest granted herein in favor of the Secured Parties, or (ii) enter into any agreement or undertaking restricting the right or ability of such Grantor or the Administrative Agent to sell, assign or transfer any Investment Property or Partnership/LLC Interests or Proceeds thereof.  The Grantors will defend the right, title and interest of the Administrative Agent in and to any Investment Property and Partnership/LLC Interests against the claims and demands of all Persons whomsoever.

(b)If any Grantor shall become entitled to receive or shall receive (i) any Certificated Securities (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the ownership interests of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any Investment Property, or otherwise in respect thereof, or (ii) any sums paid upon or in respect of any Investment Property upon the liquidation or dissolution of any Issuer, such Grantor shall accept the same as the agent of the Secured Parties, hold the same in trust for

18

the Secured Parties, segregated from other funds of such Grantor, and promptly deliver the same to the Administrative Agent, on behalf of the Secured Parties, in accordance with the terms hereof.

SECTION 4.11Equipment.  Each Grantor will maintain each item of Equipment in good working order and condition (reasonable wear and tear and obsolescence excepted), and generally in accordance with any manufacturer’s manual, and will as quickly as practicable provide all maintenance, service and repairs necessary for such purpose and will promptly furnish to the Administrative Agent a statement respecting any material loss or damage to any of the Equipment.

SECTION 4.12Vehicles.  Upon the occurrence and during the continuance of an Event of Default, at the request of the Administrative Agent, all applications for certificates of title or ownership indicating the Administrative Agent’s Second Priority Lien on the Vehicle (subject to any Permitted Liens) covered by such certificate, and any other necessary documentation, shall be filed in each office in each jurisdiction which the Administrative Agent shall deem reasonably advisable to perfect its Liens on the Vehicles; provided that with respect to Vehicles subject to Permitted Liens, no such application or other documentation shall be required.  Prior thereto, each certificate of title or ownership relating to each Vehicle shall be maintained by the applicable Grantor in accordance with applicable Law to reflect the ownership interest of such Grantor.

SECTION 4.13Government Contracts.  Each Grantor shall promptly notify the Administrative Agent, in writing, if it enters into any Government Contract with a Governmental Authority under which such Governmental Authority, as account debtor, owes a material monetary obligation to any Grantor under any Account.

SECTION 4.14Further Assurances.  Upon the request of the Administrative Agent and at the sole expense of the Grantors, each Grantor will promptly and duly execute and deliver, and have recorded, such further instruments and documents and take such further actions as the Administrative Agent may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, (i) the assignment of any Material Contract, (ii) with respect to Government Contracts, assignment agreements and notices of assignment, in form and substance satisfactory to the Administrative Agent, duly executed by any Grantors party to such Government Contract in compliance with the Assignment of Claims Act (and/or analogous state or other applicable Law), and (iii) all applications, certificates, instruments, registration statements, and all other documents and papers the Administrative Agent may reasonably request and as may be required by law in connection with the obtaining of any consent, approval, registration, qualification, or authorization of any Person deemed necessary or appropriate for the effective exercise of any rights under this Agreement.

19

ARTICLE V

REMEDIAL PROVISIONS

SECTION 5.1General Remedies.  If an Event of Default shall occur and be continuing, the Administrative Agent, on behalf of the Secured Parties, may exercise, in addition to all other rights and remedies granted to them under applicable Law in this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the UCC or any other applicable Law.  Without limiting the generality of the foregoing, the Administrative Agent, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon any Grantor or any other Person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Administrative Agent or any other Secured Party or elsewhere upon such terms and conditions as it may deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk.  The Administrative Agent may disclaim any warranties in connection with any sale or other disposition of the Collateral, including, without limitation, any warranties of title, possession, quiet enjoyment and the like.  The Administrative Agent or any other Secured Party shall have the right upon any such public sale or sales, and, to the extent permitted by law, upon any such private sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in any Grantor, which right or equity is hereby waived and released.  Each Grantor further agrees, at the Administrative Agent’s request, to assemble the Collateral and make it available to the Administrative Agent at places which the Administrative Agent shall reasonably select, whether at such Grantor’s premises or elsewhere.  To the fullest extent permitted by applicable Law, each Grantor waives all claims, damages and demands it may acquire against the Administrative Agent or any other Secured Party arising out of the exercise by them of any rights hereunder except to the extent any such claims, damages, or demands result solely from the gross negligence or willful misconduct of the Administrative Agent or any other Secured Party, in each case against whom such claim is asserted.  If any notice of a proposed sale or other disposition of Collateral shall be required by law, such notice shall be deemed reasonable and proper if given at least ten (10) days before such sale or other disposition.

SECTION 5.2Specific Remedies.

(a)The Administrative Agent hereby authorizes each Grantor to collect such Grantor’s Accounts in the ordinary course of its business; provided that, the Administrative Agent may curtail or terminate such authority at any time after the occurrence and during the continuance of an Event of Default.

(b)Upon the occurrence and during the continuance of an Event of Default:

20

(i)the Administrative Agent may communicate with Account Debtors of any Account subject to a Security Interest and, upon the request of the Administrative Agent, each Grantor shall notify (such notice to be in form and substance satisfactory to the Administrative Agent) its Account Debtors and parties to the Material Contracts subject to a Security Interest that such Accounts and the Material Contracts have been assigned to the Administrative Agent, for the ratable benefit of the Secured Parties;

(ii)each Grantor shall forward to the Administrative Agent, on the last Business Day of each week, deposit slips related to all cash, money, checks or any other similar items of payment received by the Grantor during such week, and, if requested by the Administrative Agent, copies of such checks or any other similar items of payment, together with a statement showing the application of all payments on the Collateral during such week and a collection report with regard thereto, in form and substance satisfactory to the Administrative Agent;

(iii)the Administrative Agent may deliver such notices and instructions in accordance with control agreements covering Deposit Accounts (other than Excluded Accounts) and/or Securities Accounts.  In addition, whenever any Grantor shall receive any cash, money, checks or any other similar items of payment relating to any Collateral (including any Proceeds of any Collateral), subject to the terms of any Permitted Liens, such Grantor agrees that it will, within one (1) Business Day of such receipt, deposit all such items of payment into the Collateral Account or in a Deposit Account (other than an Excluded Deposit Account) at a Controlled Depositary, and until such Grantor shall deposit such cash, money, checks or any other similar items of payment in the Collateral Account or in a Deposit Account (other than an Excluded Deposit Account) at a Controlled Depositary, such Grantor shall hold such cash, money, checks or any other similar items of payment in trust for the Secured Parties and as property of the Secured Parties, separate from the other funds of such Grantor, and the Administrative Agent shall have the right to transfer or direct the transfer of the balance of each Deposit Account (other than an Excluded Deposit Account) to the Collateral Account.  All such Collateral and Proceeds of Collateral received by the Administrative Agent hereunder shall be held by the Administrative Agent in the Collateral Account as collateral security for all the Obligations and shall not constitute payment thereof until applied as provided in Section 5.4;

(iv)the Administrative Agent shall have the right to receive any and all cash dividends, payments or distributions made in respect of any Investment Property, any Partnership/LLC Interests or any other Proceeds paid in respect of any Investment Property or any Partnership/LLC Interests, and any or all of any Investment Property or any Partnership/LLC Interests shall be registered in the name of the Administrative Agent or its nominee, and the Administrative Agent or its nominee may thereafter exercise (A) all voting, corporate and other rights pertaining to such Investment Property or such Partnership/LLC Interests at any meeting of shareholders, partners or members of the relevant Issuers and (B) any and all rights of conversion, exchange and subscription and any other rights, privileges or options pertaining to such Investment Property or such Partnership/LLC Interests as if it were the absolute owner thereof (including, without limitation, the right to exchange at its discretion any and all of the Investment Property or

21

any and all of the Partnership/LLC Interests upon the merger, consolidation, reorganization, recapitalization or other fundamental change in the corporate, partnership or company structure of any Issuer or upon the exercise by any Grantor or the Administrative Agent of any right, privilege or option pertaining to such Investment Property or such Partnership/LLC Interests, and in connection therewith, the right to deposit and deliver any and all of the Investment Property or any and all of the Partnership/LLC Interests with any committee, depositary, transfer agent, registrar or other designated agency upon such terms and conditions as the Administrative Agent may determine), all without liability except to account for property actually received by it; but the Administrative Agent shall have no duty to any Grantor to exercise any such right, privilege or option and the Administrative Agent and the other Secured Parties shall not be responsible for any failure to do so or delay in so doing.  In furtherance thereof, each Grantor hereby authorizes and instructs each Issuer with respect to any Collateral consisting of Investment Property and Partnership/LLC Interests to (i) comply with any instruction received by it from the Administrative Agent in writing that (A) states that an Event of Default has occurred and is continuing and (B) is otherwise in accordance with the terms of this Agreement, without any other or further instructions from such Grantor, and each Grantor agrees that each Issuer shall be fully protected in so complying following receipt of such notice and prior to notice that such Event of Default is no longer continuing, and (ii) except as otherwise expressly permitted hereby, pay any dividends, distributions or other payments with respect to any Investment Property, or any Partnership/LLC Interests directly to the Administrative Agent; and

(v)the Administrative Agent shall be entitled to (but shall not be required to):  (A) proceed to perform any and all obligations of the applicable Grantor under any Material Contract and exercise all rights of such Grantor thereunder as fully as such Grantor itself could, (B) do all other acts which the Administrative Agent may deem necessary or proper to protect its Security Interest granted hereunder, provided such acts are not inconsistent with or in violation of the terms of any of the Credit Agreement, of the other Loan Documents or applicable Law, and (C) sell, assign or otherwise transfer any Material Contract in accordance with the Credit Agreement, the other Loan Documents and applicable Law, subject, however, to the prior approval of each other party to such Material Contract, to the extent required under the Material Contract.

(c)Unless an Event of Default shall have occurred and be continuing and the Administrative Agent shall have given notice to the relevant Grantor of the Administrative Agent’s intent to exercise its corresponding rights pursuant to Section 5.2(b), each Grantor shall be permitted to receive all cash dividends, payments or other distributions made in respect of any Investment Property and any Partnership/LLC Interests, in each case paid in the normal course of business of the relevant Issuer and consistent with past practice, to the extent permitted in the Credit Agreement, and to exercise all voting and other corporate, company and partnership rights with respect to any Investment Property and any Partnership/LLC Interests; provided that, no vote shall be cast or other corporate, company and partnership right exercised or other action taken which, in the Administrative Agent’s reasonable judgment, would impair the Collateral in any material respect or which would result in a Default or Event of Default under any provision of the Credit Agreement, this Agreement or any other Loan Document.

22

SECTION 5.3Registration Rights.

(a)If the Administrative Agent shall determine that in order to exercise its right to sell any or all of the Collateral it is necessary or advisable to have such Collateral registered under the provisions of the Securities Act (any such Collateral, the “Restricted Securities Collateral”), the relevant Grantor will cause each applicable Issuer (and the officers and directors thereof) to (i) execute and deliver all such instruments and documents, and do or cause to be done all such other acts as may be, in the opinion of the Administrative Agent, necessary or advisable to register such Restricted Securities Collateral, or that portion thereof to be sold, under the provisions of the Securities Act, (ii) use its commercially reasonable efforts to cause the registration statement relating thereto to become effective and to remain effective for a period of one year from the date of the first public offering of such Restricted Securities Collateral, or that portion thereof to be sold, and (iii) make all amendments thereto and/or to the related prospectus which, in the opinion of the Administrative Agent, are necessary or advisable, all in conformity with the requirements of the Securities Act and the rules and regulations of the Securities and Exchange Commission applicable thereto.  Each Grantor agrees to cause each applicable Issuer (and the officers and directors thereof) to comply with the provisions of the securities or “Blue Sky” laws of any and all jurisdictions which the Administrative Agent shall designate and to make available to its security holders, as soon as practicable, an earnings statement (which need not be audited) which will satisfy the provisions of Section II (a) of the Securities Act.

(b)Each Grantor recognizes that the Administrative Agent may be unable to effect a public sale of any or all the Restricted Securities Collateral, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws or otherwise, and may be compelled to resort to one or more private sales thereof to a restricted group of purchasers which will be obliged to agree, among other things, to acquire such securities for their own account for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges and agrees that any such private sale may result in prices and other terms less favorable than if such sale were a public sale and, notwithstanding such circumstances, agrees that any such private sale shall be deemed to have been made in a commercially reasonable manner.  The Administrative Agent shall be under no obligation to delay a sale of any of the Restricted Securities Collateral for the period of time necessary to permit the Issuer thereof to register such securities for public sale under the Securities Act, or under applicable state securities laws, even if such Issuer would agree to do so.

(c)Each Grantor agrees to use its commercially reasonable efforts to do or cause to be done all such other acts as may be necessary to make such sale or sales of all or any portion of the Restricted Securities Collateral valid and binding and in compliance with any and all other applicable Laws.  Each Grantor further agrees that a breach of any of the covenants contained in this Section 5.3 will cause irreparable injury to the Administrative Agent and the other Secured Parties, that the Administrative Agent and the other Secured Parties have no adequate remedy at law in respect of such breach and, as a consequence, that each and every covenant contained in this Section 5.3 shall be specifically enforceable against such Grantor, and such Grantor hereby waives and agrees not to assert any defenses against an action for specific performance of such covenants except for a defense that no Event of Default has occurred under the Credit Agreement.

23

SECTION 5.4Application of Proceeds.  At such intervals as may be agreed upon by the Borrowers and the Administrative Agent, or, if an Event of Default shall have occurred and be continuing, at any time at the Administrative Agent’s election, the Administrative Agent may apply all or any part of the Collateral or any Proceeds of the Collateral in payment in whole or in part of the Obligations (after deducting all reasonable costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Administrative Agent and the Lenders hereunder, including, without limitation, reasonable attorneys’ fees and disbursements) in accordance with Section 8.03 of the Credit Agreement.  Only after (i) the payment by the Administrative Agent of any other amount required by any provision of applicable Law, including, without limitation, Section 9-610 and Section 9-615 of the UCC and (ii) the payment in full of the Obligations and the termination of the Commitments, shall the Administrative Agent account for the surplus, if any, to any Grantor, or to whomever may be lawfully entitled to receive the same (if such Person is not a Grantor).

SECTION 5.5Waiver, Deficiency.  Each Grantor hereby waives, to the extent permitted by applicable Law, all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable Law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Collateral or any portion thereof.  Each Grantor shall remain liable for any deficiency if the proceeds of any sale or other disposition of the Collateral are insufficient to pay its Obligations and the fees and disbursements of any attorneys employed by the Administrative Agent or any other Secured Party to collect such deficiency.

ARTICLE VI

THE ADMINISTRATIVE AGENT

SECTION 6.1Administrative Agent’s Appointment as Attorney-In-Fact.

(a)Each Grantor hereby irrevocably constitutes and appoints the Administrative Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Administrative Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following upon the occurrence and during the continuation of an Event of Default:

(i)in the name of such Grantor or its own name, or otherwise, take possession of and indorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Account or Material Contract subject to a Security Interest or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Administrative Agent for the purpose of collecting any and all such

24

moneys due under any Account or Material Contract subject to a Security Interest or with respect to any other Collateral whenever payable;

(ii)in the case of any Intellectual Property, execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Administrative Agent may request to evidence the Administrative Agent’s and the Secured Parties’ security interest in such Intellectual Property and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby;

(iii)pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or any insurance called for by the terms of this Agreement and pay all or any part of the premiums therefor and the costs thereof;

(iv)execute, in connection with any sale provided for in this Agreement, any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral; and

(v)(A) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Administrative Agent or as the Administrative Agent shall direct; (B) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (C) sign and indorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (D) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (E) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (F) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Administrative Agent may deem appropriate; (G) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains), for such term or terms, on such conditions, and in such manner, as the Administrative Agent shall in its sole discretion determine; and (H) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Administrative Agent were the absolute owner thereof for all purposes, and do, at the Administrative Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Administrative Agent deems necessary to protect, preserve or realize upon the Collateral and the Security Interests of the Secured Parties therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do.

(b)If any Grantor fails to perform or comply with any of its agreements contained herein, the Administrative Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement in accordance with the provisions of Section 6.1(a).

25

(c)The expenses of the Administrative Agent incurred in connection with actions taken pursuant to the terms of this Agreement, together with interest thereon at a rate per annum equal to the Default Rate for Base Rate Loans under the Credit Agreement, from the date of payment by the Administrative Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Administrative Agent on demand.

(d)Each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue hereof in accordance with Section 6.1(a).  All powers, authorizations and agencies contained in this Agreement are coupled with an interest and are irrevocable until this Agreement is terminated and the Security Interests created hereby are released.

SECTION 6.2Duty of Administrative Agent.  The sole duty of the Administrative Agent with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the UCC or otherwise, shall be to deal with it in the same manner as the Administrative Agent deals with similar property for its own account.  Neither the Administrative Agent, any other Secured Party nor any of their respective officers, directors, employees or agents shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Administrative Agent and the other Secured Parties hereunder are solely to protect the interests of the Administrative Agent and the other Secured Parties in the Collateral and shall not impose any duty upon the Administrative Agent or any other Secured Party to exercise any such powers.  The Administrative Agent and the other Secured Parties shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act hereunder, except for their own gross negligence or willful misconduct.

SECTION 6.3Authority of Administrative Agent.  Each Grantor acknowledges that the rights and responsibilities of the Administrative Agent under this Agreement with respect to any action taken by the Administrative Agent or the exercise or non-exercise by the Administrative Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Administrative Agent and the Lenders, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Administrative Agent and the Grantors, the Administrative Agent shall be conclusively presumed to be acting as agent for the Secured Parties with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement to make any inquiry respecting such authority.

ARTICLE VII

MISCELLANEOUS

SECTION 7.1Amendments, Waivers and Consents.  None of the terms, covenants, agreements or conditions of this Agreement may be amended, supplemented or

26

otherwise modified, nor may they be waived, nor may any consent be given, except in accordance with Section 10.01 of the Credit Agreement.

SECTION 7.2Notices.  All notices and communications hereunder shall be given to the addresses and otherwise made in accordance with Section 10.02 of the Credit Agreement; provided that notices and communications to the Grantors shall be directed to the Borrower Agent, at the address set forth in Section 10.02 of the Credit Agreement.

SECTION 7.3No Waiver, Cumulative Remedies.  No failure by any Secured Party to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided and provided under each other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

SECTION 7.4Expenses, Indemnification, Waiver of Consequential Damages, etc..

(a)Each Grantor, jointly and severally, shall pay all out-of-pocket expenses incurred by the Administrative Agent and each other Secured Party pursuant to, and in accordance with, the applicable provisions of Section 10.04 of the Credit Agreement.

(b)Each Grantor, jointly and severally, shall indemnify each Indemnitee pursuant to, and in accordance with, Section 10.04 of the Credit Agreement.

(c)Notwithstanding anything to the contrary contained in this Agreement, to the fullest extent permitted by applicable Law, no Grantor shall assert, and each hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement, any other Loan Document or any agreement or instrument contemplated hereby, the transactions contemplated hereby or thereby, any Credit Extensions or the use of the proceeds thereof.

(d)No Indemnitee referred to in this Section 7.4 shall be liable for any damages arising from the use by unintended recipients of any information or other materials distributed by it through telecommunications, electronic or other information transmission systems in connection with this Agreement or the other Loan Documents or the transactions contemplated hereby or thereby.

(e)Each Grantor agrees to pay, and to save the Administrative Agent and the other Secured Parties harmless from, any and all liabilities with respect to, or resulting from any such Grantor’s delay in paying, any and all stamp, excise, sales withholding or other taxes which may be payable or determined to be payable in connection with any of the transactions contemplated by this Agreement.

27

(f)All amounts due under this Section 7.4 shall be payable promptly after demand therefor.

SECTION 7.5Successors and Assigns.  The provisions of this Agreement shall be binding upon and shall inure to the benefit of each Grantor (and shall bind all Persons who become bound as a Grantor to this Agreement), the Administrative Agent and the other Secured Parties and their respective successors and permitted assigns; provided that no Grantor may assign or otherwise, transfer any of its rights or obligations under this Agreement without the prior written consent of the Administrative Agent and the Lenders (except as otherwise provided by the Credit Agreement).

SECTION 7.6Survival of Indemnities.  Notwithstanding any termination of this Agreement, the indemnities to which the Administrative Agent and the other Secured Parties are entitled under the provisions of Section 7.4 and any other provision of this Agreement and the other Loan Documents shall continue in full force and effect and shall protect the Administrative Agent and the other Secured Parties against events arising after such termination as well as before.

SECTION 7.7Right of Setoff.  If an Event of Default shall have occurred and be continuing, each Secured Party and each of its respective Affiliates is hereby authorized at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable Law, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Secured Party or any such Affiliate to or for the credit or the account of such Grantor against any and all of the obligations of such Grantor now or hereafter existing under this Agreement or any other Loan Document to such Secured Party irrespective of whether or not such Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations of such Grantor may be contingent or unmatured or are owed to a branch or office of such Secured Party different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Secured Party and its respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Secured Party or its respective Affiliates may have.  Each Secured Party agrees to notify such Grantor and the Administrative Agent promptly after any such set off and application; provided that the failure to give such notice shall not affect the validity of such set off and application.  Notwithstanding the provisions of this Section 7.7, if at any time any Secured Party or any of its Affiliates maintains one or more deposit accounts for either Borrower or any other Loan Party into which Medicare and/or Medicaid receivables are deposited, such Person shall waive the right of setoff set forth herein.

SECTION 7.8Counterparts; Integration; Effectiveness.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  This Agreement shall become effective when it shall have been executed by the Administrative Agent and when the

28

Administrative Agent shall have received counterparts hereof that, when taken together, bear the signatures of each of the other parties hereto.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

SECTION 7.9Severability.  If any provision of this Agreement or the other Loan Documents is held to be illegal, invalid or unenforceable, (a) the legality, validity and enforceability of the remaining provisions of this Agreement and the other Loan Documents shall not be affected or impaired thereby and (b) the parties shall endeavor in good faith negotiations to replace the illegal, invalid or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the illegal, invalid or unenforceable provisions.  The invalidity of a provision in a particular jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.

SECTION 7.10Governing Law; Jurisdiction; Service of Process.

(a)Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New York.

(b)Submission to Jurisdiction.  Each Grantor irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of New York sitting in Borough of Manhattan and the United States District Court of the Southern District of New York, and any appellate court thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State court or, to the fullest extent permitted by applicable Law, in such Federal court.  Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable Law.  Nothing in this Agreement or in any other Loan Document shall affect any right that the Administrative Agent or any other Secured Party may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against any Grantor or its properties in the courts of any jurisdiction.

(c)Waiver of Venue.  Each Grantor irrevocably and unconditionally waives, to the fullest extent permitted by applicable Law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in paragraph (b) of this Section.  Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by applicable Law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.

(d)Service of Process.  Each party hereto irrevocably consents to service of process in the manner provided for notices in Section 10.02 of the Credit Agreement.  Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable Law.

29

(e)Appointment of the Borrower Agent as Agent for the Grantors.  Each Grantor hereby irrevocably appoints and authorizes the Borrower Agent to act as its agent for service of process and notices required to be delivered under this Agreement or under the other Loan Documents, it being understood and agreed that receipt by the Borrower Agent of any summons, notice or other similar item shall be deemed effective receipt by each Grantor and its Subsidiaries.

SECTION 7.11Waiver of Jury Trial; California Judicial Reference.

(a)Waiver of Jury Trial. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

(b)California Judicial Reference.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) the Grantors, on a joint and several basis, shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

SECTION 7.12Injunctive Relief.  The Grantors recognize that, in the event the Grantors fail to perform, observe or discharge any of their obligations or liabilities under this Agreement or any other Loan Document, any remedy of law may prove to be inadequate relief to the Administrative Agent and the other Secured Parties.  Therefore, the Grantors agree that the Administrative Agent and the other Secured Parties, at the option of the Administrative Agent and the other Secured Parties, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages.

30

SECTION 7.13Acknowledgements.

(a)Each Grantor hereby acknowledges that:  (i) it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party, (ii) it has received a copy of the Credit Agreement and has reviewed and understands same, (iii) neither the Administrative Agent nor any other Secured Party has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Administrative Agent and the other Secured Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor, and (iv) no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby or thereby among the Secured Parties or among the Grantors and the Secured Parties.

(b)Each Issuer party to this Agreement acknowledges receipt of a copy of this Agreement and agrees to be bound thereby and to comply with the terms thereof insofar as such terms are applicable to it.  Each Issuer agrees to provide such notices to the Administrative Agent as may be necessary to give full effect to the provisions of this Agreement.

SECTION 7.14Releases.

(a)At such time as the Obligations shall have been paid in full in cash and the Commitments have been terminated, the Collateral shall be released from the Liens created hereby, and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Administrative Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors.  At the request and sole expense of any Grantor following any such termination, the Administrative Agent shall deliver to such Grantor any Collateral held by the Administrative Agent hereunder, and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination.

(b)If any of the Collateral shall be sold, transferred or otherwise disposed of by any Grantor in a transaction permitted by the Credit Agreement, then the Administrative Agent, at the request and sole expense of such Grantor, shall execute and deliver to such Grantor all releases or other documents reasonably necessary or desirable to evidence the release of the Liens created hereby on such Collateral.  In the event that all the Equity Interests of any Grantor shall be sold, transferred or otherwise disposed of in a transaction permitted by the Credit Agreement, then, at the request of the Borrower Agent and at the expense of the Grantors, such Grantor shall be released from its obligations hereunder; provided that the Borrower Agent shall have delivered to the Administrative Agent, at least ten (10) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Grantor and the terms of the sale or other disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower Agent stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents.

SECTION 7.15Additional Grantors.  Each Subsidiary of the Borrowers that is required to become a party to this Agreement pursuant to Section 6.12 of the Credit Agreement

31

shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of a joinder agreement in form and substance satisfactory to the Administrative Agent.

SECTION 7.16All Powers Coupled with Interest.  All powers of attorney and other authorizations granted to the Secured Parties, the Administrative Agent and any Persons designated by the Administrative Agent or any other Secured Party pursuant to any provisions of this Agreement or any of the other Loan Documents shall be deemed coupled with an interest and shall be irrevocable so long as any of the Obligations remain unpaid or unsatisfied or the Facility has not been terminated.

[Signature Pages to Follow]

32

IN WITNESS WHEREOF, the parties hereto have caused this Second Lien Collateral Agreement to be executed under seal by their duly authorized officers, all as of the day and year first written above.

[                                            ], as Grantor
By:
	Name:
	Title:
[                                            ], as Grantor and Issuer
By:
	Name:
	Title:

[Signature Pages Continue]

BANK OF AMERICA, N.A.,
as Administrative Agent
By:
	Name:
	Title:

SCHEDULE 3.6

to

Collateral Agreement

Exact Legal Name; Jurisdiction of Organization; Taxpayer Identification Number; Registered
Organization Number; Mailing Address; Chief Executive Office and other Locations

SCHEDULE 3.9

to

Collateral Agreement

Commercial Tort Claims

SCHEDULE 3.10

to

Collateral Agreement

Deposit Accounts

Grantor Financial Institution Account Number Address of Financial
Institution Account Purpose

SCHEDULE 3.11

to

Collateral Agreement

Intellectual Property

1.The listing of Trademarks (as defined in the Collateral Agreement) should include: (a) the Trademark; (b) Registration Number or Serial Number; (c) the Owner; (d) the Filing Date; (e) the Registration Date (if applicable); (f) the Date Affidavit of Use and/or Renewal is Due; and (g) Whether the Affidavit of Use and/or Renewal has been filed.

2.The listing of Trademark Licenses (as defined in the Collateral Agreement) should include: (a) Name and Address of Licensee/Licensor; (b) Date; (c) List of each Trademark Licensed/Assigned; and (d) Description of product to which license/assignment applies.

3.The listing of Patents (as defined in the Collateral Agreement) should include: (a) Country; (b) Patent Number; (c) Issue Date; (d) Inventor(s); (e) Title of Invention; (f) Dates on which Maintenance Fees were paid;  and (g) Identity of Party Paying Maintenance Fees.

4.The listing of Patent (as defined in the Collateral Agreement) applications should include:  (a) Application Number; (b) Filing Date; (c) Inventors; and (d) Title of Invention.

5.The listing of Patent Licenses (as defined in the Collateral Agreement) should include:  (a) Name and Address of Licensee/Licensor; (b) Date; (c) List of each Patent Licensed/Assigned; and (d) Description of product to which license/assignment applies

6.The listing of Copyrights (as defined in the Collateral Agreement) should include: (a) Registration Number; (b) Registration Date; (c) Title as listed in Registration; (d) Publication Date; (e) Creation Date; (f) Author; and(g) Subject Matter Covered.

7.The listing of Copyright Licenses (as defined in the Collateral Agreement) should include: (a) Name and Address of Licensee/Licensor; (b) Date; (c) Work Licensed or Assigned.

SCHEDULE 3.13

to

Collateral Agreement

Investment Property and Partnership/LLC Interests

Certificated Securities:

[Grantor]:

Name of Issuer Class and Series Par Value Certificate Number Percentage of
Ownership Interests of
such Class and Series

Securities Accounts (including cash management accounts that are Investment Property) and Uncertificated Securities:

[Grantor]:

Financial Institution Account Number Address of Financial
Institution Account Purpose

Name of Issuer Class and Series Par Value Percentage of Ownership
Interests of such Class and Series

Partnerships/LLC Interests:

[Grantor]:

Name of Issuer
(including identification of 
type of entity) Type of Ownership Interest Certificate Number
(if any) Percentage of Ownership
Interests of such Type

SCHEDULE 3.14

to

Collateral Agreement

Instruments

EXHIBIT A

to

Collateral Agreement

Form of Governmental Receivables Account Agreement

EX-10.35

Exhibit 10.35

Execution Copy

CONTINUING GUARANTY (FIRST LIEN)

FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in consideration of credit and/or financial accommodations heretofore or hereafter from time to time made or granted to PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation and PROSPECT MEDICAL GROUP, INC., a California professional corporation (each, a “Borrower” and collectively, the “Borrowers”), pursuant to the First Lien Credit Agreement dated as of August 8, 2007 by and among the Borrowers, BANK OF AMERICA, N.A. as administrative agent (the “Administrative Agent”) and the lenders party thereto (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), the undersigned Guarantor (whether one or more, the “Guarantor”, and if more than one, jointly and severally) hereby furnishes its guaranty of the Guaranteed Obligations (as hereinafter defined) as follows:

1.             Guaranty.  The Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of all “Obligations” as defined in the Credit Agreement, and any and all existing and future indebtedness and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, of the Borrowers to the Administrative Agent and any other Secured Party arising under the Credit Agreement, any other Loan Documents and any instruments, agreements or other documents of any kind or nature now or hereafter executed in connection therewith  (including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, attorneys’ fees and expenses incurred by the Administrative Agent and any other Secured Party in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness and liabilities may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against any Guarantor or either Borrower under the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally (collectively, “Debtor Relief Laws”), and including interest that accrues after the commencement by or against either Borrower of any proceeding under any Debtor Relief Laws (collectively, the “Guaranteed Obligations”).  The books and records of the Administrative Agent and the books and records of each Secured Party showing the amount of the Guaranteed Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon the Guarantor and conclusive for the purpose of establishing the amount of the Guaranteed Obligations.  This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing. Anything contained herein to the contrary notwithstanding, the obligations of the

Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law.

2.             No Setoff or Deductions; Taxes; Payments.  The Guarantor represents and warrants that it is organized and resident in the United States of America.  The Guarantor shall make all payments hereunder without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding.  If any such obligation (other than one arising with respect to taxes based on or measured by the income or profits of the Administrative Agent or any other Secured Party) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Administrative Agent or such other Secured Party, on the date on which such amount is due and payable hereunder, such additional amount in Dollars as shall be necessary to enable the Administrative Agent or such other Secured Party to receive the same net amount which the Administrative Agent or such other Secured Party would have received on such due date had no such obligation been imposed upon the Guarantor.  The Guarantor will deliver promptly to the Administrative Agent or such other Secured Party certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder. Payments by the Guarantor shall be made to the Administrative Agent in accordance with Section 2.12 of the Credit Agreement and shall be credited and applied in accordance with Section 8.03 of the Credit Agreement.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

3.             Rights of Administrative Agent and the Other Secured Parties.  The Guarantor consents and agrees that the Administrative Agent and the other Secured Parties may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof:  (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Guaranteed Obligations; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the other Secured Parties in their sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Guaranteed Obligations.  Without limiting the generality of the foregoing, the Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of the Guarantor.

4.             Certain Waivers.  The Guarantor waives (a) any defense arising by reason of any disability or other defense of either Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Administrative Agent or any other Secured Party) of the liability of either Borrower other than payment in full of the Guaranteed Obligations; (b) any defense based on any claim that the Guarantor’s obligations exceed or are

2

more burdensome than those of the Borrowers; (c) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder; (d) any right to require the Administrative Agent or any other Secured Party to proceed against the Borrowers, proceed against or exhaust any security for the Indebtedness, or pursue any other remedy in the Administrative Agent’s or any other Secured Party’s power whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Administrative Agent or any other Secured Party; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties.  The Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Guaranteed Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Guaranteed Obligations. The Guarantor waives any rights and defenses that are or may become available to the Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code. As provided below, this Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York. The foregoing waivers and the provisions hereinafter set forth in this Guaranty which pertain to California law are included solely out of an abundance of caution, and shall not be construed to mean that any of the above referenced provisions of California law are in any way applicable to this Guaranty or the Guaranteed Obligations.

5.             Obligations Independent.  The obligations of the Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Guaranteed Obligations and the obligations of any other guarantor, and a separate action may be brought against the Guarantor to enforce this Guaranty whether or not the Borrowers or any other person or entity are joined as a party.

6.             Subrogation.  The Guarantor shall not exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Guaranteed Obligations and any amounts payable under this Guaranty have been indefeasibly paid and performed in full and any commitments of the Administrative Agent and each other Secured Party or facilities provided by the Administrative Agent and each other Secured Party with respect to the Guaranteed Obligations are terminated.  If any amounts are paid to the Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Administrative Agent and the other Secured Parties and shall forthwith be paid to the Administrative Agent (for the benefit of itself and the other Secured Parties) to reduce the amount of the Guaranteed Obligations, whether matured or unmatured.

7.             Contribution.  Subject to Paragraph 6 above, the Guarantor hereby agrees with each other Guarantor that if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor’s Contribution Share (as defined below) of such Excess Payment (as defined below). The payment obligations of any Guarantor under this Paragraph 7 shall be subordinate and subject in right of payment to the Guaranteed Obligations until such time as the Guaranteed Obligations have been paid in full, and no Guarantor shall exercise any right or

3

remedy under this Paragraph 7 against any other Guarantor until such Guaranteed Obligations have been paid in full.

For purposes of this Paragraph 7:

(a) “Excess Payment” shall mean the amount paid by any Guarantor in excess of its Ratable Share of any Guaranteed Obligations;

(b) “Ratable Share” shall mean, for any Guarantor in respect of any payment of Guaranteed Obligations, the ratio (expressed as a percentage) as of the date of such payment of Guaranteed Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Guarantors exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Guarantors hereunder) of the Guarantors; provided, however, that, for purposes of calculating the Ratable Shares of the Guarantors in respect of any payment of Guaranteed Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; and

(c) “Contribution Share” shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Guarantors other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Guarantors) of the Guarantors other than the maker of such Excess Payment; provided, however, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment.

Each Guarantor recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution. This Paragraph 7 shall not be deemed to affect any right of subrogation, indemnity, reimbursement or

4

contribution that any Guarantor may have under applicable Law against the Borrowers in respect of any payment of Guaranteed Obligations.

8.             Termination; Reinstatement.  This Guaranty is a continuing and irrevocable guaranty of all Guaranteed Obligations now or hereafter existing and shall remain in full force and effect until all Guaranteed Obligations and any other amounts payable under this Guaranty are indefeasibly paid in full in cash and any commitments of the Administrative Agent and each other Secured Party or facilities provided by the Administrative Agent and any other Secured Party with respect to the Guaranteed Obligations are terminated.  Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrowers or the Guarantor is made, or the Administrative Agent or any other Secured Party exercises its right of setoff, in respect of the Guaranteed Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or any other Secured Party in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Administrative Agent or any other Secured Party is in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction.  The obligations of the Guarantor under this paragraph shall survive termination of this Guaranty.

9.             Subordination.  The Guarantor hereby subordinates the payment of all obligations and indebtedness of all Borrowers owing to the Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of any Borrower to the Guarantor as subrogee of the Administrative Agent and any other Secured Party or resulting from the Guarantor’s performance under this Guaranty, to the indefeasible payment in full in cash of all Guaranteed Obligations.  If the Administrative Agent so requests, any such obligation or indebtedness of the Borrowers to the Guarantor shall be enforced and performance received by the Guarantor as trustee for the Administrative Agent and the proceeds thereof shall be paid over to the Administrative Agent on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of the Guarantor under this Guaranty.

10.           Stay of Acceleration.  In the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed, in connection with any case commenced by or against either Borrower or any other Guarantor under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by the Guarantor immediately upon demand by the Administrative Agent.

11.           Expenses.  The Guarantor shall pay on demand all out-of-pocket expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) in any way relating to the enforcement or protection of the Administrative Agent’s and each other Secured Party’s rights under this Guaranty or in respect of the Guaranteed Obligations, including any incurred during any “workout” or restructuring in respect of the Guaranteed Obligations and any incurred in the preservation, protection or enforcement of any rights of the Administrative Agent and each other Secured Party in any proceeding under any

5

Debtor Relief Laws.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

12.           Miscellaneous.  No provision of this Guaranty may be waived, amended, supplemented or modified, except by a written instrument executed by the Administrative Agent and the Guarantor.  No failure by the Administrative Agent or any other Secured Party to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law or in equity.  The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein.  Unless otherwise agreed by the Administrative Agent and the Guarantor in writing, this Guaranty is not intended to supersede or otherwise affect any other guaranty now or hereafter given by the Guarantor for the benefit of the Administrative Agent and the other Secured Parties or any term or provision thereof. Capitalized terms used herein but not defined herein shall have the meanings given thereto in the Credit Agreement.

13.           Condition of Borrowers.  The Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrowers and any other guarantor such information concerning the financial condition, business and operations of the Borrowers and any such other guarantor as the Guarantor requires, and that the Administrative Agent and the other Secured Parties have no duty, and the Guarantor is not relying on the Administrative Agent or any other Secured Party at any time, to disclose to the Guarantor any information relating to the business, operations or financial condition of the Borrowers or any other guarantor (the guarantor waiving any duty on the part of the Administrative Agent and the other Secured Parties to disclose such information and any defense relating to the failure to provide the same).

14.           Setoff.  If and to the extent any payment is not made when due hereunder, the Guarantor hereby irrevocably authorizes each Secured Party and each of their respective Affiliates at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable Laws, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Secured Party or any such Affiliate to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Agreement or any other Loan Document to such Secured Party, irrespective of whether or not such Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Guarantor may be contingent or unmatured or are owed to a branch or office of such Secured Party different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Secured Party and its respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Secured Party or its respective Affiliates may have.  Each Secured Party agrees to notify the Guarantor promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

6

15.           Representations and Warranties.  The Guarantor represents and warrants that (a) it is duly organized and in good standing under the laws of the jurisdiction of its organization and has full capacity and right to make and perform this Guaranty, and all necessary authority has been obtained; (b) this Guaranty constitutes its legal, valid and binding obligation enforceable in accordance with its terms; (c) the making and performance of this Guaranty does not and will not violate the provisions of any applicable law, regulation or order, and does not and will not result in the breach of, or constitute a default or require any consent under, any material agreement, instrument, or document to which it is a party or by which it or any of its property may be bound or affected; and (d) all consents, approvals, licenses and authorizations of, and filings and registrations with, any governmental authority required under applicable law and regulations for the making and performance of this Guaranty have been obtained or made and are in full force and effect.

16.           Indemnification and Survival.  Without limitation on any other obligations of the Guarantor or remedies of the Administrative Agent or any other Secured Party under this Guaranty, the Guarantor shall, to the fullest extent permitted by law, indemnify, defend and save and hold harmless the Administrative Agent and each other Secured Party from and against, and shall pay on demand, any and all damages, losses, liabilities and expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) that may be suffered or incurred by the Administrative Agent or any other Secured Party in connection with or as a result of any failure of any Guaranteed Obligations to be the legal, valid and binding obligations of the Borrowers enforceable against the Borrowers in accordance with their terms.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

17.           GOVERNING LAW; Assignment; Jurisdiction; Notices.  THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.  This Guaranty shall (a) bind the Guarantor and its successors and assigns, provided that the Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of the Administrative Agent (and any attempted assignment without such consent shall be void), and (b) inure to the benefit of the Administrative Agent and each other Secured Party and their respective successors and assigns and each Secured Party may, without notice to the Guarantor and without affecting the Guarantor’s obligations hereunder, assign, sell or grant participations in the Guaranteed Obligations and this Guaranty, in whole or in part.  The Guarantor hereby irrevocably (i) submits to the non-exclusive jurisdiction of any United States Federal or State court sitting in New York, New York in any action or proceeding arising out of or relating to this Guaranty, and (ii) waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith.  Service of process by the Administrative Agent in connection with such action or proceeding shall be binding on the Guarantor if sent to the Guarantor in the manner set forth below.  The Guarantor agrees that the Administrative Agent and each other Secured Party may disclose to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations of all or part of the Guaranteed Obligations any and all information in the Administrative Agent’s or such Secured Party’s possession concerning the Guarantor, this Guaranty and any security for this Guaranty.  All notices and other communications to the Guarantor under this Guaranty shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail

7

or sent by telecopier to the Guarantor at its address set forth below or at such other address in the United States as may be specified by the Guarantor in a written notice delivered to the Administrative Agent at such office as the Administrative Agent may designate for such purpose from time to time in a written notice to the Guarantor.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Guaranty or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) the Guarantors shall be solely responsible, on a joint and several basis, to pay all fees and expenses of any referee appointed in such action or proceeding.

18.           WAIVER OF JURY TRIAL; FINAL AGREEMENT.  TO THE EXTENT ALLOWED BY APPLICABLE LAW, EACH GUARANTOR AND EACH SECURED PARTY HERETO IRREVOCABLY WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON, ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE GUARANTEED OBLIGATIONS.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

19.           Additional Guarantor Waivers and Agreements.

(a)           The Guarantor understands and acknowledges that if the Administrative Agent or any other Secured Party forecloses judicially or nonjudicially against any real property security for the Guaranteed Obligations, that foreclosure could impair or destroy any ability that the Guarantor may have to seek reimbursement, contribution, or indemnification from the Borrowers or others based on any right the Guarantor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by the Guarantor under this Guaranty. The Guarantor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of the Guarantor’s rights, if any, may entitle the Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing this Guaranty, the Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that the Guarantor will be fully liable under this Guaranty even though the Administrative Agent or any other Secured Party may foreclose, either by judicial foreclosure

8

or by exercise of power of sale, any deed of trust securing the Guaranteed Obligations; (ii) agrees that the Guarantor will not assert that defense in any action or proceeding which the Administrative Agent or any other Secured Party may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by the Guarantor in this Guaranty include any right or defense that the Guarantor may have had or be entitled to assert based on or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that the Administrative Agent and each other Secured Party is relying on this waiver in creating the Guaranteed Obligations, and that this waiver is a material part of the consideration which the Administrative Agent and each other Secured Party is receiving for creating the Guaranteed Obligations.

(b)           The Guarantor waives all rights and defenses that the Guarantor may have because any of the Guaranteed Obligations is secured by real property.  This means, among other things: (i) The Administrative Agent and each other Secured Party may collect from the Guarantor without first foreclosing on any real or personal property collateral pledged by either Borrower; and (ii) if the Administrative Agent or any other Secured Party forecloses on any real property collateral pledged by either Borrower or any other Person: (A) the amount of the Guaranteed Obligations may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) the Administrative Agent or any other Secured Party may collect from the Guarantor even if the Administrative Agent or any other Secured Party, by foreclosing on the real property collateral, has destroyed any right the Guarantor may have to collect from the Borrowers or any other Person.  This is an unconditional and irrevocable waiver of any rights and defenses the Guarantor may have because any of the Guaranteed Obligations is secured by real property.  These rights and defenses include, but are not limited to, any right or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.

(c) The Guarantor waives any right or defense it may have at law or equity, including California Code of Civil Procedure Section 580a, to a fair market value hearing or action to determine a deficiency judgment after a foreclosure.

[Signature Pages Follow]

9

Executed this        day of August, 2007.

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name:

Title:

PROSPECT MEDICAL GROUP, INC.

By:

Name:

Title:

SIERRA MEDICAL MANAGEMENT, INC.

By:

Name:

Title:

PROSPECT MEDICAL SYSTEMS, INC.

By:

Name:

Title:

PROSPECT HOSPITAL ADVISORY
SERVICES, INC.

By:

Name:

Title:

PROSPECT ADVANTAGE NETWORK, INC.

By:

Name:

Title:

PROSPECT HOSPITALS SYSTEM, LLC

By:

Name:

Title:

ALTA HOLLYWOOD HOSPITALS, INC.

By:

Name:

Title:

ALTA LOS ANGELES HOSPITALS, INC.

By:

Name:

Title:

PROMED HEALTH CARE
ADMINISTRATORS

By:

Name:

Title:

PINNACLE HEALTH RESOURCES

By:

Name:

Title:

PROSPECT PHYSICIAN ASSOCIATES, INC.

By:

Name:

Title:

PROSPECT HEALTH SOURCE MEDICAL
GROUP, INC.

By:

Name:

Title:

PROSPECT PROFESSIONAL CARE
MEDICAL GROUP, INC.

By:

Name:

Title:

NUESTRA FAMILIA MEDICAL GROUP,
INC.

By:

Name:

Title:

APAC MEDICAL GROUP, INC.

By:

Name:

Title:

PROSPECT NWOC MEDICAL GROUP, INC.

By:

Name:

Title:

SIERRA PRIMARY CARE MEDICAL
GROUP, A MEDICAL CORPORATION

By:

Name:

Title:

STARCARE MEDICAL GROUP, INC.

By:

Name:

Title:

PEGASUS MEDICAL GROUP, INC.

By:

Name:

Title:

ANTELOPE VALLEY MEDICAL
ASSOCIATES, INC.

By:

Name:

Title:

SANTA ANA/TUSTIN PHYSICIANS GROUP,
INC.

By:

Name:

Title:

PROMED HEALTH SERVICES COMPANY

By:

Name:

Title:

GENESIS HEALTHCARE OF SOUTHERN
CALIFORNIA, INC., A MEDICAL GROUP

By:

Name:

Title:

POMONA VALLEY MEDICAL GROUP, INC.

By:

Name:

Title:

UPLAND MEDICAL GROUP, A
PROFESSIONAL MEDICAL CORPORATION

By:

Name:

Title:

EX-10.36

Exhibit 10.36

Execution Copy

CONTINUING GUARANTY (SECOND LIEN)

FOR VALUE RECEIVED, the sufficiency of which is hereby acknowledged, and in consideration of credit and/or financial accommodations heretofore or hereafter from time to time made or granted to PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation and PROSPECT MEDICAL GROUP, INC., a California professional corporation (each, a “Borrower” and collectively, the “Borrowers”), pursuant to the Second Lien Credit Agreement dated as of August 8, 2007 by and among the Borrowers, BANK OF AMERICA, N.A. as administrative agent (the “Administrative Agent”) and the lenders party thereto (as amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), the undersigned Guarantor (whether one or more, the “Guarantor”, and if more than one, jointly and severally) hereby furnishes its guaranty of the Guaranteed Obligations (as hereinafter defined) as follows:

1.             Guaranty.  Subject to the terms of the Intercreditor Agreement, the Guarantor hereby absolutely and unconditionally guarantees, as a guaranty of payment and performance and not merely as a guaranty of collection, prompt payment when due, whether at stated maturity, by required prepayment, upon acceleration, demand or otherwise, and at all times thereafter, of all “Obligations” as defined in the Credit Agreement, and any and all existing and future indebtedness and liabilities of every kind, nature and character, direct or indirect, absolute or contingent, liquidated or unliquidated, voluntary or involuntary and whether for principal, interest, premiums, fees, indemnities, damages, costs, expenses or otherwise, of the Borrowers to the Administrative Agent and any other Secured Party arising under the Credit Agreement, any other Loan Documents and any instruments, agreements or other documents of any kind or nature now or hereafter executed in connection therewith  (including all renewals, extensions, amendments, refinancings and other modifications thereof and all costs, attorneys’ fees and expenses incurred by the Administrative Agent and any other Secured Party in connection with the collection or enforcement thereof), and whether recovery upon such indebtedness and liabilities may be or hereafter become unenforceable or shall be an allowed or disallowed claim under any proceeding or case commenced by or against any Guarantor or either Borrower under the Bankruptcy Code (Title 11, United States Code), any successor statute or any other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally (collectively, “Debtor Relief Laws”), and including interest that accrues after the commencement by or against either Borrower of any proceeding under any Debtor Relief Laws (collectively, the “Guaranteed Obligations”).  The books and records of the Administrative Agent and the books and records of each Secured Party showing the amount of the Guaranteed Obligations shall be admissible in evidence in any action or proceeding, and shall be binding upon the Guarantor and conclusive for the purpose of establishing the amount of the Guaranteed Obligations.  This Guaranty shall not be affected by the genuineness, validity, regularity or enforceability of the Guaranteed Obligations or any instrument or agreement evidencing any Guaranteed Obligations, or by the existence, validity, enforceability, perfection, non-perfection or extent of any collateral therefor, or by any fact or circumstance relating to the Guaranteed Obligations which might otherwise constitute a defense to the obligations of the Guarantor under this Guaranty, and the Guarantor hereby irrevocably waives any defenses it may now have or hereafter acquire in any way relating to any or all of the foregoing. Anything

contained herein to the contrary notwithstanding, the obligations of the Guarantor hereunder at any time shall be limited to an aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under Section 548 of the Bankruptcy Code (Title 11, United States Code) or any comparable provisions of any similar federal or state law.

2.             No Setoff or Deductions; Taxes; Payments.  The Guarantor represents and warrants that it is organized and resident in the United States of America.  The Guarantor shall make all payments hereunder without setoff or counterclaim and free and clear of and without deduction for any taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restrictions or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless the Guarantor is compelled by law to make such deduction or withholding.  If any such obligation (other than one arising with respect to taxes based on or measured by the income or profits of the Administrative Agent or any other Secured Party) is imposed upon the Guarantor with respect to any amount payable by it hereunder, the Guarantor will pay to the Administrative Agent or such other Secured Party, on the date on which such amount is due and payable hereunder, such additional amount in Dollars as shall be necessary to enable the Administrative Agent or such other Secured Party to receive the same net amount which the Administrative Agent or such other Secured Party would have received on such due date had no such obligation been imposed upon the Guarantor.  The Guarantor will deliver promptly to the Administrative Agent or such other Secured Party certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Guarantor hereunder. Payments by the Guarantor shall be made to the Administrative Agent in accordance with Section 2.12 of the Credit Agreement and shall be credited and applied in accordance with Section 8.03 of the Credit Agreement.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

3.             Rights of Administrative Agent and the Other Secured Parties.  The Guarantor consents and agrees that the Administrative Agent and the other Secured Parties may, at any time and from time to time, without notice or demand, and without affecting the enforceability or continuing effectiveness hereof:  (a) amend, extend, renew, compromise, discharge, accelerate or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof; (b) take, hold, exchange, enforce, waive, release, fail to perfect, sell, or otherwise dispose of any security for the payment of this Guaranty or any Guaranteed Obligations; (c) apply such security and direct the order or manner of sale thereof as the Administrative Agent and the other Secured Parties in their sole discretion may determine; and (d) release or substitute one or more of any endorsers or other guarantors of any of the Guaranteed Obligations.  Without limiting the generality of the foregoing, the Guarantor consents to the taking of, or failure to take, any action which might in any manner or to any extent vary the risks of the Guarantor under this Guaranty or which, but for this provision, might operate as a discharge of the Guarantor.

4.             Certain Waivers.  The Guarantor waives (a) any defense arising by reason of any disability or other defense of either Borrower or any other guarantor, or the cessation from any cause whatsoever (including any act or omission of the Administrative Agent or any other Secured Party) of the liability of either Borrower other than payment in full of the Guaranteed

2

Obligations; (b) any defense based on any claim that the Guarantor’s obligations exceed or are more burdensome than those of the Borrowers; (c) the benefit of any statute of limitations affecting the Guarantor’s liability hereunder; (d) any right to require the Administrative Agent or any other Secured Party to proceed against the Borrowers, proceed against or exhaust any security for the Indebtedness, or pursue any other remedy in the Administrative Agent’s or any other Secured Party’s power whatsoever; (e) any benefit of and any right to participate in any security now or hereafter held by the Administrative Agent or any other Secured Party; and (f) to the fullest extent permitted by law, any and all other defenses or benefits that may be derived from or afforded by applicable law limiting the liability of or exonerating guarantors or sureties.  The Guarantor expressly waives all setoffs and counterclaims and all presentments, demands for payment or performance, notices of nonpayment or nonperformance, protests, notices of protest, notices of dishonor and all other notices or demands of any kind or nature whatsoever with respect to the Guaranteed Obligations, and all notices of acceptance of this Guaranty or of the existence, creation or incurrence of new or additional Guaranteed Obligations. The Guarantor waives any rights and defenses that are or may become available to the Guarantor by reason of Sections 2787 to 2855, inclusive, 2899 and 3433 of the California Civil Code. As provided below, this Guaranty shall be governed by, and construed in accordance with, the laws of the State of New York. The foregoing waivers and the provisions hereinafter set forth in this Guaranty which pertain to California law are included solely out of an abundance of caution, and shall not be construed to mean that any of the above referenced provisions of California law are in any way applicable to this Guaranty or the Guaranteed Obligations.

5.             Obligations Independent.  The obligations of the Guarantor hereunder are those of primary obligor, and not merely as surety, and are independent of the Guaranteed Obligations and the obligations of any other guarantor, and a separate action may be brought against the Guarantor to enforce this Guaranty whether or not the Borrowers or any other person or entity are joined as a party.

6.             Subrogation.  The Guarantor shall not exercise any right of subrogation, contribution, indemnity, reimbursement or similar rights with respect to any payments it makes under this Guaranty until all of the Guaranteed Obligations and any amounts payable under this Guaranty have been indefeasibly paid and performed in full and any commitments of the Administrative Agent and each other Secured Party or the facility provided by the Administrative Agent and each other Secured Party with respect to the Guaranteed Obligations is terminated.  If any amounts are paid to the Guarantor in violation of the foregoing limitation, then such amounts shall be held in trust for the benefit of the Administrative Agent and the other Secured Parties and shall forthwith be paid to the Administrative Agent (for the benefit of itself and the other Secured Parties) to reduce the amount of the Guaranteed Obligations, whether matured or unmatured.

7.             Contribution.  Subject to Paragraph 6 above, the Guarantor hereby agrees with each other Guarantor that if any Guarantor shall make an Excess Payment (as defined below), such Guarantor shall have a right of contribution from each other Guarantor in an amount equal to such other Guarantor’s Contribution Share (as defined below) of such Excess Payment (as defined below). The payment obligations of any Guarantor under this Paragraph 7 shall be subordinate and subject in right of payment to the Guaranteed Obligations until such time as the Guaranteed Obligations have been paid in full, and no Guarantor shall exercise any right or

3

remedy under this Paragraph 7 against any other Guarantor until such Guaranteed Obligations have been paid in full.

For purposes of this Paragraph 7:

(a) “Excess Payment” shall mean the amount paid by any Guarantor in excess of its Ratable Share of any Guaranteed Obligations;

(b) “Ratable Share” shall mean, for any Guarantor in respect of any payment of Guaranteed Obligations, the ratio (expressed as a percentage) as of the date of such payment of Guaranteed Obligations of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of all of the Guarantors exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Guarantors hereunder) of the Guarantors; provided, however, that, for purposes of calculating the Ratable Shares of the Guarantors in respect of any payment of Guaranteed Obligations, any Guarantor that became a Guarantor subsequent to the date of any such payment shall be deemed to have been a Guarantor on the date of such payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such payment; and

(c) “Contribution Share” shall mean, for any Guarantor in respect of any Excess Payment made by any other Guarantor, the ratio (expressed as a percentage) as of the date of such Excess Payment of (i) the amount by which the aggregate present fair salable value of all of its assets and properties exceeds the amount of all debts and liabilities of such Guarantor (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of such Guarantor hereunder) to (ii) the amount by which the aggregate present fair salable value of all assets and other properties of the Guarantors other than the maker of such Excess Payment exceeds the amount of all of the debts and liabilities (including probable contingent, subordinated, unmatured, and unliquidated liabilities, but excluding the obligations of the Guarantors) of the Guarantors other than the maker of such Excess Payment; provided, however, that, for purposes of calculating the Contribution Shares of the Guarantors in respect of any Excess Payment, any Guarantor that became a Guarantor subsequent to the date of any such Excess Payment shall be deemed to have been a Guarantor on the date of such Excess Payment and the financial information for such Guarantor as of the date such Guarantor became a Guarantor shall be utilized for such Guarantor in connection with such Excess Payment.

Each Guarantor recognizes and acknowledges that the rights to contribution arising hereunder shall constitute an asset in favor of the party entitled to such contribution. This Paragraph 7 shall not be deemed to affect any right of subrogation, indemnity, reimbursement or

4

contribution that any Guarantor may have under applicable Law against the Borrowers in respect of any payment of Guaranteed Obligations.

8.             Termination; Reinstatement.  This Guaranty is a continuing and irrevocable guaranty of all Guaranteed Obligations now or hereafter existing and shall remain in full force and effect until all Guaranteed Obligations and any other amounts payable under this Guaranty are indefeasibly paid in full in cash and any commitments of the Administrative Agent and each other Secured Party or facilities provided by the Administrative Agent and any other Secured Party with respect to the Guaranteed Obligations are terminated.  Notwithstanding the foregoing, this Guaranty shall continue in full force and effect or be revived, as the case may be, if any payment by or on behalf of the Borrowers or the Guarantor is made, or the Administrative Agent or any other Secured Party exercises its right of setoff, in respect of the Guaranteed Obligations and such payment or the proceeds of such setoff or any part thereof is subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Administrative Agent or any other Secured Party in its discretion) to be repaid to a trustee, receiver or any other party, in connection with any proceeding under any Debtor Relief Laws or otherwise, all as if such payment had not been made or such setoff had not occurred and whether or not the Administrative Agent or any other Secured Party is in possession of or has released this Guaranty and regardless of any prior revocation, rescission, termination or reduction.  The obligations of the Guarantor under this paragraph shall survive termination of this Guaranty.

9.             Subordination.  The Guarantor hereby subordinates the payment of all obligations and indebtedness of all Borrowers owing to the Guarantor, whether now existing or hereafter arising, including but not limited to any obligation of any Borrower to the Guarantor as subrogee of the Administrative Agent and any other Secured Party or resulting from the Guarantor’s performance under this Guaranty, to the indefeasible payment in full in cash of all Guaranteed Obligations.  If the Administrative Agent so requests, any such obligation or indebtedness of the Borrowers to the Guarantor shall be enforced and performance received by the Guarantor as trustee for the Administrative Agent and the proceeds thereof shall be paid over to the Administrative Agent on account of the Guaranteed Obligations, but without reducing or affecting in any manner the liability of the Guarantor under this Guaranty.

10.           Stay of Acceleration.  Subject to the terms of the Intercreditor Agreement, in the event that acceleration of the time for payment of any of the Guaranteed Obligations is stayed, in connection with any case commenced by or against either Borrower or any other Guarantor under any Debtor Relief Laws, or otherwise, all such amounts shall nonetheless be payable by the Guarantor immediately upon demand by the Administrative Agent.

11.           Expenses.  The Guarantor shall pay on demand all out-of-pocket expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) in any way relating to the enforcement or protection of the Administrative Agent’s and each other Secured Party’s rights under this Guaranty or in respect of the Guaranteed Obligations, including any incurred during any “workout” or restructuring in respect of the Guaranteed Obligations and any incurred in the preservation, protection or enforcement of any rights of the Administrative Agent and each other Secured Party in any proceeding under any

5

Debtor Relief Laws.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

12.           Miscellaneous.  No provision of this Guaranty may be waived, amended, supplemented or modified, except by a written instrument executed by the Administrative Agent and the Guarantor.  No failure by the Administrative Agent or any other Secured Party to exercise, and no delay in exercising, any right, remedy or power hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy or power hereunder preclude any other or further exercise thereof or the exercise of any other right, power or remedy.  The remedies herein provided are cumulative and not exclusive of any remedies provided by law or in equity.  The unenforceability or invalidity of any provision of this Guaranty shall not affect the enforceability or validity of any other provision herein.  Unless otherwise agreed by the Administrative Agent and the Guarantor in writing, this Guaranty is not intended to supersede or otherwise affect any other guaranty now or hereafter given by the Guarantor for the benefit of the Administrative Agent and the other Secured Parties or any term or provision thereof. Capitalized terms used herein but not defined herein shall have the meanings given thereto in the Credit Agreement.

13.           Condition of Borrowers.  The Guarantor acknowledges and agrees that it has the sole responsibility for, and has adequate means of, obtaining from the Borrowers and any other guarantor such information concerning the financial condition, business and operations of the Borrowers and any such other guarantor as the Guarantor requires, and that the Administrative Agent and the other Secured Parties have no duty, and the Guarantor is not relying on the Administrative Agent or any other Secured Party at any time, to disclose to the Guarantor any information relating to the business, operations or financial condition of the Borrowers or any other guarantor (the guarantor waiving any duty on the part of the Administrative Agent and the other Secured Parties to disclose such information and any defense relating to the failure to provide the same).

14.           Setoff.  Subject to the terms of the Intercreditor Agreement, if and to the extent any payment is not made when due hereunder, the Guarantor hereby irrevocably authorizes each Secured Party and each of their respective Affiliates at any time and from time to time, after obtaining the prior written consent of the Administrative Agent, to the fullest extent permitted by applicable Laws, to set off and apply any and all deposits (general or special, time or demand, provisional or final, in whatever currency) at any time held and other obligations (in whatever currency) at any time owing by such Secured Party or any such Affiliate to or for the credit or the account of the Guarantor against any and all of the obligations of the Guarantor now or hereafter existing under this Agreement or any other Loan Document to such Secured Party, irrespective of whether or not such Secured Party shall have made any demand under this Agreement or any other Loan Document and although such obligations of the Guarantor may be contingent or unmatured or are owed to a branch or office of such Secured Party different from the branch or office holding such deposit or obligated on such indebtedness.  The rights of each Secured Party and its respective Affiliates under this Section are in addition to other rights and remedies (including other rights of setoff) that such Secured Party or its respective Affiliates may have.  Each Secured Party agrees to notify the Guarantor promptly after any such setoff and application, provided that the failure to give such notice shall not affect the validity of such setoff and application.

6

15.           Representations and Warranties.  The Guarantor represents and warrants that (a) it is duly organized and in good standing under the laws of the jurisdiction of its organization and has full capacity and right to make and perform this Guaranty, and all necessary authority has been obtained; (b) this Guaranty constitutes its legal, valid and binding obligation enforceable in accordance with its terms; (c) the making and performance of this Guaranty does not and will not violate the provisions of any applicable law, regulation or order, and does not and will not result in the breach of, or constitute a default or require any consent under, any material agreement, instrument, or document to which it is a party or by which it or any of its property may be bound or affected; and (d) all consents, approvals, licenses and authorizations of, and filings and registrations with, any governmental authority required under applicable law and regulations for the making and performance of this Guaranty have been obtained or made and are in full force and effect.

16.           Indemnification and Survival.  Without limitation on any other obligations of the Guarantor or remedies of the Administrative Agent or any other Secured Party under this Guaranty, the Guarantor shall, to the fullest extent permitted by law, indemnify, defend and save and hold harmless the Administrative Agent and each other Secured Party from and against, and shall pay on demand, any and all damages, losses, liabilities and expenses (including attorneys’ fees and expenses and the allocated cost and disbursements of internal legal counsel) that may be suffered or incurred by the Administrative Agent or any other Secured Party in connection with or as a result of any failure of any Guaranteed Obligations to be the legal, valid and binding obligations of the Borrowers enforceable against the Borrowers in accordance with their terms.  The obligations of the Guarantor under this paragraph shall survive the payment in full of the Guaranteed Obligations and termination of this Guaranty.

17.           GOVERNING LAW; Assignment; Jurisdiction; Notices.  THIS GUARANTY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK.  This Guaranty shall (a) bind the Guarantor and its successors and assigns, provided that the Guarantor may not assign its rights or obligations under this Guaranty without the prior written consent of the Administrative Agent (and any attempted assignment without such consent shall be void), and (b) inure to the benefit of the Administrative Agent and each other Secured Party and their respective successors and assigns and each Secured Party may, without notice to the Guarantor and without affecting the Guarantor’s obligations hereunder, assign, sell or grant participations in the Guaranteed Obligations and this Guaranty, in whole or in part.  The Guarantor hereby irrevocably (i) submits to the non-exclusive jurisdiction of any United States Federal or State court sitting in New York, New York in any action or proceeding arising out of or relating to this Guaranty, and (ii) waives to the fullest extent permitted by law any defense asserting an inconvenient forum in connection therewith.  Service of process by the Administrative Agent in connection with such action or proceeding shall be binding on the Guarantor if sent to the Guarantor in the manner set forth below.  The Guarantor agrees that the Administrative Agent and each other Secured Party may disclose to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations of all or part of the Guaranteed Obligations any and all information in the Administrative Agent’s or such Secured Party’s possession concerning the Guarantor, this Guaranty and any security for this Guaranty.  All notices and other communications to the Guarantor under this Guaranty shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopier to the Guarantor at its

7

address set forth below or at such other address in the United States as may be specified by the Guarantor in a written notice delivered to the Administrative Agent at such office as the Administrative Agent may designate for such purpose from time to time in a written notice to the Guarantor.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Guaranty or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) the Guarantors shall be solely responsible, on a joint and several basis, to pay all fees and expenses of any referee appointed in such action or proceeding.

18.           WAIVER OF JURY TRIAL; FINAL AGREEMENT.  TO THE EXTENT ALLOWED BY APPLICABLE LAW, EACH GUARANTOR AND EACH SECURED PARTY HERETO IRREVOCABLY WAIVES TRIAL BY JURY WITH RESPECT TO ANY ACTION, CLAIM, SUIT OR PROCEEDING ON, ARISING OUT OF OR RELATING TO THIS GUARANTY OR THE GUARANTEED OBLIGATIONS.  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. THIS GUARANTY REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BETWEEN THE PARTIES.  THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

19.           Additional Guarantor Waivers and Agreements.

(a)           The Guarantor understands and acknowledges that if the Administrative Agent or any other Secured Party forecloses judicially or nonjudicially against any real property security for the Guaranteed Obligations, that foreclosure could impair or destroy any ability that the Guarantor may have to seek reimbursement, contribution, or indemnification from the Borrowers or others based on any right the Guarantor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by the Guarantor under this Guaranty. The Guarantor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of the Guarantor’s rights, if any, may entitle the Guarantor to assert a defense to this Guaranty based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing this Guaranty, the Guarantor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that the Guarantor will be fully liable under this Guaranty even though the Administrative Agent or any other Secured Party may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the Guaranteed Obligations; (ii) agrees

8

that the Guarantor will not assert that defense in any action or proceeding which the Administrative Agent or any other Secured Party may commence to enforce this Guaranty; (iii) acknowledges and agrees that the rights and defenses waived by the Guarantor in this Guaranty include any right or defense that the Guarantor may have had or be entitled to assert based on or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that the Administrative Agent and each other Secured Party is relying on this waiver in creating the Guaranteed Obligations, and that this waiver is a material part of the consideration which the Administrative Agent and each other Secured Party is receiving for creating the Guaranteed Obligations.

(b)           The Guarantor waives all rights and defenses that the Guarantor may have because any of the Guaranteed Obligations is secured by real property.  This means, among other things: (i) The Administrative Agent and each other Secured Party may collect from the Guarantor without first foreclosing on any real or personal property collateral pledged by either Borrower; and (ii) if the Administrative Agent or any other Secured Party forecloses on any real property collateral pledged by either Borrower or any other Person: (A) the amount of the Guaranteed Obligations may be reduced only by the price for which the collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price, and (B) the Administrative Agent or any other Secured Party may collect from the Guarantor even if the Administrative Agent or any other Secured Party, by foreclosing on the real property collateral, has destroyed any right the Guarantor may have to collect from the Borrowers or any other Person.  This is an unconditional and irrevocable waiver of any rights and defenses the Guarantor may have because any of the Guaranteed Obligations is secured by real property.  These rights and defenses include, but are not limited to, any right or defenses based upon Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.

(c) The Guarantor waives any right or defense it may have at law or equity, including California Code of Civil Procedure Section 580a, to a fair market value hearing or action to determine a deficiency judgment after a foreclosure.

[Signature Pages Follow]

9

Executed this          day of August, 2007.

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name:

Title:

PROSPECT MEDICAL GROUP, INC.

By:

Name:

Title:

SIERRA MEDICAL MANAGEMENT, INC.

By:

Name:

Title:

PROSPECT MEDICAL SYSTEMS, INC.

By:

Name:

Title:

PROSPECT HOSPITAL ADVISORY
SERVICES, INC.

By:

Name:

Title:

PROSPECT ADVANTAGE NETWORK, INC.

By:

Name:

Title:

PROSPECT HOSPITALS SYSTEM, LLC

By:

Name:

Title:

ALTA HOLLYWOOD HOSPITALS, INC.

By:

Name:

Title:

ALTA LOS ANGELES HOSPITALS, INC.

By:

Name:

Title:

PROMED HEALTH CARE
ADMINISTRATORS

By:

Name:

Title:

PINNACLE HEALTH RESOURCES

By:

Name:

Title:

PROSPECT PHYSICIAN ASSOCIATES, INC.

By:

Name:

Title:

PROSPECT HEALTH SOURCE MEDICAL
GROUP, INC.

By:

Name:

Title:

PROSPECT PROFESSIONAL CARE
MEDICAL GROUP, INC.

By:

Name:

Title:

NUESTRA FAMILIA MEDICAL GROUP,
INC.

By:

Name:

Title:

APAC MEDICAL GROUP, INC.

By:

Name:

Title:

PROSPECT NWOC MEDICAL GROUP, INC.

By:

Name:

Title:

SIERRA PRIMARY CARE MEDICAL
GROUP, A MEDICAL CORPORATION

By:

Name:

Title:

STARCARE MEDICAL GROUP, INC.

By:

Name:

Title:

PEGASUS MEDICAL GROUP, INC.

By:

Name:

Title:

ANTELOPE VALLEY MEDICAL
ASSOCIATES, INC.

By:

Name:

Title:

SANTA ANA/TUSTIN PHYSICIANS GROUP,
INC.

By:

Name:

Title:

PROMED HEALTH SERVICES COMPANY

By:

Name:

Title:

GENESIS HEALTHCARE OF SOUTHERN
CALIFORNIA, INC., A MEDICAL GROUP

By:

Name:

Title:

POMONA VALLEY MEDICAL GROUP, INC.

By:

Name:

Title:

UPLAND MEDICAL GROUP, A
PROFESSIONAL MEDICAL CORPORATION

By:

Name:

Title:

EX-10.37

Exhibit 10.37

Execution Copy

FIRST LIEN PLEDGE AGREEMENT

1.           GRANT OF SECURITY INTEREST.

(a)           The undersigned Jacob Y. Terner, M.D., an individual (“Terner” or the “Pledgor”) hereby irrevocably and unconditionally grants a first priority security interest in, a lien upon and the right of set-off against, and assigns and transfers to Bank of America, N.A., as administrative agent, and its successors and assigns (collectively, the “Administrative Agent”), for the benefit of the Administrative Agent and the Lenders (as defined below), all property referred to in Exhibit A attached hereto and incorporated herein, as hereafter amended or supplemented from time to time (the “Collateral”).  Capitalized terms used herein, but not defined herein, shall have the respective meanings set forth in the Credit Agreement (as defined below).  The parties hereto expressly agree that all rights, assets and property at any time held in or credited to any securities account constituting Collateral shall be treated as financial assets as defined in the Uniform Commercial Code as in effect in any applicable state (the “UCC”).

(b)           Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Lenders, pursuant to this Agreement, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Lenders, under this Agreement, are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

2.           INDEBTEDNESS.

(a)           The Collateral secures and will secure all Indebtedness of (i) Prospect Medical Group, Inc., a California professional corporation (“PMG”), (ii) Prospect Medical Holdings, Inc., a Delaware corporation (“Holdings”) and (iii) PMS, in each case, owed to the Administrative Agent and the Lenders.  Each person or entity obligated under any Indebtedness is sometimes referred to in this Agreement as a “Debtor”.

(b)            “Indebtedness” means:

(i)            all “Obligations” (as such term is defined in the Credit Agreement) under (A) that certain First Lien Credit Agreement (as amended, restated, modified or otherwise supplemented, the “Credit Agreement”) dated of even date herewith among Holdings, PMG, the Administrative Agent and the other financial institutions from time to time party thereto (the “Lenders”), (B) the other Loan Documents, and (C) and all other instruments, documents and agreements of every kind and nature now or hereafter executed in connection with the Credit Agreement (including all renewals, increases, extensions, restatements and replacements thereof and amendments and modifications of any of the foregoing),

(ii)           all obligations and liabilities of Pledgor to the Administrative Agent hereunder, and

(iii)          all costs, attorneys’ fees and expenses incurred by the Administrative Agent in connection with the collection or enforcement of any of the above.

1

(c)           Unless otherwise agreed in writing, “Indebtedness” shall not include any debts, obligations or liabilities which are or may hereafter be “consumer credit” subject to the disclosure requirements of the Federal Truth in Lending law or any regulation promulgated thereunder.

3.           COVENANTS, REPRESENTATIONS AND WARRANTIES.   Pledgor and each Debtor covenant, represent and warrant that unless compliance is waived by the Administrative Agent in writing:

(a)           Pledgor is the legal and beneficial owner of all the Collateral free and clear of any and all liens, encumbrances, or interests of any third parties other than the first priority security interest of the Administrative Agent and the Second Priority Lien (as defined in the Second Lien Credit Agreement) of the Second Lien Administrative Agent, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature, whether voluntary or involuntary, except the first priority security interest of the Administrative Agent and the Second Priority Lien of the Second Lien Administrative Agent.  Pledgor is the Chief Executive Officer of PMG, its affiliate, Holdings, and Holdings’ subsidiary PMS.  Pledgor holds title to the Collateral as an individual and such Collateral is subject to assignable option agreements that allow PMS and PMG, as applicable, to acquire the Collateral or designate a successor physician as the record holder of such Collateral at any time (collectively, as each may be amended, the “Option Agreement”).

(b)           Pledgor and each Debtor shall, at PMG’s expense, take all actions necessary or advisable from time to time to maintain the first priority and perfection of the security interest of the Administrative Agent in the Collateral and shall not take any actions that would alter, impair or eliminate said priority or perfection.

(c)           Pledgor and each Debtor agree to cause PMG, and PMG agrees, to pay prior to delinquency all taxes, charges, liens and assessments against the Collateral, and upon the failure of Pledgor to do so, the Administrative Agent at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same.

(d)           If any of the Collateral is margin stock as defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System of the United States (“FRB”), Pledgor will provide the Administrative Agent a properly executed Form U-1 Purpose Statement. The Administrative Agent and Pledgor will comply with the requirements and restrictions imposed by Regulation U.

(e)           Pledgor’s exact legal name is correctly set forth on the signature page hereof. Pledgor will notify the Administrative Agent in writing at least 30 days prior to any change in Pledgor’s name or identity.

(f)            Pledgor resides and has for the four month period preceding the date hereof resided in the state specified on the signature page hereof.  Pledgor shall give the Administrative Agent at least thirty (30) days notice before changing the location of his residence.

4.            REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING EQUITY SECURITIES COLLATERAL.  Pledgor and each Debtor hereby represent, warrant and covenant the following with respect to any equity securities comprising any or all of the Collateral (collectively, the “Equity Securities”) and covenant and agree to promptly notify the Administrative Agent in writing in the event that any of the foregoing representations and warranties is no longer true and correct:

2

(a)           The Equity Securities have been duly authorized and validly issued and are fully paid and non-assessable.

(b)           There are no restrictions on the pledge of the Equity Securities by Pledgor to the Administrative Agent nor on the sale of the Equity Securities by Pledgor or the Administrative Agent (whether pursuant to securities laws or regulations or any shareholder, lock-up or other similar agreement or insider trading rules of the issuer).

5.           ADMINISTRATIVE AGENT APPOINTED ATTORNEY IN FACT.  Upon the occurrence and during the continuation of an Event of Default, Pledgor authorizes and irrevocably appoints the Administrative Agent as Pledgor’s true and lawful attorney-in-fact with full power of substitution to take any action and execute or otherwise authenticate any record or other documentation that the Administrative Agent considers necessary or advisable to accomplish the purposes of this Agreement, including but not limited to, the following actions: (a) to endorse, receive, accept and collect all checks, drafts, other payment orders and instruments representing or included in the Collateral or representing any payment, dividend or distribution relating to any Collateral or to take any other action to enforce, collect or compromise any of the Collateral; (b) to transfer any Collateral (including converting physical certificates to book-entry holdings) into the name of the Administrative Agent or its nominee or any broker-dealer (which may be an affiliate of the Administrative Agent) and to execute any control agreement covering any Collateral on Pledgor’s behalf and as attorney-in-fact for Pledgor in order to perfect the Administrative Agent’s first priority and continuing security interest in the Collateral and in order to provide the Administrative Agent with control of the Collateral, and Pledgor’s signature on this Agreement or other authentication of this Agreement shall constitute an irrevocable direction by Pledgor to any bank, custodian, broker dealer, any other securities intermediary or commodity intermediary holding any Collateral or any issuer of any letters of credit to comply with any instructions or entitlement orders, of the Administrative Agent without further consent of Pledgor; (c) to participate in any recapitalization, reclassification, reorganization, consolidation, redemption, stock split, merger or liquidation of any issuer of securities which constitute Collateral, and in connection therewith the Administrative Agent may deposit or surrender control of the Collateral, accept money or other property in exchange for the Collateral, and take such action as it deems proper in connection therewith, and any money or property received on account of or in exchange for the Collateral shall be applied to the Indebtedness or held by the Administrative Agent thereafter as Collateral pursuant to the provisions hereof; (d) to exercise any right, privilege or option pertaining to any Collateral, but the Administrative Agent has no obligation to do so; (e) to file any claims, take any actions or institute any proceedings which the Administrative Agent determines to be necessary or appropriate to collect or preserve the Collateral or to enforce the Administrative Agent’s rights with respect to the Collateral; (f) to execute in the name or otherwise authenticate on behalf of Pledgor any record reasonably believed necessary or appropriate by the Administrative Agent for compliance with laws, rules or regulations applicable to any Collateral, or in connection with exercising the Administrative Agent’s rights under this Agreement; (g) to file any financing statement relating to this Agreement; (h) to make any compromise or settlement it deems desirable or proper with reference to the Collateral; (i) to do and take any and all actions with respect to the Collateral and to perform any of Pledgor’s obligations under this Agreement; and (j) to execute any documentation reasonably believed necessary by the Administrative Agent for compliance with Rule 144 or any other restrictions, laws, rules or regulations applicable to any Collateral hereunder that constitutes restricted or control securities under the securities laws.  The foregoing appointments are irrevocable and coupled with an interest and shall survive the death or disability of Pledgor and shall not be revoked without the Administrative Agent’s written consent.  To the extent permitted by law, Pledgor hereby ratifies all said attorney-in-fact shall lawfully do by virtue hereof.

3

6.           VOTING RIGHTS.

(a)           So long as no Event of Default shall have occurred and is continuing and the Administrative Agent has not delivered the notice specified in subsection (b) below, Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any document or agreement executed in connection herewith.

(b)           Upon the occurrence and during the continuance of an Event of Default, at the option of the Administrative Agent exercised in a writing sent to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection (a) above shall cease, and the Administrative Agent shall thereupon have the sole right to exercise such voting and other consensual rights.

7.           EVENTS OF DEFAULT; REMEDIES.

(a)           Any one or more of the following shall be a default hereunder (each an, “Event of Default”):

(i)            An “Event of Default” under the Credit Agreement (as such term is defined in the Credit Agreement) occurs and is continuing.

(ii)           Pledgor or any Debtor fails to pay any Indebtedness when due, after giving effect to any applicable grace period.

(iii)          Pledgor or any Debtor fails to cure a breach of any collateral maintenance provisions set forth in this Agreement or in any agreement governing or executed or delivered in connection with any Indebtedness within the applicable cure period specified therein.

(iv)          Pledgor or any Debtor breaches any term, provision, warranty or representation under this Agreement not specifically referred to in subsection (a) of this Section or breaches any term, provision, warranty or representation of the Credit Agreement or any other agreement or instrument evidencing, securing or executed or delivered in connection with the Indebtedness beyond any grace period provided with respect thereto.

(v)           Any control agreement covering any Collateral is breached, or any party to such control agreement terminates or notifies the Administrative Agent or Pledgor of its intention to terminate the control agreement or denies the enforceability of the control agreement.

(vi)          Any involuntary lien of any kind or character attaches to any of the Collateral.

(b)           If an Event of Default occurs, the Administrative Agent may do any one or more of the following:

(i)            Declare any Indebtedness immediately due and payable, without notice or demand.

4

(ii)           Exercise as to any or all of the Collateral all the rights, powers and remedies of an owner, subject to the provisions of Section 6 of this Agreement.

(iii)          Enforce the security interest given hereunder pursuant to the UCC and any other applicable law.

(iv)          Subject to applicable Laws (including, without limitation, securities laws and regulations), sell all or any part of the Collateral at public or private sale in accordance with the UCC, without advertisement, in such manner and order as the Administrative Agent may elect.  The Administrative Agent may purchase the Collateral for its own account at any such sale.

(v)           Enforce the security interest of the Administrative Agent in any deposit account which is part of the Collateral by applying such account to the Indebtedness.

(vi)          Exercise any other remedy provided under this Agreement or by any applicable law.

(vii)         Comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and such compliance will not be considered to affect adversely the commercial reasonableness of any sale or other disposition of the Collateral.

(viii)        Sell the Collateral without giving any warranties as to the Collateral.  The Administrative Agent may specifically disclaim any warranties of title or the like.  This procedure will not be considered to affect adversely the commercial reasonableness of any sale or other disposition of the Collateral.

(ix)           If requested by the Administrative Agent, Holdings, PMS and/or PMG will direct Pledgor (whether pursuant to the Option Agreement or otherwise), or his estate, as the case may be, to sell and Pledgor, or his estate, as the case may be, shall promptly sell all (or any portion as may be directed by the Administrative Agent) of the Collateral to such person(s) as Holdings, PMS and PMG shall in their reasonable discretion direct, subject to the reasonable approval of Administrative Agent (the “New Shareholder(s)”).  If requested by the Administrative Agent, such New Shareholder(s) shall execute and deliver to the Administrative Agent a pledge agreement and such other agreements, documents and instruments as the Administrative Agent and the Lenders may request evidencing or relating to the Collateral, each in form and substance satisfactory to the Administrative Agent.

8.           RIGHT TO CURE; LIMITATION ON ADMINISTRATIVE AGENT’S DUTIES.  If Pledgor fails to perform any agreement contained herein, the Administrative Agent may perform or cause performance of such agreement and the expenses of the Administrative Agent incurred in connection therewith shall be payable the Debtors, on a joint and several basis, under Section 13.  Any powers conferred on the Administrative Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers.  Except for reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral

5

in its possession if the Collateral is accorded treatment substantially equal to that which the Administrative Agent accords its own property, it being understood that the Administrative Agent shall not have any responsibility for (a) ascertaining, exercising or taking other action or giving Pledgor notice with respect to subscription rights, calls, conversions, exchanges, maturities, lenders or other matters relative to any Collateral, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral.  The Administrative Agent shall not be liable for any loss to the Collateral resulting from acts of God, war, civil commotion, fire, earthquake, or other disaster or for any other loss or damage to the Collateral except to the extent such loss is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the Administrative Agent’s gross negligence or willful misconduct.

9.           WAIVERS.  The Administrative Agent shall be under no duty or obligation whatsoever and Pledgor waives any right to require the Administrative Agent to (i) make or give any presentment, demands for performances, notices of nonperformance, protests, notices of protest or notices of dishonor in connection with any obligations or evidences of indebtedness held by the Administrative Agent as Collateral, or in connection with any obligation or evidences of indebtedness which constitute in whole or in part the Indebtedness, (ii) proceed against any person or entity, (iii) proceed against or exhaust any collateral in any order and in any manner it so elects or (iv) pursue any other remedy in the Administrative Agent’s power.  Pledgor waives any defense arising by reason of (i) any disability or other defense of any Debtor or any other person, (ii) the cessation from any cause whatsoever of the liability of any Debtor or any other person, (iii) any lack of validity or enforceability of the Credit Agreement, any other document of consistence executed in connection herewith or any other agreement or instrument governing or evidencing any Secured Obligations, (iv) the insolvency of any Debtor or any other person or (v) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor.

Until the Indebtedness is paid in full, Pledgor waives any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory or otherwise), including without limitation any claim or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising from the existence or performance of this Agreement, and Pledgor waives any right to enforce any remedy which the Administrative Agent now has or may hereafter have against any Debtor or against any other person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by the Administrative Agent.  If Pledgor is not also a Debtor with respect to a specified Indebtedness, Pledgor authorizes the Administrative Agent without notice or demand and without affecting Pledgor’s liability hereunder, from time to time to:  (i) renew, extend, accelerate or otherwise change the time for payment of or otherwise change the terms of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (ii) take and hold security, other than the Collateral, for the payment of the Indebtedness or any part thereof, and exchange, enforce, waive and release the Collateral or any part thereof or any such other security; (iii) apply the proceeds of any Collateral to the Indebtedness in any order and in any manner it so elects and (iv) release or substitute any Debtor or any one or more of them, or any of the endorsers or guarantors of the Indebtedness or any part thereof, or any other parties thereto and Pledgor consents to the taking of, or failure to take, any action by the Administrative Agent which might in any manner or to any extent vary the risks of Pledgor under this Agreement or which, but for this provision, might operate as a discharge of Pledgor.  Pledgor agrees that it is solely responsible for keeping itself informed as to the financial condition of each Debtor and of all circumstances which bear upon the risk of nonpayment or the risk of a margin call or liquidation of the Collateral.

Pledgor understands and acknowledges that if the Administrative Agent forecloses judicially or nonjudicially against any real property security for the Indebtedness, that foreclosure could impair or

6

destroy any ability that Pledgor may have to seek reimbursement, contribution, or indemnification from any Debtor or others based on any right Pledgor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Pledgor under this Agreement.  Pledgor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of the Pledgor’s rights, if any, may entitle Pledgor to assert a defense to this Agreement based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing this Agreement, Pledgor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that Pledgor will be fully liable under this Agreement even though the Administrative Agent or any other person may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the Indebtedness; (ii) agrees that Pledgor will not assert that defense in any action or proceeding which the Administrative Agent or any other person may commence to enforce this Agreement; (iii) acknowledges and agrees that the rights and defenses waived by Pledgor in this Agreement include any right or defense that the Pledgor may have had or be entitled to assert based on or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that the Administrative Agent and each other Lender is relying on this waiver in creating the Indebtedness, and that this waiver is a material part of the consideration which the Administrative Agent and each Lender is receiving for creating the Indebtedness.

10.         TRANSFER, DELIVERY AND RETURN OF COLLATERAL.

(a)           Pledgor shall immediately deliver or cause to be delivered to the Administrative Agent (or the Securities Intermediary, if any) (i) any certificates or instruments now or hereafter representing or evidencing Collateral and such certificates and instruments shall be in suitable form for transfer without restriction or stop order by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank in form and substance satisfactory to the Administrative Agent, and (ii) in the same form as received (with any necessary endorsement), all dividends and other distributions paid or payable in cash in respect of any Collateral and any such amounts, if received by Pledgor, shall be received in trust for the benefit of the Administrative Agent and be segregated from the other property or funds of Pledgor.

(b)           The Administrative Agent may at any time deliver the Collateral or any part thereof to Pledgor and the receipt by Pledgor shall be a complete and full acquittance for the Collateral so delivered, and the Administrative Agent shall thereafter be discharged from any liability or responsibility therefor.

(c)           Upon the transfer of all or any part of the Indebtedness, the Administrative Agent may transfer all or any part of the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such Collateral so transferred, and the transferee shall be vested with all the rights and powers of the Administrative Agent hereunder with respect to such Collateral so transferred; but with respect to any Collateral not so transferred the Administrative Agent shall retain all rights and powers hereby given.  Pledgor agrees that the Administrative Agent may disclose to any prospective purchaser or transferee and any purchaser or transferee of all or part of the Indebtedness any and all information in the Administrative Agent’s possession concerning Pledgor, this Agreement and the Collateral.

11.         CONTINUING AGREEMENT AND POWERS.

(a)           This is a continuing Agreement and all the rights, powers and remedies hereunder shall, unless otherwise limited herein, apply to all past, present and future Indebtedness of any Debtor or any one or more of them to the Administrative Agent and the Lenders, including that

7

arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, cessation of business, dissolution or bankruptcy of any Debtor or any one or more of them, or any other event or proceeding affecting any Debtor or any one or more of them.

(b)           Until all Indebtedness shall have been paid in full and the Administrative Agent and the Lenders shall have no obligation to extend credit to any Debtor, the power of sale and all other rights, powers and remedies granted to the Administrative Agent hereunder shall continue to exist and may be exercised by the Administrative Agent at the time specified hereunder irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor or any one or more of them may have ceased.  Pledgor waives the benefit of any statute of limitations as applied to this Agreement.

12.         SECURITIES INTERMEDIARY.  Upon the occurrence and during the continuation of an Event of Default, if permitted by the Administrative Agent, some or all of the Collateral may be held at a broker or other securities intermediary (the “Securities Intermediary”).  Pledgor shall pay to the Securities Intermediary any charges or costs imposed by the Securities Intermediary.  Pledgor at no time shall request that the Securities Intermediary release any Collateral to Pledgor, except as expressly permitted by the Administrative Agent.  The Administrative Agent may require that Pledgor obtain a control agreement, signed by the Securities Intermediary, in form and substance acceptable to the Administrative Agent.  The Administrative Agent may, at any time but in accordance with the terms of this Agreement and any control agreement, require the Securities Intermediary to do any or all of the following: (a) disburse any or all of the Collateral to the Administrative Agent; (b) allow the Administrative Agent (and not Pledgor) to exercise any rights relating to the Collateral; (c) sell some or all of the Collateral and remit the sales proceeds (less the Securities Intermediary’s normal sales charge) to the Administrative Agent; and (d) buy and sell Collateral only upon the instructions of the Administrative Agent (and not Pledgor).  If the Administrative Agent assigns or transfers its rights under this Agreement and the Administrative Agent is the Securities Intermediary for any or all of the Collateral, Pledgor agrees that the Administrative Agent, in such capacity, is irrevocably directed by Pledgor to comply with instructions or entitlement orders with respect to such Collateral originated by any assignee or transferee of this Agreement without further consent of Pledgor.

13.         COSTS.  All advances, charges, costs and expenses, including reasonable attorneys’ fees, incurred or paid by the Administrative Agent in exercising any right, power or remedy conferred by this Agreement or in the enforcement thereof, and including the charges and expenses of the Administrative Agent’s custody unit or of any Securities Intermediary, shall become a part of the Indebtedness secured hereunder and shall be paid to the Administrative Agent by the Debtors, on a joint and several basis, immediately and without demand, with interest thereon at an annual rate equal to the highest rate of interest of any Indebtedness secured by this Agreement (or, if there is no such interest rate, at the maximum interest rate permitted by law for interest on judgments).  Such costs and attorneys’ fees shall include the allocated cost of in-house counsel to the extent permitted by law.

14.         NOTICES.  Unless otherwise provided or agreed to herein or required by law, notice and communications provided for in this Agreement shall be in writing and shall be mailed, telecopied or delivered to Pledgor and each Debtor to the respective addresses or facsimile numbers for notices set forth for Pledgor and each Debtor below or across from its signature below or at such other address or facsimile number as shall be designated by Pledgor or such Debtor in a written notice to the Administrative Agent at the address for notices set forth for the Administrative Agent below or across from the Administrative Agent’s signature below.  If either Pledgor’s or Holdings’ address or facsimile number for notices is not entered below the respective Person has not otherwise designated such address or facsimile number to the

8

Administrative Agent in writing, then the address and/or facsimile number for such Person in the Administrative Agent’s records shall be deemed the address or facsimile for notices to such Person.  Notices and other communications sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day after deposit with the overnight courier, (c) facsimile shall be deemed delivered when transmitted and (d) any other method, shall be deemed delivered when delivered.  To the extent that oral notification is provided for or agreed to herein, such oral notification may be made by telephone to any of the number(s) set forth on the signature page for Pledgor; provided that any oral notification in person or at any other telephone number shall constitute notification hereunder.

15.         GOVERNING LAW; JURISDICTION; JURY TRIAL, ETC.

(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b)           SUBMISSION TO JURISDICTION.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND UNCONDITIONALLY SUBMIT, FOR HIMSELF/ITSELF AND THE COLLATERAL, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER HOLDINGS, PLEDGOR OR THE COLLATERAL IN THE COURTS OF ANY JURISDICTION.

(c)            WAIVER OF VENUE.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY

9

PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

(e)            WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

(f)            California Judicial Reference.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) PMG shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

16.         INDEMNITY.  Each Debtor shall jointly and severally indemnify, hold harmless and defend the Administrative Agent and its directors, officers, agents and employees, from and against any and all claims, actions, obligations, liabilities and expenses, including defense costs, investigative fees and costs, and legal fees and damages arising from their execution of or performance under this Agreement or any control agreement executed by the Administrative Agent in connection with the Collateral, except to the extent that such claim, action, obligation, liability or expense is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such indemnified person. This indemnification shall survive the termination of this Agreement.

17.         MISCELLANEOUS.

(a)           This Agreement (i) may be waived, altered, modified or amended only by an instrument in writing, duly executed by the party or parties sought to be charged or bound thereby, and (ii) may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.  Any waiver, express or implied, of any provision hereof and any delay or failure by the Administrative Agent to enforce any provision shall not preclude the Administrative Agent from enforcing any such provision thereafter.

10

(b)           Pledgor hereby irrevocably authorizes the Administrative Agent to file one or more financing statements describing all or part of the Collateral, and continuation statements, or amendments thereto, relative to all or part of the Collateral as authorized by applicable law.  Such financing statements, continuation statements and amendments will contain any other information required by the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment.  Pledgor agrees to furnish any such information to the Administrative Agent promptly upon request.  Pledgor also ratifies Pledgor’s authorization for the Administrative Agent to have filed any initial financing statement or amendments thereto filed prior to the date hereof.

(c)           From time to time, Pledgor and each Debtor shall, at the request of the Administrative Agent, execute such other agreements, documents or instruments or take any other actions in connection with this Agreement as the Administrative Agent may reasonably deem necessary to evidence or perfect the security interests granted herein, to maintain the first priority of the security interests, or to effectuate the rights granted to the Administrative Agent herein, but their failure to do so shall not limit or affect any security interest or any other rights of the Administrative Agent in and to the Collateral.  Pledgor will execute and deliver to the Administrative Agent any stock powers, instructions to any securities intermediary, issuer or transfer agent, proxies, or any other documents of transfer that the Administrative Agent requests in order to perfect, obtain control or otherwise protect the Administrative Agent’s security interest in the Collateral or to effect the Administrative Agent’s rights under this Agreement.  Such powers or documents may be executed in blank or completed prior to execution, as requested by the Administrative Agent.

(d)           Any term used or defined in the UCC and not defined herein has the meaning given to the term in the UCC, when used in this Agreement.

(e)           This Agreement shall benefit the Administrative Agent’s successors and assigns and shall bind each of Pledgor’s and each Debtor’s successors and assigns, except that none of the Debtors or Pledgor may assign their respective rights or obligations under this Agreement.

(f)            No failure by the Administrative Agent or any Lender to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder, under the Credit Agreement or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided and provided under the Credit Agreement and each other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

(g)           The illegality, invalidity or unenforceability of any provision of this Agreement shall not in any way affect or impair the legality, validity or enforceability of the remaining provisions of this Agreement.

(h)           This Agreement and any other documents executed or delivered in connection herewith including, but not limited to the Intercreditor Agreement,  constitute the entire agreement of the parties hereto with respect to the subject matter hereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

11

18.         FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT:  (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

[Signature Pages Follow]

12

Executed as of the      day of August, 2007.

BANK OF AMERICA, N.A., as administrative agent

By:

Name:

Title:

Address:

Bank of America, N.A.

Agency Management

800 Fifth Avenue, Floor 32

WA1-501-32-37

Seattle, WA  98104

ATTN: Tiffany Shin

[First Lien Pledge Agreement – Terner]

Pledgor’s Residence	PLEDGOR:
California
	Signature
Address for Notices to Pledgor: c/o Prospect Medical Group, Inc. 400 Corporate Pointe, Suite 525 Culver City, California 90230	Printed Name: Jacob Y. Terner, M.D.
Address for Notices to Holdings, PMG and PMS:	Agreed to as of the date hereof: PROSPECT MEDICAL GROUP, INC.
c/o Prospect Medical Group, Inc.
400 Corporate Pointe, Suite 525	By:
Culver City, California 90230	Name:
	Title:
	PROSPECT MEDICAL HOLDINGS, INC.
	By:
	Name:
	Title:
	PROSPECT MEDICAL SYSTEMS, INC.
	By:
	Name:
	Title:

[First Lien Pledge Agreement – Terner]

SPOUSAL JOINDER AND CONSENT

I am the spouse of Jacob Y. Terner, M.D. (“Terner”).  To the extent that I have any interest in any of the Collateral (as that term is defined in the attached First Lien Pledge Agreement dated as of August 8, 2007 between Terner and Bank of America, N.A., as administrative agent (the “Pledge Agreement”)), I hereby join in the Pledge Agreement and agree to be bound by its terms and conditions to the same extent as my spouse.  I have read the Pledge Agreement, understand its terms and conditions, and to the extent that I have felt it necessary, have retained independent legal counsel to advise me concerning the legal effect of the Pledge Agreement and this Spousal Joinder and Consent.

I understand and acknowledge that the Administrative Agent is relying on the validity and accuracy of this Spousal Joinder and Consent in entering into the Pledge Agreement.

Date:       as of August     , 2007

Signature:

Printed Name:   Sandra W. Terner

[First Lien Pledge Agreement – Terner]

Exhibit A to Pledge Agreement

Description of Collateral

Pledged equity:

Pledged Entity	Class of Stock	Stock Certificate #	Number of Shares	Percentage of Outstanding Shares
Prospect Medical Group, Inc., a California professional corporation	Common	47	4,000	100	%
Nuestra Familia Medical Group, Inc., a California professional corporation	Common	100	839.02	55.02	%

The pledged equity includes all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Pledgor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles.

EX-10.38

Exhibit 10.38

Execution Copy

SECOND LIEN PLEDGE AGREEMENT

1.           GRANT OF SECURITY INTEREST.

(a)           The undersigned Jacob Y. Terner, M.D., an individual (“Terner” or the “Pledgor”) hereby irrevocably and unconditionally grants a second priority security interest in, a lien upon and the right of set-off against, and assigns and transfers to Bank of America, N.A., as administrative agent, and its successors and assigns (collectively, the “Administrative Agent”), for the benefit of the Administrative Agent and the Lenders (as defined below), all property referred to in Exhibit A attached hereto and incorporated herein, as hereafter amended or supplemented from time to time (the “Collateral”).  Capitalized terms used herein, but not defined herein, shall have the respective meanings set forth in the Credit Agreement (as defined below).  The parties hereto expressly agree that all rights, assets and property at any time held in or credited to any securities account constituting Collateral shall be treated as financial assets as defined in the Uniform Commercial Code as in effect in any applicable state (the “UCC”).

(b)           Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Lenders, pursuant to this Agreement, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Lenders, under this Agreement, are subject to the provisions of the Intercreditor Agreement. In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.

2.           INDEBTEDNESS.

(a)           The Collateral secures and will secure all Indebtedness of (i) Prospect Medical Group, Inc., a California professional corporation (“PMG”), (ii) Prospect Medical Holdings, Inc., a Delaware corporation (“Holdings”) and (iii) PMS, in each case, owed to the Administrative Agent and the Lenders.  Each person or entity obligated under any Indebtedness is sometimes referred to in this Agreement as a “Debtor”.

(b)            “Indebtedness” means:

(i)            all “Obligations” (as such term is defined in the Credit Agreement) under (A) that certain Second Lien Credit Agreement (as amended, restated, modified or otherwise supplemented, the “Credit Agreement”) dated of even date herewith among Holdings, PMG, the Administrative Agent and the other financial institutions from time to time party thereto (the “Lenders”), (B) the other Loan Documents, and (C) and all other instruments, documents and agreements of every kind and nature now or hereafter executed in connection with the Credit Agreement (including all renewals, increases, extensions, restatements and replacements thereof and amendments and modifications of any of the foregoing),

(ii)           all obligations and liabilities of Pledgor to the Administrative Agent hereunder, and

(iii)          all costs, attorneys’ fees and expenses incurred by the Administrative Agent in connection with the collection or enforcement of any of the above.

1

(c)           Unless otherwise agreed in writing, “Indebtedness” shall not include any debts, obligations or liabilities which are or may hereafter be “consumer credit” subject to the disclosure requirements of the Federal Truth in Lending law or any regulation promulgated thereunder.

3.           COVENANTS, REPRESENTATIONS AND WARRANTIES.   Pledgor and each Debtor covenant, represent and warrant that unless compliance is waived by the Administrative Agent in writing:

(a)           Pledgor is the legal and beneficial owner of all the Collateral free and clear of any and all liens, encumbrances, or interests of any third parties other than the Second Priority Lien of the Administrative Agent and the first priority security interest of the First Lien Administrative Agent, and will keep the Collateral free of all liens, claims, security interests and encumbrances of any kind or nature, whether voluntary or involuntary, except the Second Priority Lien of the Administrative Agent and the first priority security interest of the First Lien Administrative Agent.  Pledgor is the Chief Executive Officer of PMG, its affiliate, Holdings, and Holdings’ subsidiary PMS.  Pledgor holds title to the Collateral as an individual and such Collateral is subject to assignable option agreements that allow PMS and PMG, as applicable, to acquire the Collateral or designate a successor physician as the record holder of such Collateral at any time (collectively, as each may be amended, the “Option Agreement”).

(b)           Pledgor and each Debtor shall, at PMG’s expense, take all actions necessary or advisable from time to time to maintain the Second Priority Lien and perfection thereof of the Administrative Agent in the Collateral and shall not take any actions that would alter, impair or eliminate said priority or perfection.

(c)           Pledgor and each Debtor agree to cause PMG, and PMG agrees, to pay prior to delinquency all taxes, charges, liens and assessments against the Collateral, and upon the failure of Pledgor to do so, the Administrative Agent at its option may pay any of them and shall be the sole judge of the legality or validity thereof and the amount necessary to discharge the same.

(d)           If any of the Collateral is margin stock as defined in Regulation U promulgated by the Board of Governors of the Federal Reserve System of the United States (“FRB”), Pledgor will provide the Administrative Agent a properly executed Form U-1 Purpose Statement. The Administrative Agent and Pledgor will comply with the requirements and restrictions imposed by Regulation U.

(e)           Pledgor’s exact legal name is correctly set forth on the signature page hereof. Pledgor will notify the Administrative Agent in writing at least 30 days prior to any change in Pledgor’s name or identity.

(f)            Pledgor resides and has for the four month period preceding the date hereof resided in the state specified on the signature page hereof.  Pledgor shall give the Administrative Agent at least thirty (30) days notice before changing the location of his residence.

4.           REPRESENTATIONS, WARRANTIES AND COVENANTS REGARDING EQUITY SECURITIES COLLATERAL.  Pledgor and each Debtor hereby represent, warrant and covenant the following with respect to any equity securities comprising any or all of the Collateral (collectively, the “Equity Securities”) and covenant and agree to promptly notify the Administrative Agent in writing in the event that any of the foregoing representations and warranties is no longer true and correct:

2

(a)           The Equity Securities have been duly authorized and validly issued and are fully paid and non-assessable.

(b)           There are no restrictions on the pledge of the Equity Securities by Pledgor to the Administrative Agent nor on the sale of the Equity Securities by Pledgor or the Administrative Agent (whether pursuant to securities laws or regulations or any shareholder, lock-up or other similar agreement or insider trading rules of the issuer).

5.           ADMINISTRATIVE AGENT APPOINTED ATTORNEY IN FACT.  Upon the occurrence and during the continuation of an Event of Default, Pledgor authorizes and irrevocably appoints the Administrative Agent as Pledgor’s true and lawful attorney-in-fact with full power of substitution to take any action and execute or otherwise authenticate any record or other documentation that the Administrative Agent considers necessary or advisable to accomplish the purposes of this Agreement, including but not limited to, the following actions: (a) to endorse, receive, accept and collect all checks, drafts, other payment orders and instruments representing or included in the Collateral or representing any payment, dividend or distribution relating to any Collateral or to take any other action to enforce, collect or compromise any of the Collateral; (b) to transfer any Collateral (including converting physical certificates to book-entry holdings) into the name of the Administrative Agent or its nominee or any broker-dealer (which may be an affiliate of the Administrative Agent) and to execute any control agreement covering any Collateral on Pledgor’s behalf and as attorney-in-fact for Pledgor in order to perfect the Administrative Agent’s Second Priority Lien in the Collateral and in order to provide the Administrative Agent with control of the Collateral, and Pledgor’s signature on this Agreement or other authentication of this Agreement shall constitute an irrevocable direction by Pledgor to any bank, custodian, broker dealer, any other securities intermediary or commodity intermediary holding any Collateral or any issuer of any letters of credit to comply with any instructions or entitlement orders, of the Administrative Agent without further consent of Pledgor; (c) to participate in any recapitalization, reclassification, reorganization, consolidation, redemption, stock split, merger or liquidation of any issuer of securities which constitute Collateral, and in connection therewith the Administrative Agent may deposit or surrender control of the Collateral, accept money or other property in exchange for the Collateral, and take such action as it deems proper in connection therewith, and any money or property received on account of or in exchange for the Collateral shall be applied to the Indebtedness or held by the Administrative Agent thereafter as Collateral pursuant to the provisions hereof; (d) to exercise any right, privilege or option pertaining to any Collateral, but the Administrative Agent has no obligation to do so; (e) to file any claims, take any actions or institute any proceedings which the Administrative Agent determines to be necessary or appropriate to collect or preserve the Collateral or to enforce the Administrative Agent’s rights with respect to the Collateral; (f) to execute in the name or otherwise authenticate on behalf of Pledgor any record reasonably believed necessary or appropriate by the Administrative Agent for compliance with laws, rules or regulations applicable to any Collateral, or in connection with exercising the Administrative Agent’s rights under this Agreement; (g) to file any financing statement relating to this Agreement; (h) to make any compromise or settlement it deems desirable or proper with reference to the Collateral; (i) to do and take any and all actions with respect to the Collateral and to perform any of Pledgor’s obligations under this Agreement; and (j) to execute any documentation reasonably believed necessary by the Administrative Agent for compliance with Rule 144 or any other restrictions, laws, rules or regulations applicable to any Collateral hereunder that constitutes restricted or control securities under the securities laws.  The foregoing appointments are irrevocable and coupled with an interest and shall survive the death or disability of Pledgor and shall not be revoked without the Administrative Agent’s written consent.  To the extent permitted by law, Pledgor hereby ratifies all said attorney-in-fact shall lawfully do by virtue hereof.

3

6.           VOTING RIGHTS.

(a)           So long as no Event of Default shall have occurred and is continuing and the Administrative Agent has not delivered the notice specified in subsection (b) below, Pledgor shall be entitled to exercise any and all voting and other consensual rights pertaining to the Collateral or any part thereof for any purpose not inconsistent with the terms of this Agreement or any document or agreement executed in connection herewith.

(b)           Upon the occurrence and during the continuance of an Event of Default, at the option of the Administrative Agent exercised in a writing sent to Pledgor, all rights of Pledgor to exercise the voting and other consensual rights which it would otherwise be entitled to exercise pursuant to subsection (a) above shall cease, and the Administrative Agent shall thereupon have the sole right to exercise such voting and other consensual rights.

7.           EVENTS OF DEFAULT; REMEDIES.

(a)            Any one or more of the following shall be a default hereunder (each an, “Event of Default”):

(i)            An “Event of Default” under the Credit Agreement (as such term is defined in the Credit Agreement) occurs and is continuing.

(ii)           Pledgor or any Debtor fails to pay any Indebtedness when due, after giving effect to any applicable grace period.

(iii)          Pledgor or any Debtor fails to cure a breach of any collateral maintenance provisions set forth in this Agreement or in any agreement governing or executed or delivered in connection with any Indebtedness within the applicable cure period specified therein.

(iv)          Pledgor or any Debtor breaches any term, provision, warranty or representation under this Agreement not specifically referred to in subsection (a) of this Section or breaches any term, provision, warranty or representation of the Credit Agreement or any other agreement or instrument evidencing, securing or executed or delivered in connection with the Indebtedness beyond any grace period provided with respect thereto.

(v)           Any control agreement covering any Collateral is breached, or any party to such control agreement terminates or notifies the Administrative Agent or Pledgor of its intention to terminate the control agreement or denies the enforceability of the control agreement.

(vi)          Any involuntary lien of any kind or character attaches to any of the Collateral.

(b)           If an Event of Default occurs, the Administrative Agent may do any one or more of the following:

(i)            Declare any Indebtedness immediately due and payable, without notice or demand.

4

(ii)          Exercise as to any or all of the Collateral all the rights, powers and remedies of an owner, subject to the provisions of Section 6 of this Agreement.

(iii)         Enforce the security interest given hereunder pursuant to the UCC and any other applicable law.

(iv)         Subject to applicable Laws (including, without limitation, securities laws and regulations), sell all or any part of the Collateral at public or private sale in accordance with the UCC, without advertisement, in such manner and order as the Administrative Agent may elect.  The Administrative Agent may purchase the Collateral for its own account at any such sale.

(v)          Enforce the security interest of the Administrative Agent in any deposit account which is part of the Collateral by applying such account to the Indebtedness.

(vi)         Exercise any other remedy provided under this Agreement or by any applicable law.

(vii)        Comply with any applicable state or federal law requirements in connection with a disposition of the Collateral and such compliance will not be considered to affect adversely the commercial reasonableness of any sale or other disposition of the Collateral.

(viii)       Sell the Collateral without giving any warranties as to the Collateral.  The Administrative Agent may specifically disclaim any warranties of title or the like.  This procedure will not be considered to affect adversely the commercial reasonableness of any sale or other disposition of the Collateral.

(ix)         If requested by the Administrative Agent, Holdings, PMS and/or PMG will direct Pledgor (whether pursuant to the Option Agreement or otherwise), or his estate, as the case may be, to sell and Pledgor, or his estate, as the case may be, shall promptly sell all (or any portion as may be directed by the Administrative Agent) of the Collateral to such person(s) as Holdings, PMS and PMG shall in their reasonable discretion direct, subject to the reasonable approval of Administrative Agent (the “New Shareholder(s)”).  If requested by the Administrative Agent, such New Shareholder(s) shall execute and deliver to the Administrative Agent a pledge agreement and such other agreements, documents and instruments as the Administrative Agent and the Lenders may request evidencing or relating to the Collateral, each in form and substance satisfactory to the Administrative Agent.

8.           RIGHT TO CURE; LIMITATION ON ADMINISTRATIVE AGENT’S DUTIES.  If Pledgor fails to perform any agreement contained herein, the Administrative Agent may perform or cause performance of such agreement and the expenses of the Administrative Agent incurred in connection therewith shall be payable by the Debtors, on a joint and several basis, under Section 13.  Any powers conferred on the Administrative Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers.  Except for reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Administrative Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or any other rights pertaining to any Collateral.  The Administrative Agent shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral

5

in its possession if the Collateral is accorded treatment substantially equal to that which the Administrative Agent accords its own property, it being understood that the Administrative Agent shall not have any responsibility for (a) ascertaining, exercising or taking other action or giving Pledgor notice with respect to subscription rights, calls, conversions, exchanges, maturities, lenders or other matters relative to any Collateral, whether or not the Administrative Agent has or is deemed to have knowledge of such matters, or (b) taking any necessary steps to preserve rights against any parties with respect to any Collateral.  The Administrative Agent shall not be liable for any loss to the Collateral resulting from acts of God, war, civil commotion, fire, earthquake, or other disaster or for any other loss or damage to the Collateral except to the extent such loss is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the Administrative Agent’s gross negligence or willful misconduct.

9.           WAIVERS.  The Administrative Agent shall be under no duty or obligation whatsoever and Pledgor waives any right to require the Administrative Agent to (i) make or give any presentment, demands for performances, notices of nonperformance, protests, notices of protest or notices of dishonor in connection with any obligations or evidences of indebtedness held by the Administrative Agent as Collateral, or in connection with any obligation or evidences of indebtedness which constitute in whole or in part the Indebtedness, (ii) proceed against any person or entity, (iii) proceed against or exhaust any collateral in any order and in any manner it so elects or (iv) pursue any other remedy in the Administrative Agent’s power.  Pledgor waives any defense arising by reason of (i) any disability or other defense of any Debtor or any other person, (ii) the cessation from any cause whatsoever of the liability of any Debtor or any other person, (iii) any lack of validity or enforceability of the Credit Agreement, any other document of consistence executed in connection herewith or any other agreement or instrument governing or evidencing any Secured Obligations, (iv) the insolvency of any Debtor or any other person or (v) any other circumstance which might otherwise constitute a defense available to, or a discharge of, Pledgor.

Until the Indebtedness is paid in full, Pledgor waives any right of subrogation, reimbursement, indemnification, and contribution (contractual, statutory or otherwise), including without limitation any claim or right of subrogation under the Bankruptcy Code (Title 11 of the U.S. Code) or any successor statute, arising from the existence or performance of this Agreement, and Pledgor waives any right to enforce any remedy which the Administrative Agent now has or may hereafter have against any Debtor or against any other person and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by the Administrative Agent.  If Pledgor is not also a Debtor with respect to a specified Indebtedness, Pledgor authorizes the Administrative Agent without notice or demand and without affecting Pledgor’s liability hereunder, from time to time to:  (i) renew, extend, accelerate or otherwise change the time for payment of or otherwise change the terms of the Indebtedness or any part thereof, including increase or decrease of the rate of interest thereon; (ii) take and hold security, other than the Collateral, for the payment of the Indebtedness or any part thereof, and exchange, enforce, waive and release the Collateral or any part thereof or any such other security; (iii) apply the proceeds of any Collateral to the Indebtedness in any order and in any manner it so elects and (iv) release or substitute any Debtor or any one or more of them, or any of the endorsers or guarantors of the Indebtedness or any part thereof, or any other parties thereto and Pledgor consents to the taking of, or failure to take, any action by the Administrative Agent which might in any manner or to any extent vary the risks of Pledgor under this Agreement or which, but for this provision, might operate as a discharge of Pledgor.  Pledgor agrees that it is solely responsible for keeping itself informed as to the financial condition of each Debtor and of all circumstances which bear upon the risk of nonpayment or the risk of a margin call or liquidation of the Collateral.

Pledgor understands and acknowledges that if the Administrative Agent forecloses judicially or nonjudicially against any real property security for the Indebtedness, that foreclosure could impair or

6

destroy any ability that Pledgor may have to seek reimbursement, contribution, or indemnification from any Debtor or others based on any right Pledgor may have of subrogation, reimbursement, contribution, or indemnification for any amounts paid by Pledgor under this Agreement.  Pledgor further understands and acknowledges that in the absence of this paragraph, such potential impairment or destruction of the Pledgor’s rights, if any, may entitle Pledgor to assert a defense to this Agreement based on Section 580d of the California Code of Civil Procedure as interpreted in Union Bank v. Gradsky, 265 Cal.App.2d 40 (1968). By executing this Agreement, Pledgor freely, irrevocably, and unconditionally: (i) waives and relinquishes that defense and agrees that Pledgor will be fully liable under this Agreement even though the Administrative Agent or any other person may foreclose, either by judicial foreclosure or by exercise of power of sale, any deed of trust securing the Indebtedness; (ii) agrees that Pledgor will not assert that defense in any action or proceeding which the Administrative Agent or any other person may commence to enforce this Agreement; (iii) acknowledges and agrees that the rights and defenses waived by Pledgor in this Agreement include any right or defense that the Pledgor may have had or be entitled to assert based on or arising out of any one or more of Sections 580a, 580b, 580d, or 726 of the California Code of Civil Procedure or Section 2848 of the California Civil Code; and (iv) acknowledges and agrees that the Administrative Agent and each other Lender is relying on this waiver in creating the Indebtedness, and that this waiver is a material part of the consideration which the Administrative Agent and each Lender is receiving for creating the Indebtedness.

10.         TRANSFER, DELIVERY AND RETURN OF COLLATERAL.

(a)           Pledgor shall immediately deliver or cause to be delivered to the Administrative Agent (or the Securities Intermediary, if any) (i) any certificates or instruments now or hereafter representing or evidencing Collateral and such certificates and instruments shall be in suitable form for transfer without restriction or stop order by delivery, or shall be accompanied by duly executed instruments of transfer or assignment in blank in form and substance satisfactory to the Administrative Agent, and (ii) in the same form as received (with any necessary endorsement), all dividends and other distributions paid or payable in cash in respect of any Collateral and any such amounts, if received by Pledgor, shall be received in trust for the benefit of the Administrative Agent and be segregated from the other property or funds of Pledgor.

(b)           The Administrative Agent may at any time deliver the Collateral or any part thereof to Pledgor and the receipt by Pledgor shall be a complete and full acquittance for the Collateral so delivered, and the Administrative Agent shall thereafter be discharged from any liability or responsibility therefor.

(c)           Upon the transfer of all or any part of the Indebtedness, the Administrative Agent may transfer all or any part of the Collateral and shall be fully discharged thereafter from all liability and responsibility with respect to such Collateral so transferred, and the transferee shall be vested with all the rights and powers of the Administrative Agent hereunder with respect to such Collateral so transferred; but with respect to any Collateral not so transferred the Administrative Agent shall retain all rights and powers hereby given.  Pledgor agrees that the Administrative Agent may disclose to any prospective purchaser or transferee and any purchaser or transferee of all or part of the Indebtedness any and all information in the Administrative Agent’s possession concerning Pledgor, this Agreement and the Collateral.

11.         CONTINUING AGREEMENT AND POWERS.

(a)           This is a continuing Agreement and all the rights, powers and remedies hereunder shall, unless otherwise limited herein, apply to all past, present and future Indebtedness of any Debtor or any one or more of them to the Administrative Agent and the Lenders, including that

7

arising under successive transactions which shall either continue the Indebtedness, increase or decrease it, or from time to time create new Indebtedness after all or any prior Indebtedness has been satisfied, and notwithstanding the death, incapacity, cessation of business, dissolution or bankruptcy of any Debtor or any one or more of them, or any other event or proceeding affecting any Debtor or any one or more of them.

(b)           Until all Indebtedness shall have been paid in full and the Administrative Agent and the Lenders shall have no obligation to extend credit to any Debtor, the power of sale and all other rights, powers and remedies granted to the Administrative Agent hereunder shall continue to exist and may be exercised by the Administrative Agent at the time specified hereunder irrespective of the fact that the Indebtedness or any part thereof may have become barred by any statute of limitations, or that the personal liability of Debtor or any one or more of them may have ceased.  Pledgor waives the benefit of any statute of limitations as applied to this Agreement.

12.         SECURITIES INTERMEDIARY.  Upon the occurrence and during the continuation of an Event of Default, if permitted by the Administrative Agent, some or all of the Collateral may be held at a broker or other securities intermediary (the “Securities Intermediary”).  Pledgor shall pay to the Securities Intermediary any charges or costs imposed by the Securities Intermediary.  Pledgor at no time shall request that the Securities Intermediary release any Collateral to Pledgor, except as expressly permitted by the Administrative Agent.  The Administrative Agent may require that Pledgor obtain a control agreement, signed by the Securities Intermediary, in form and substance acceptable to the Administrative Agent.  The Administrative Agent may, at any time but in accordance with the terms of this Agreement and any control agreement, require the Securities Intermediary to do any or all of the following: (a) disburse any or all of the Collateral to the Administrative Agent; (b) allow the Administrative Agent (and not Pledgor) to exercise any rights relating to the Collateral; (c) sell some or all of the Collateral and remit the sales proceeds (less the Securities Intermediary’s normal sales charge) to the Administrative Agent; and (d) buy and sell Collateral only upon the instructions of the Administrative Agent (and not Pledgor).  If the Administrative Agent assigns or transfers its rights under this Agreement and the Administrative Agent is the Securities Intermediary for any or all of the Collateral, Pledgor agrees that the Administrative Agent, in such capacity, is irrevocably directed by Pledgor to comply with instructions or entitlement orders with respect to such Collateral originated by any assignee or transferee of this Agreement without further consent of Pledgor.

13.         COSTS.  All advances, charges, costs and expenses, including reasonable attorneys’ fees, incurred or paid by the Administrative Agent in exercising any right, power or remedy conferred by this Agreement or in the enforcement thereof, and including the charges and expenses of the Administrative Agent’s custody unit or of any Securities Intermediary, shall become a part of the Indebtedness secured hereunder and shall be paid to the Administrative Agent by the Debtors, on a joint and several basis, immediately and without demand, with interest thereon at an annual rate equal to the highest rate of interest of any Indebtedness secured by this Agreement (or, if there is no such interest rate, at the maximum interest rate permitted by law for interest on judgments).  Such costs and attorneys’ fees shall include the allocated cost of in-house counsel to the extent permitted by law.

14.         NOTICES.  Unless otherwise provided or agreed to herein or required by law, notice and communications provided for in this Agreement shall be in writing and shall be mailed, telecopied or delivered to Pledgor and each Debtor to the respective addresses or facsimile numbers for notices set forth for Pledgor and each Debtor below or across from its signature below or at such other address or facsimile number as shall be designated by Pledgor or such Debtor in a written notice to the Administrative Agent at the address for notices set forth for the Administrative Agent below or across from the Administrative Agent’s signature below.  If either Pledgor’s or Holdings’ address or facsimile number for notices is not entered below the respective Person has not otherwise designated such address or facsimile number to the

8

Administrative Agent in writing, then the address and/or facsimile number for such Person in the Administrative Agent’s records shall be deemed the address or facsimile for notices to such Person.  Notices and other communications sent by (a) first class mail shall be deemed delivered on the earlier of actual receipt or on the fourth business day after deposit in the U.S. mail, postage prepaid, (b) overnight courier shall be deemed delivered on the next business day after deposit with the overnight courier, (c) facsimile shall be deemed delivered when transmitted and (d) any other method, shall be deemed delivered when delivered.  To the extent that oral notification is provided for or agreed to herein, such oral notification may be made by telephone to any of the number(s) set forth on the signature page for Pledgor; provided that any oral notification in person or at any other telephone number shall constitute notification hereunder.

15.         GOVERNING LAW; JURISDICTION; JURY TRIAL, ETC.

(a)           GOVERNING LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

(b)           SUBMISSION TO JURISDICTION.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND UNCONDITIONALLY SUBMIT, FOR HIMSELF/ITSELF AND THE COLLATERAL, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURT OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE ADMINISTRATIVE AGENT, ANY LENDER OR THE L/C ISSUER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AGAINST EITHER HOLDINGS, PLEDGOR OR THE COLLATERAL IN THE COURTS OF ANY JURISDICTION.

(c)           WAIVER OF VENUE.  EACH DEBTOR AND PLEDGOR IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT IN ANY COURT REFERRED TO IN PARAGRAPH (B) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(d)           SERVICE OF PROCESS.  EACH PARTY HERETO IRREVOCABLY CONSENTS TO SERVICE OF PROCESS IN THE MANNER PROVIDED FOR NOTICES IN SECTION 14.  NOTHING IN THIS AGREEMENT WILL AFFECT THE RIGHT OF ANY

9

PARTY HERETO TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW.

(e)            WAIVER OF JURY TRIAL.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

(f)            California Judicial Reference.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement or any other Loan Document, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court and (b) PMG shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

16.         INDEMNITY.  Each Debtor shall jointly and severally indemnify, hold harmless and defend the Administrative Agent and its directors, officers, agents and employees, from and against any and all claims, actions, obligations, liabilities and expenses, including defense costs, investigative fees and costs, and legal fees and damages arising from their execution of or performance under this Agreement or any control agreement executed by the Administrative Agent in connection with the Collateral, except to the extent that such claim, action, obligation, liability or expense is determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or willful misconduct of such indemnified person. This indemnification shall survive the termination of this Agreement.

17.         MISCELLANEOUS.

(a)           This Agreement (i) may be waived, altered, modified or amended only by an instrument in writing, duly executed by the party or parties sought to be charged or bound thereby, and (ii) may be executed in any number of identical counterparts, each of which shall be deemed an original for all purposes and all of which constitute, collectively, one agreement; but, in making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart.  Any waiver, express or implied, of any provision hereof and any delay or failure by the Administrative Agent to enforce any provision shall not preclude the Administrative Agent from enforcing any such provision thereafter.

10

(b)          Pledgor hereby irrevocably authorizes the Administrative Agent to file one or more financing statements describing all or part of the Collateral, and continuation statements, or amendments thereto, relative to all or part of the Collateral as authorized by applicable law.  Such financing statements, continuation statements and amendments will contain any other information required by the UCC for the sufficiency or filing office acceptance of any financing statement, continuation statement or amendment.  Pledgor agrees to furnish any such information to the Administrative Agent promptly upon request.  Pledgor also ratifies Pledgor’s authorization for the Administrative Agent to have filed any initial financing statement or amendments thereto filed prior to the date hereof.

(c)           From time to time, Pledgor and each Debtor shall, at the request of the Administrative Agent, execute such other agreements, documents or instruments or take any other actions in connection with this Agreement as the Administrative Agent may reasonably deem necessary to evidence or perfect the security interests granted herein, to maintain the Second Priority Lien, or to effectuate the rights granted to the Administrative Agent herein, but their failure to do so shall not limit or affect any security interest or any other rights of the Administrative Agent in and to the Collateral.  Pledgor will execute and deliver to the Administrative Agent any stock powers, instructions to any securities intermediary, issuer or transfer agent, proxies, or any other documents of transfer that the Administrative Agent requests in order to perfect, obtain control or otherwise protect the Administrative Agent’s security interest in the Collateral or to effect the Administrative Agent’s rights under this Agreement.  Such powers or documents may be executed in blank or completed prior to execution, as requested by the Administrative Agent.

(d)          Any term used or defined in the UCC and not defined herein has the meaning given to the term in the UCC, when used in this Agreement.

(e)           This Agreement shall benefit the Administrative Agent’s successors and assigns and shall bind each of Pledgor’s and each Debtor’s successors and assigns, except that none of the Debtors or Pledgor may assign their respective rights or obligations under this Agreement.

(f)           No failure by the Administrative Agent or any Lender to exercise, and no delay by any such Person in exercising, any right, remedy, power or privilege hereunder, under the Credit Agreement or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.  The rights, remedies, powers and privileges herein provided and provided under the Credit Agreement and each other Loan Document are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law.

(g)          The illegality, invalidity or unenforceability of any provision of this Agreement shall not in any way affect or impair the legality, validity or enforceability of the remaining provisions of this Agreement.

(h)          This Agreement and any other documents executed or delivered in connection herewith including, but not limited to the Intercreditor Agreement,  constitute the entire agreement of the parties hereto with respect to the subject matter hereof and shall supersede any prior expressions of intent or understandings with respect to this transaction.

11

18.         FINAL AGREEMENT.  BY SIGNING THIS DOCUMENT EACH PARTY REPRESENTS AND AGREES THAT:  (A) THIS DOCUMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO THE SUBJECT MATTER HEREOF, (B) THIS DOCUMENT SUPERSEDES ANY COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS RELATING TO THE SUBJECT MATTER HEREOF, UNLESS SUCH COMMITMENT LETTER, TERM SHEET, OR OTHER WRITTEN OUTLINE OF TERMS AND CONDITIONS EXPRESSLY PROVIDES TO THE CONTRARY, (C) THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES, AND (D) THIS DOCUMENT MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR UNDERSTANDINGS OF THE PARTIES.

[Signature Pages Follow]

12

Executed as of the      day of August, 2007.

BANK OF AMERICA, N.A., as administrative agent

By:

Name:

Title:

Address:

Bank of America, N.A.

Agency Management

800 Fifth Avenue, Floor 32

WA1-501-32-37

Seattle, WA  98104

ATTN: Tiffany Shin

[Second Lien Pledge Agreement – Terner]

Pledgor’s Residence	PLEDGOR:
California
	Signature
Address for Notices to Pledgor: c/o Prospect Medical Group, Inc. 400 Corporate Pointe, Suite 525 Culver City, California 90230	Printed Name: Jacob Y. Terner, M.D.
Address for Notices to Holdings, PMG and PMS:	Agreed to as of the date hereof: PROSPECT MEDICAL GROUP, INC.
c/o Prospect Medical Group, Inc.
400 Corporate Pointe, Suite 525	By:
Culver City, California 90230	Name:
	Title:
	PROSPECT MEDICAL HOLDINGS, INC.
	By:
	Name:
	Title:
	PROSPECT MEDICAL SYSTEMS, INC.
	By:
	Name:
	Title:

[Second Lien Pledge Agreement – Terner]

SPOUSAL JOINDER AND CONSENT

I am the spouse of Jacob Y. Terner, M.D. (“Terner”).  To the extent that I have any interest in any of the Collateral (as that term is defined in the attached Second Lien Pledge Agreement dated as of August 8, 2007 between Terner and Bank of America, N.A., as administrative agent (the “Pledge Agreement”)), I hereby join in the Pledge Agreement and agree to be bound by its terms and conditions to the same extent as my spouse.  I have read the Pledge Agreement, understand its terms and conditions, and to the extent that I have felt it necessary, have retained independent legal counsel to advise me concerning the legal effect of the Pledge Agreement and this Spousal Joinder and Consent.

I understand and acknowledge that the Administrative Agent is relying on the validity and accuracy of this Spousal Joinder and Consent in entering into the Pledge Agreement.

Date:       as of August     , 2007

Signature:

Printed Name:   Sandra W. Terner

[Second Lien Pledge Agreement – Terner]

Exhibit A to Pledge Agreement

Description of Collateral

Pledged equity:

Pledged Entity	Class of Stock	Stock Certificate #	Number of Shares	Percentage of Outstanding Shares
Prospect Medical Group, Inc., a California professional corporation	Common	47	4,000	100	%
Nuestra Familia Medical Group, Inc., a California professional corporation	Common	100	839.02	55.02	%

The pledged equity includes all present and future income, proceeds, earnings, increases, and substitutions from or for the Collateral of every kind and nature, including without limitation all payments, interest, profits, distributions, benefits, rights, options, warrants, dividends, stock dividends, stock splits, stock rights, regulatory dividends, subscriptions, monies, claims for money due and to become due, proceeds of any insurance on the Collateral, shares of stock of different par value or no par value issued in substitution or exchange for shares included in the Collateral, and all other property Pledgor is entitled to receive on account of such Collateral, including accounts, documents, instruments, chattel paper, and general intangibles.

EX-10.39

Exhibit 10.39

Execution Copy

FIRST LIEN COLLATERAL ASSIGNMENT OF PROMED ACQUISITION

DOCUMENTS AND ALTA ACQUISITION DOCUMENTS

THIS FIRST LIEN COLLATERAL ASSIGNMENT OF PROMED ACQUISITION DOCUMENTS AND ALTA ACQUISITION DOCUMENTS (this “Assignment”) has been executed and delivered as of August 8, 2007, by and among ALTA HOSPITALS SYSTEM LLC, a California limited liability company (“ALTA LLC’) (for itself and as successor-in-interest to Prospect Hospitals System LLC (“Prospect LLC”) and Alta Healthcare System, Inc. (“Alta Inc.”), PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), and PROSPECT MEDICAL GROUP, INC., a California professional corporation (“PMG” and collectively with Holdings and Alta LLC, “Assignor”), and BANK OF AMERICA, N.A., as administrative agent (“Administrative Agent”), with reference to the following facts:

RECITALS

A.            Holdings and PMG are parties to certain documents pursuant to which, among other things, PMG acquired the stock and assets of Pomona Valley Medical Group, Inc.  (“Pomona Valley”) and Upland Medical Group, a Professional Medical Corporation (“Upland”), and Holdings acquired the stock and assets of ProMed Health Services Company (“PHSC’) and ProMed Health Care Administrators (“PHCA” and together with Pomona Valley, Upland and PHSC, each a “ProMed Corporation” and collectively, the “ProMed Corporations”).

B.            Holdings, Prospect LLC, Alta Inc.  and Alta LLC are parties to certain documents pursuant to which, among other things, Holdings acquired or will acquire (via the merger of Alta Inc.  with and into Prospect LLC, with the surviving entity being Alta LLC) the stock and assets of Alta Healthcare System, Inc., Alta Hollywood Hospitals, Inc.  and Alta Los Angeles Hospitals, Inc.  (each an “Alta Corporation” and collectively, the “Alta Corporations” and together with the ProMed Corporations, each an “Acquired Corporation” and collectively, the “Acquired Corporations”).

C.            Pursuant to that certain First Lien Credit Agreement, dated on or about the date hereof (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), Administrative Agent and the Lenders have agreed to extend credit and other financial accommodations to Assignor and/or certain of Assignor’s affiliates, and Assignor and the other Loan Parties (including, without limitation, the Acquired Corporations) have agreed to guarantee the payment and performance of all of the Obligations and to grant to Administrative Agent security interests in the Collateral to secure payment and performance of all of the Obligations.

D.            Assignor has agreed to execute and deliver this Assignment to Administrative Agent in order to supplement the terms of the Credit Agreement and the Collateral Agreement with respect to the ProMed Acquisition Documents (as hereinafter defined) and the Alta Acquisition Documents (as hereinafter defined).

E.            Assignor acknowledges that Administrative Agent and the Lenders would not enter into the Credit Agreement absent Assignor’s agreements hereunder.

AGREEMENT

In consideration of the premises and the mutual agreements herein set forth, Assignor and Administrative Agent hereby agree as follows:

1.            Defined Terms; lntercreditor Agreement.

1.1           Defined Terms.  All initially capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

1.2           lntercreditor Agreement.  Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Lenders, pursuant to this Assignment, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Lenders, under this Assignment, are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Assignment, the terms of the Intercreditor Agreement shall govern and control.

2.            Assignment.  As additional security for· the Obligations, Assignor hereby collaterally assigns and transfers to Administrative Agent, and acknowledges that, pursuant to the Collateral Agreement, Assignor has granted to Administrative Agent a security interest in:

2.1           ProMed Acquisition Documents.  All of Assignor’s right, title and interest in and to the documents set forth on Exhibit A attached hereto (collectively, the “ProMed Acquisition Documents”).

2.2           Alta Acquisition Documents.  All of Assignor’s right, title and interest in and to the documents set forth of Exhibit B attached hereto (collectively, the ‘‘Alta Acquisition Documents” and together with the ProMed Acquisition Documents, the ‘‘Acquisition Documents”).

2.3           ProMed Rights and Remedies.  All of the rights, benefits, remedies, privileges and claims of Assignor with respect to the ProMed Acquisition Documents (collectively, the “ProMed Rights And Remedies”), including, without limitation, (i) all rights to monies or payments owing to Assignor under the ProMed Acquisition Documents, and any and all security therefor and for all other obligations owing to Assignor thereunder, (ii) all rights that Assignor may have to indemnification under the ProMed Acquisition Documents including, without limitation, enforcement rights and collection rights, (iii) all Rights and Remedies of Assignor with respect to any breach of the representations, warranties and covenants set forth in any of the ProMed Acquisition Documents, and (iv) the proceeds thereof.

2.4           Alta Rights and Remedies.  All of the rights, benefits, remedies, privileges and claims of Assignor with respect to the Alta Acquisition Documents (collectively, the ‘‘Alta Rights And Remedies” and together with the ProMed Rights and Remedies, the “Rights and Remedies”), including, without limitation, (i) all rights to monies or payments owing to Assignor under the Alta Acquisition Documents, and any and all security therefor and for all other obligations owing to Assignor thereunder, (ii) all rights that Assignor may have to indemnification under the Alta Acquisition Documents, (iii) all Rights and Remedies of Assignor with respect to any breach of the representations, warranties and covenants set forth in any of the Alta Acquisition Documents, including, without limitation, enforcement rights and collection rights, and (iv) the proceeds thereof.

3.             Rights and Remedies Generally.  Prior to the occurrence of an Event of Default under the Credit Agreement or any other Loan Document (a “Default”), Assignor will enforce all of its Rights and Remedies diligently and in good faith.  Effective from and after the occurrence of a Default, Assignor hereby irrevocably authorizes and empowers Administrative Agent, in Administrative Agent’s sole discretion, to assert as Administrative Agent may deem proper, either directly or on behalf of Assignor, any and all of the Rights and Remedies which Assignor may from time to time have under the Acquisition Documents, and to receive and collect all damages, awards and other monies resulting therefrom and to apply the same on account of any of the Obligations.

4.             Termination.  This Assignment shall continue in effect until all of the Obligations have been paid in full and the Credit Agreement has been terminated in accordance with the terms thereof, at which time Administrative Agent shall release to the Assignor Administrative Agent’s interests in the Acquisition Documents and the Rights and Remedies and the other rights assigned to Administrative Agent hereby.

5.             Further Assurances.  At any time or from time to time, upon Administrative Agent’s written request, Assignor will execute and deliver to Administrative Agent such further documents and do such other acts and things as Administrative Agent may request in order to further effect the purposes of this Assignment or any schedule, amendment or supplement hereto, or a financing or continuation statement with respect hereto, in accordance with the laws of any applicable jurisdictions.  Assignor hereby authorizes Administrative Agent to effect any such filing or recording statements (or amendments thereto) without the signature of Assignor, and Administrative Agent’s costs and expenses with respect thereto shall be part of the Obligations and shall be payable by Assignor on demand.

6.             Acquisition Documents.  Concurrent herewith, Assignor is delivering to Administrative Agent possession of the original Acquisition Documents, together with any and all amendments thereto, as in effect on the date hereof, to hold in accordance with the terms of (a) the Credit Agreement until such Credit Agreement is terminated in accordance with its terms and (b) the Intercreditor Agreement.

7.             Attorney-in-Fact.  Assignor hereby irrevocably makes, constitutes, and appoints Administrative Agent (and Administrative Agent’s officers, employees, or agents) as Assignor’s true and lawful agent and attorney-in-fact for the purposes of enabling Administrative Agent or its agent(s) after the occurrence of a Default to (a) assert and enforce such Rights and Remedies and to collect such damages, awards and other monies and to apply them in the manner set forth hereinabove, and (b) to sign the name of Assignor on any documents which need to be executed, recorded, or filed, and to do any and all things necessary in the name and on behalf of Assignor in order to protect Administrative Agent’s interests in the Acquisition Documents.  Assignor agrees that neither Administrative Agent, nor any of its designees or attorneys-in-fact, will be liable for any act of commission or omission, or for any error of judgment or mistake of fact or law with respect to the exercise of the power of attorney granted under this Section 7, other than as a result of its or their gross negligence or willful misconduct.  The power of attorney granted under this Section 7 is coupled with an interest and shall be irrevocable until all of the Obligations have been paid in full, the Credit Agreement and the other Loan Documents terminated, and Assignor’s duties under this Assignment have been discharged in full.  Assignor will not assign, pledge or otherwise encumber any of its rights, title or interest under, in or to any of the Acquisition Documents except for the

assignment to Administrative Agent and its successors or assigns as set forth herein and the grant of a Second Priority Lien (as defined in the Second Lien Credit Agreement) in and to the Acquisition Documents.

8.             Modification of Rights and Remedies.  Assignor shall keep Administrative Agent informed of all circumstances bearing adversely upon the Rights and Remedies.  Assignor shall not waive, amend, alter or modify any of the Rights and Remedies in any adverse manner without the prior written consent of Administrative Agent.  Assignor shall not, without Administrative Agent’s prior written consent, amend, alter, modify or terminate any of the Acquisition Documents, or waive any of the provisions hereof, or do or permit any act in contravention thereof.

9.             Assignor to Remain Liable.  Notwithstanding the foregoing, Assignor expressly acknowledges and agrees that it shall remain liable under the Acquisition Documents to observe and perform all of the conditions and obligations in the Acquisition Documents which Assignor is bound to observe and perform, and that neither this Assignment, nor any action taken pursuant hereto, shall cause Administrative Agent to be under any obligation or liability in any respect whatsoever to observe or perform any of the representations, warranties, conditions, covenants, agreements or terms of the Acquisition Documents.

10.           Counterparts; Effectiveness.  This Assignment may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original.  All of such counterparts, taken together, shall constitute but one and the same agreement.  This Assignment shall become effective upon the execution of a counterpart of this Assignment by each of the parties hereto.

11.           Notices.  All notices, requests and other communications to any party hereunder shall be sent in accordance with Section 10.02 of the Credit Agreement.

12.           Modifications and Amendments.  This Assignment shall not be changed orally but shall be changed only by agreement in writing signed by Assignor and Administrative Agent.  No course of dealing between the parties, no usage of trade and no parole or extrinsic evidence of any nature shall be used to supplement or modify any of the terms or provisions of this Assignment.

13.           Severability.  If any provision of this Assignment is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this Assignment shall not be affected thereby, and this Assignment shall be liberally construed so as to carry out the intent of the parties to it.

14.           Governing Law; Venue; Successors and Assigns; Entire Agreement.  This Assignment (a) shall be construed in accordance with and governed by the internal laws of the State of New York; (b) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; and (c) together with the Intercreditor Agreement, embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter.  EACH ASSIGNOR UNCONDITIONALLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF

MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK.

15.           California Judicial Reference; Jury Trial Waiver.  If, notwithstanding the choice of law made in Section 14 of this Assignment, any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Assignment, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) Assignor shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MA Y HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDlRECTLY ARISING OUT OF OR RELATING TO THIS ASSIGNMENT.

[Signature Pages Follow]

EXECUTED as of the date first above written.

ASSIGNOR:

PROSPECT HOSPITALS SYSTEM, LLC

By:

Name:

Title:

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name: Jacob Y. Terner, M.D.

Title: Chief Executive Officer

PROSPECT MEDICAL GROUP, INC.

By:

Name: Jacob Y. Terner, M.D.

Title: Chief Executive Officer

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A.,
as administrative agent

By:

Name:

Title:

EXHIBIT A

PROMED ACQUISITION DOCUMENTS

On file with Kennedy Covington

EXHIBIT B

ALTA ACQUISITION DOCUMENTS

On file with Kennedy Covington

EX-10.40

Exhibit 10.40

Execution Copy

SECOND LIEN COLLATERAL ASSIGNMENT OF PROMED ACQUISITION

DOCUMENTS AND ALTA ACQUISITION DOCUMENTS

THIS SECOND LIEN COLLATERAL ASSIGNMENT OF PROMED ACQUISITION DOCUMENTS AND ALTA ACQUISITION DOCUMENTS (this “Assignment”) has been executed and delivered as of August 8, 2007, by and among ALTA HOSPITALS SYSTEM LLC, a California limited liability company (“ALTA LLC”) (for itself and as successor-in-interest to Prospect Hospitals System LLC (“Prospect LLC’) and Alta Healthcare System, Inc. (‘‘Alta Inc.”), PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), and PROSPECT MEDICAL GROUP, INC., a California professional corporation (“PMG” and collectively with Holdings and Alta LLC, “Assignor”), and BANK OF AMERICA, N.A., as administrative agent (“Administrative Agent”), with reference to the following facts:

RECITALS

A.            Holdings and PMG are parties to certain documents pursuant to which, among other things, PMG acquired the stock and assets of Pomona Valley Medical Group, Inc. (“Pomona Valley”) and Upland Medical Group, a Professional Medical Corporation (“Upland”), and Holdings acquired the stock and assets of ProMed Heahh Services Company (“PHSC’) and ProMed Health Care Administrators (“PHCA” and together with Pomona Valley, Upland and PHSC, each a “ProMed Corporation” and collectively, the “ProMed Corporations”).

B.            Holdings, Prospect LLC, Alta Inc. and Alta LLC are parties to certain documents pursuant to which, among other things, Holdings acquired or will acquire (via the merger of Alta Inc. with and into Prospect LLC, with the surviving entity being Alta LLC) the stock and assets of Alta Healthcare System, Inc., Alta Hollywood Hospitals, Inc. and Alta Los Angeles Hospitals, Inc. (each an “Alta Corporation” and collectively, the ‘‘Alta Corporations” and together with the ProMed Corporations, each an “Acquired Corporation” and collectively, the ‘‘Acquired Corporations”) .

C.            Pursuant to that certain Second Lien Credit Agreement, dated on or about the date hereof (as the same may be amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), Administrative Agent and the Lenders have agreed to extend credit and other financial accommodations to Assignor and/or certain of Assignor’s affiliates, and Assignor and the other Loan Parties (including, without limitation, the Acquired Corporations) have agreed to guarantee the payment and performance of all of the Obligations and to grant to Administrative Agent security interests in the Collateral to secure payment and performance of all of the Obligations.

D.            Assignor has agreed to execute and deliver this Assignment to Administrative Agent in order to supplement the terms of the Credit Agreement and the Collateral Agreement with respect to the ProMed Acquisition Documents (as hereinafter defined) and the Alta Acquisition Documents (as hereinafter defined).

E.            Assignor acknowledges that Administrative Agent and the Lenders would not enter into the Credit Agreement absent Assignor’s agreements hereunder.

AGREEMENT

In consideration of the premises and the mutual agreements herein set forth, Assignor and Administrative Agent hereby agree as follows:

1.            Defined Terms; lntercreditor Agreement.

1.1           Defined Terms.  All initially capitalized terms used but not defined herein shall have the meanings assigned to such terms in the Credit Agreement.

1.2           lntercreditor Agreement.  Notwithstanding anything contained herein to the contrary, the liens and security interests granted to the Administrative Agent, for the benefit of the Lenders, pursuant to this Assignment, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Lenders, under this Assignment, are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Assignment, the terms of the Intercreditor Agreement shall govern and control.

2.            Assignment.  As additional security for the Obligations, Assignor hereby collaterally assigns and transfers to Administrative Agent, and acknowledges that, pursuant to the Collateral Agreement, Assignor has granted to Administrative Agent a security interest in:

2.1           ProMed Acquisition Documents.  All of Assignor’s right, title and interest in and to the documents set forth on Exhibit A attached hereto (collectively, the “ProMed Acquisition Documents”).

2.2           Alta Acquisition Documents.  All of Assignor’s right, title and interest in and to the documents set forth of Exhibit B attached hereto (collectively, the “Alta Acquisition Documents” and together with the ProMed Acquisition Documents, the “Acquisition Documents”).

2.3           ProMed Rights and Remedies.  All of the rights, benefits, remedies, privileges and claims of Assignor with respect to the ProMed Acquisition Documents (collectively, the “ProMed Rights And Remedies”), including, without limitation, (i) all rights to monies or payments owing to Assignor under the ProMed Acquisition Documents, and any and all security therefor and for all other obligations owing to Assignor thereunder, (ii) all rights that Assignor may have to indemnification under the ProMed Acquisition Documents including, without limitation, enforcement rights and collection rights, (iii) all Rights and Remedies of Assignor with respect to any breach of the representations, warranties and covenants set forth in any of the ProMed Acquisition Documents, and (iv) the proceeds thereof.

2.4           Alta Rights and Remedies.  All of the rights, benefits, remedies, privileges and claims of Assignor with respect to the Alta Acquisition Documents (collectively, the ‘‘Alta Rights And Remedies” and together with the ProMed Rights and Remedies, the “Rights and Remedies”), including, without limitation, (i) all rights to monies or payments owing to Assignor under the Alta Acquisition Documents, and any and all security therefor and for all other obligations owing to Assignor thereunder, (ii) all rights that Assignor may have to indemnification under the Alta Acquisition Documents, (iii) all Rights and Remedies of Assignor

with respect to any breach of the representations, warranties and covenants set forth in any of the Alta Acquisition Documents, including, without limitation, enforcement rights and collection rights, and (iv) the proceeds thereof.

3.             Rights and Remedies Generally.  Prior to the occurrence of an Event of Default under the Credit Agreement or any other Loan Document (a “Default”), Assignor will enforce all of its Rights and Remedies diligently and in good faith.  Effective from and after the occurrence of a Default, Assignor hereby irrevocably authorizes and empowers Administrative Agent, in Administrative Agent’s sole discretion, to assert as Administrative Agent may deem proper, either directly or on behalf of Assignor, any and all of the Rights and Remedies which Assignor may from time to time have under the Acquisition Documents, and to receive and collect all damages, awards and other monies resulting therefrom and to apply the same on account of any of the Obligations.

4.             Termination.  This Assignment shall continue in effect until all of the Obligations have been paid in full and the Credit Agreement has been terminated in accordance with the terms thereof, at which time Administrative Agent shall release to the Assignor Administrative Agent’s interests in the Acquisition Documents and the Rights and Remedies and the other rights assigned to Administrative Agent hereby.

5.             Further Assurances.  At any time or from time to time, upon Administrative Agent’s written request, Assignor will execute and deliver to Administrative Agent such further documents and do such other acts and things as Administrative Agent may request in order to further effect the purposes of this Assignment or any schedule, amendment or supplement hereto, or a financing or continuation statement with respect hereto, in accordance with the laws of any applicable jurisdictions.  Assignor hereby authorizes Administrative Agent to effect any such filing or recording statements (or amendments thereto) without the signature of Assignor, and Administrative Agent’s costs and expenses with respect thereto shall be part of the Obligations and shall be payable by Assignor on demand.

6.             Acquisition Documents.  Concurrent herewith, Assignor is delivering to Administrative Agent possession of the original Acquisition Documents, together with any and all amendments thereto, as in effect on the date hereof, to hold in accordance with the terms of (a) the Credit Agreement until such Credit Agreement is terminated in accordance with its terms and (b) the lntercreditor Agreement.

7.             Attorney-in-Fact.  Assignor hereby irrevocably makes, constitutes, and appoints Administrative Agent (and Administrative Agent’s officers, employees, or agents) as Assignor’s true and lawful agent and attorney-in-fact for the purposes of enabling Administrative Agent or its agent(s) after the occurrence of a Default to (a) assert and enforce such Rights and Remedies and to collect such damages, awards and other monies and to apply them in the manner set forth hereinabove, and (b) to sign the name of Assignor on any documents which need to be executed, recorded, or filed, and to do any and all things necessary in the name and on behalf of Assignor in order to protect Administrative Agent’s interests in the Acquisition Documents.  Assignor agrees that neither Administrative Agent, nor any of its designees or attorneys-in-fact, will be liable for any act of commission or omission, or for any error of judgment or mistake of fact or law with respect to the exercise of the power of attorney granted under this Section 7, other than

as a result of its or their gross negligence or willful misconduct.  The power of attorney granted under this Section 7 is coupled with an interest and shall be irrevocable until all of the Obligations have been paid in full, the Credit Agreement and the other Loan Documents terminated, and Assignor’s duties under this Assignment have been discharged in full.  Assignor will not assign, pledge or otherwise encumber any of its rights, title or interest under, in or to any of the Acquisition Documents except for the assignment to Administrative Agent and its successors or assigns as set forth herein and the grant of a first priority security interest to the First Lien Administrative Agent in and to the Acquisition Documents.

8.             Modification of Rights and Remedies.  Assignor shall keep Administrative Agent informed of all circumstances bearing adversely upon the Rights and Remedies.  Assignor shall not waive, amend, alter or modify any of the Rights and Remedies in any adverse manner without the prior written consent of Administrative Agent.  Assignor shall not, without Administrative Agent’s prior written consent, amend, alter, modify or terminate any of the Acquisition Documents, or waive any of the provisions hereof, or do or permit any act in contravention thereof.

9.             Assignor to Remain Liable.  Notwithstanding the foregoing, Assignor expressly acknowledges and agrees that it shall remain liable under the Acquisition Documents to observe and perform all of the conditions and obligations in the Acquisition Documents which Assignor is bound to observe and perform, and that neither this Assignment, nor any action taken pursuant hereto, shall cause Administrative Agent to be under any obligation or liability in any respect whatsoever to observe or perform any of the representations, warranties, conditions, covenants, agreements or terms of the Acquisition Documents.

10.           Counterparts; Effectiveness.  This Assignment may be executed in any number of counterparts, each of which, when executed and delivered, shall be deemed to be an original.  All of such counterparts, taken together, shall constitute but one and the same agreement.  This Assignment shall become effective upon the execution of a counterpart of this Assignment by each of the parties hereto.

11.           Notices.  All notices, requests and other communications to any party hereunder shall be sent in accordance with Section 10.02 of the Credit Agreement.

12.           Modifications and Amendments.  This Assignment shall not be changed orally but shall be changed only by agreement in writing signed by Assignor and Administrative Agent.  No course of dealing between the parties, no usage of trade and no parole or extrinsic evidence of any nature shall be used to supplement or modify any of the terms or provisions of this Assignment.

13.           Severability.  If any provision of this Assignment is held to be illegal, invalid or unenforceable under present or future laws, the legality, validity and enforceability of the remaining provisions of this Assignment shall not be affected thereby, and this Assignment shall be liberally construed so as to carry out the intent of the parties to it.

14.           Governing Law; Venue; Successors and Assigns; Entire Agreement.  This Assignment (a) shall be construed in accordance with and governed by the internal laws of the

State of New York; (b) shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns; and (c) together with the Intercreditor Agreement, embodies the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior agreements, consents and understandings relating to such subject matter.  EACH ASSIGNOR UNCONDITIONALLY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN AND OF THE UNITED STATES DISTRICT COURT OF THE SOUTHERN DISTRICT OF NEW YORK.

15.           California Judicial Reference; Jury Trial Waiver.  If, notwithstanding the choice of law made in Section 14 of this Assignment, any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Assignment, (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) Assignor shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDlRECTLY ARISING OUT OF OR RELATING TO THIS ASSIGNMENT.

[Signature Pages Follow]

EXECUTED as of the date first above written.

ASSIGNOR:

PROSPECT HOSPITALS SYSTEM, LLC

By:

Name:

Title:

PROSPECT MEDICAL HOLDINGS, INC.

By:

Name: Jacob Y. Terner, M.D.

Title: Chief Executive Officer

PROSPECT MEDICAL GROUP, INC.

By:

Name: Jacob Y. Terner, M.D.

Title: Chief Executive Officer

ADMINISTRATIVE AGENT:

BANK OF AMERICA, N.A.,
as administrative agent

By:

Name:

Title:

EXHIBIT A

PROMED ACQUISITION DOCUMENTS

On file with Kennedy Covington

EXHIBIT B

ALTA ACQUISITION DOCUMENTS

On file with Kennedy Covington

EX-10.41

Exhibit 10.41

Execution Version

INTERCREDITOR AGREEMENT

among

PROSPECT MEDICAL HOLDINGS, INC.

and

PROSPECT MEDICAL GROUP, INC.,

as the Borrowers,

and

CERTAIN SUBSIDIARIES OF THE BORROWERS

FROM TIME TO TIME PARTIES HERETO

as Guarantors,

and

BANK OF AMERICA, N.A.,

as First Lien Collateral Agent

and

BANK OF AMERICA, N.A,

as Second Lien Collateral Agent

and

BANK OF AMERICA, N.A,

as Control Agent

Dated as of August 8, 2007

Table of Contents

		Page
ARTICLE I DEFINITIONS		2
Section 1.01	Defined Terms	2
Section 1.02	Other Interpretive Provisions	11
ARTICLE II LIEN PRIORITIES		12
Section 2.01	Relative Priorities	12
Section 2.02	Failure to Perfect	12
Section 2.03	Nature of First Lien Obligations	12
Section 2.04	Prohibition on Contesting Liens	13
Section 2.05	No New Liens	13
Section 2.06	Similar Liens and Agreements	14
ARTICLE III ENFORCEMENT		15
Section 3.01	Exercise of Remedies	15
Section 3.02	Actions Upon Breach	17
ARTICLE IV PAYMENTS		18
Section 4.01	Application of Proceeds	18
Section 4.02	Payments Over	18
ARTICLE V OTHER AGREEMENTS		19
Section 5.01	Releases	19
Section 5.02	Insurance	20
Section 5.03	Amendments to First Lien Loan Documents and Second Lien Loan Documents	20
Section 5.04	Rights As Unsecured Creditors	22
Section 5.05	Control Agent for Perfection	23
Section 5.06	When Discharge of First Lien Obligations Deemed to Not Have Occurred	25
Section 5.07	Purchase Right	26
ARTICLE VI INSOLVENCY OR LIQUIDATION PROCEEDINGS		27
Section 6.01	Finance and Sale Issues	27
Section 6.02	Relief from the Automatic Stay	27
Section 6.03	Adequate Protection	28
Section 6.04	No Waiver	29
Section 6.05	Avoidance Issues	29
Section 6.06	Separate Grants of Security and Separate Classification	29

i

Section 6.07	Reorganization Securities	30
Section 6.08	Post-Petition Claims	30
Section 6.09	Waiver	30
Section 6.10	Expense Claims	30
Section 6.11	Other Matters	30
Section 6.12	Effectiveness in Insolvency or Liquidation Proceedings	31
ARTICLE VII RELIANCE; WAIVERS; ETC		31
Section 7.01	Non-Reliance	31
Section 7.02	No Warranties or Liability	32
Section 7.03	No Waiver of Lien Priorities	32
Section 7.04	Obligations Unconditional	34
Section 7.05	Certain Notices	35
ARTICLE VIII MISCELLANEOUS		35
Section 8.01	Inconsistencies with Other Documents	35
Section 8.02	Effectiveness; Continuing Nature of this Agreement; Severability	35
Section 8.03	Amendments; Waivers	36
Section 8.04	Information Concerning Financial Condition of the Borrowers and their Subsidiaries	36
Section 8.05	Subrogation	37
Section 8.06	Application of Payments	37
Section 8.07	SUBMISSION TO JURISDICTION	37
Section 8.08	California Judicial Reference	38
Section 8.09	Notices	39
Section 8.10	Further Assurances	39
Section 8.11	APPLICABLE LAW	39
Section 8.12	Binding on Successors and Assigns	39
Section 8.13	Specific Performance	39
Section 8.14	Titles and Captions	39
Section 8.15	Counterparts; Integration	39
Section 8.16	Authorization	40
Section 8.17	No Third Party Beneficiaries	40
Section 8.18	Provisions Solely to Define Relative Rights	40

ii

INTERCREDITOR AGREEMENT

This INTERCREDITOR AGREEMENT, is dated as of August 8, 2007, and entered into by and among PROSPECT MEDICAL HOLDINGS, INC., a Delaware corporation (“Holdings”), PROSPECT MEDICAL GROUP, INC., a California professional corporation (together with Holdings, each a “Borrower” and collectively, the “Borrowers”), and certain Subsidiaries of the Borrowers (the “Guarantors”), BANK OF AMERICA, N.A., in its capacity as administrative agent for the First Lien Obligations (as defined below), including its successors and assigns from time to time (the “First Lien Collateral Agent”), BANK OF AMERICA, N.A., in its capacity as administrative agent for the Second Lien Obligations under the Second Lien Credit Agreement (as defined below), including its successors and assigns from time to time (the “Second Lien Collateral Agent”) and BANK OF AMERICA, N.A., in its capacity as Control Agent (as defined below) for the First Lien Collateral Agent and the Second Lien Collateral Agent.  Capitalized terms used herein but not otherwise defined herein have the meanings set forth in Article I below.

RECITALS

WHEREAS, the Borrower, the Guarantors, the lenders party thereto, and Bank of America, N.A., as Administrative Agent, have entered into that certain Credit Agreement dated as of the date hereof providing for a revolving credit facility and a term loan facility to the Borrowers (as amended, restated, supplemented, modified or Refinanced from time to time, the “Initial First Lien Credit Agreement”);

WHEREAS, the Borrower, the Guarantors, the lenders party thereto, and Bank of America, N.A., as Administrative Agent, have entered into that certain Credit Agreement dated as of the date hereof providing for a term loan to the Borrowers (as amended, restated, supplemented, modified or Refinanced from time to time, the “Initial Second Lien Credit Agreement”);

WHEREAS, (a) the obligations of the Borrowers and the Guarantors under the Initial First Lien Credit Agreement and the other First Lien Loan Documents, (b) any Secured Hedge Agreement, and (c) any Secured Cash Management Agreement will be secured by substantially all of the assets of the Borrowers and the Guarantors pursuant to the terms of the First Lien Collateral Documents;

WHEREAS, (a) the obligations of the Borrower and the Guarantors under the Initial Second Lien Credit Agreement and the other Second Lien Loan Documents and (b) any Secured Hedge Agreement, and (c) any Secured Cash Management Agreement, will be secured by substantially all of the assets of the Borrowers and the Guarantors pursuant to the terms of the Second Lien Collateral Documents;

WHEREAS, the First Lien Loan Documents and the Second Lien Loan Documents provide, among other things, that the parties thereto shall set forth in this Agreement their respective rights and remedies with respect to the Collateral; and

WHEREAS, in order to induce the First Lien Collateral Agent and the First Lien Claimholders to consent to incurrence by the Grantors (as defined below) of the Second Lien

Obligations and to induce the First Lien Claimholders to extend credit and other financial accommodations to or for the benefit of the Borrower, or any other Grantor, the Second Lien Collateral Agent on behalf of the Second Lien Claimholders has agreed to the lien subordination, intercreditor and other provisions set forth in this Agreement.

NOW, THEREFORE, in consideration of the foregoing, the mutual covenants and obligations herein set forth and for other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

ARTICLE I

DEFINITIONS

Section 1.01           Defined Terms.  As used in the Agreement, the following terms shall have the following meanings:

“Affiliate” means, with respect to any Person, another Person that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified.

“Agreement” means this Intercreditor Agreement, as amended, restated supplemented or otherwise modified from time to time.

“Attributable Indebtedness” means, on any date, (a) in respect of any Capitalized Lease of any Person, the capitalized amount thereof that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP, (b) in respect of any Synthetic Lease Obligation, the capitalized amount of the remaining lease or similar payments under the relevant lease or other applicable agreement or instrument that would appear on a balance sheet of such Person prepared as of such date in accordance with GAAP if such lease or other agreement or instrument were accounted for as a Capitalized Lease and (c) all Synthetic Debt of such Person.

“Bank of America” means Bank of America, N.A. and its successors.

“Bankruptcy Code” means title 11 of the United States Code entitled “Bankruptcy,” as now and hereafter in effect, or any successor statute.

“Borrowers” has the meaning set forth in the preamble of this Agreement.

“Business Day” means any day other than a Saturday, Sunday or other day on which commercial banks are authorized to close under the Laws of, or are in fact closed in, New York, New York and Charlotte, North Carolina.

“Capitalized Lease” means all leases that have been or should be, in accordance with GAAP, recorded as capitalized leases.

2

“Cash Management Agreement” means any agreement to provide cash management services, including treasury, depository, overdraft, credit or debit card, electronic funds transfer and other cash management arrangements.

“Cash Management Bank” means any Person that, at the time it enters into a Cash Management Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Cash Management Agreement.

“Collateral” means all of the assets and property of any Grantor, whether tangible or intangible, constituting both First Lien Collateral and Second Lien Collateral.

“Control Agent” has the meaning set forth in Section 5.05(a).

“Control Collateral” means any Collateral consisting of any Certificated Security, Instrument, Investment Property, Deposit Account, Securities Account (each as defined in the UCC), cash and any other Collateral as to which a first priority Lien shall or may be perfected through possession or control by the secured party or any agent therefor.

“Controlled Account” means those certain Deposit Accounts (as defined in the UCC) of any Grantor subject to Liens under the terms of the First Lien Collateral Documents and the Second Lien Collateral Documents and subject to control or a control agreement in favor of the Control Agent.

“Debtor Relief Laws” means the Bankruptcy Code, and all other liquidation, conservatorship, bankruptcy, assignment for the benefit of creditors, moratorium, rearrangement, receivership, insolvency, reorganization, or similar debtor relief Laws of the United States or other applicable jurisdictions from time to time in effect and affecting the rights of creditors generally.

“DIP Financing” has the meaning set forth in Section 6.01.

“Discharge of First Lien Obligations” means, except to the extent otherwise provided in Section 5.06, (a) payment in full in cash of the principal of and interest (including interest accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such interest is, or would be, allowed in such Insolvency or Liquidation Proceeding, in which case such interest shall be repaid from funds otherwise possibly available to the Second Lien Claimholders) and premium, if any, on all Indebtedness outstanding under the First Lien Loan Documents and termination of all commitments to lend or otherwise extend credit under the First Lien Loan Documents, (b) payment in full in cash of all other First Lien Obligations that are due and payable or otherwise accrued and owing at or prior to the time such principal and interest are paid (including legal fees and other expenses, costs or charges accruing on or after the commencement of any Insolvency or Liquidation Proceeding, whether or not a claim for such fees, expenses, costs or charges is, or would be, allowed in such Insolvency or Liquidation Proceeding), (c) termination of any Secured Hedge Agreement and the payment in full in cash of all obligations thereunder, (d) termination of any Secured Cash Management Agreement and the payment in full in cash of all obligations thereunder, (e) termination or cash collateralization (in an amount reasonably satisfactory to the First Lien Collateral Agent not to exceed 105%) of, all letters of credit issued under the First Lien Loan Documents, and (f) 

3

adequate provision has been made for any contingent or unliquidated First Lien Obligations related to claims, causes of action, or liabilities that have been asserted or threatened against the First Lien Lenders or the First Lien Claimholders or that otherwise can be reasonably identified based on the then known facts and circumstances.

“Disposition” has the meaning set forth in Section 5.01(a)(ii).

“Equity Interests” means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options or other rights for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person, all of the securities convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares (or such other interests), and all of the other ownership or profit interests in such Person (including partnership, member or trust interests therein), whether voting or nonvoting.

“Exercise of Remedies” has the meaning set forth in Section 5.01(a)(i).

“Federal Funds Rate” means, for any day, the rate per annum equal to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers on such day, as published by the Federal Reserve Bank of New York on the Business Day next succeeding such day; provided that (a) if such day is not a Business Day, the Federal Funds Rate for such day shall be such rate on such transactions on the next preceding Business Day as so published on the next succeeding Business Day, and (b) if no such rate is so published on such next succeeding Business Day, the Federal Funds Rate for such day shall be the average rate (rounded upward, if necessary, to a whole multiple of 1/100 of 1%) charged to Bank of America on such day on such transactions as determined by Bank of America.

“First Lien Claimholders” means, at any relevant time, the holders of First Lien Obligations at such time, including, without limitation, the First Lien Lenders and any agent under the First Lien Credit Agreement.

“First Lien Collateral” means all of the assets and property of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any First Lien Obligations.

“First Lien Collateral Agent” has the meaning set forth in the preamble hereof.

“First Lien Collateral Documents” means the Collateral Documents (as defined in the First Lien Credit Agreement) and any other agreement, document or instrument pursuant to which a Lien is granted securing any First Lien Obligations or under which rights or remedies with respect to such Liens are governed.

“First Lien Credit Agreement” means (a) the Initial First Lien Credit Agreement and (b) any other credit agreement, loan agreement, note agreement, promissory note, indenture or other agreement or instrument evidencing or governing the terms of any indebtedness or other financial accommodation that has been incurred to extend, increase (subject to the limitations set

4

forth herein), replace, refinance or refund in whole or in part the indebtedness and other obligations outstanding under (i) the Initial First Lien Credit Agreement or (ii) any subsequent First Lien Credit Agreement, unless such agreement or instrument expressly provides that it is not intended to be and is not a First Lien Credit Agreement hereunder.  Any reference to the First Lien Credit Agreement hereunder shall be deemed a reference to any First Lien Credit Agreement then in existence.

“First Lien Lenders” means the “Lenders” under and as defined in the First Lien Credit Agreement.

“First Lien Loan Documents” means the First Lien Credit Agreement and the Loan Documents (as defined in the First Lien Credit Agreement) and each of the other agreements, documents and instruments providing for or evidencing any other First Lien Obligation, and any other document or instrument executed or delivered at any time in connection with any First Lien Obligations, including any intercreditor or joinder agreement among holders of First Lien Obligations, to the extent such are effective at the relevant time, as each may be modified from time to time in accordance with this Agreement.

“First Lien Obligations” means all (a) outstanding “Obligations” as defined in and arising under the First Lien Credit Agreement and the other First Lien Loan Documents (it being understood, for avoidance of doubt, that obligations owed to a Hedge Bank and/or a Cash Management Bank that is both a First Lien Claimholder and a Second Lien Claimholder at the time such Secured Hedge Agreement and/or Secured Cash Management Agreement was entered into by any Borrower shall be considered First Lien Obligations) and (b) any DIP Financing; provided that the aggregate principal amount, without duplication, of any revolving credit commitments, revolving credit loans, letters of credit, term loans, bonds, debentures, notes or similar instruments provided for under the First Lien Credit Agreement or any other First Lien Loan Document (or any Refinancing thereof) in excess of the Maximum First Lien Indebtedness shall not constitute First Lien Obligations for purposes of this Agreement.  “First Lien Obligations” shall include (i) all interest accrued or accruing (or which would, absent commencement of an Insolvency or Liquidation Proceeding, accrue) in accordance with the rate specified in the relevant First Lien Loan Document and (ii) all fees, costs and charges incurred in connection with the First Lien Loan Documents and provided for thereunder (including, without limitation, legal fees), in the case of clause (i) and (ii) whether before or after commencement of an Insolvency or Liquidation Proceeding and irrespective of whether any claim for such interest, fees, costs or charges is allowed as a claim in such Insolvency or Liquidation Proceeding.

“GAAP” means generally accepted accounting principles in the United States set forth in the opinions and pronouncements of the Accounting Principles Board and the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or such other principles as may be approved by a significant segment of the accounting profession in the United States, that are applicable to the circumstances as of the date of determination, consistently applied.

“Governmental Authority” means the government of the United States or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive,

5

legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank).

“Grantors” means each Borrower and each of the Guarantors that have executed and delivered, or may from time to time hereafter execute and deliver, a First Lien Collateral Document or a Second Lien Collateral Document.

“Guarantee” means, as to any Person, any (a) obligation, contingent or otherwise, of such Person guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation payable or performable by another Person (the “primary obligor”) in any manner, whether directly or indirectly, and including any obligation of such Person, direct or indirect, (i) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation, (ii) to purchase or lease property, securities or services for the purpose of assuring the obligee in respect of such Indebtedness or other obligation of the payment or performance of such Indebtedness or other obligation, (iii) to maintain working capital, equity capital or any other financial statement condition or liquidity or level of income or cash flow of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation, or (iv) entered into for the purpose of assuring in any other manner the obligee in respect of such Indebtedness or other obligation of the payment or performance thereof or to protect such obligee against loss in respect thereof (in whole or in part), or (b) any Lien on any assets of such Person securing any Indebtedness or other obligation of any other Person, whether or not such Indebtedness or other obligation is assumed by such Person (or any right, contingent or otherwise, of any holder of such Indebtedness to obtain any such Lien).  The amount of any Guarantee shall be deemed to be an amount equal to the stated or determinable amount of the related primary obligation, or portion thereof, in respect of which such Guarantee is made or, if not stated or determinable, the maximum reasonably anticipated liability in respect thereof as determined by the guaranteeing Person in good faith.  The term “Guarantee” as a verb has a corresponding meaning.

“Guarantors” has the meaning set forth in the preamble of this Agreement.

“Hedge Bank” means any Person that, at the time it enters into a Secured Hedge Agreement, is a Lender or an Affiliate of a Lender, in its capacity as a party to such Secured Hedge Agreement.

“Indebtedness” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP:

(a)           all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments;

(b)           the maximum amount of all direct or contingent obligations of such Person arising under letters of credit, including standby and commercial, solely to the extent that such letters of credit are not fully cash collateralized, bankers’ acceptances, bank guaranties, surety bonds and similar instruments;

6

(c)net obligations of such Person under any Swap Contract;

(d)all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 90 days after the date on which such trade account was created);

(e)indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse;

(f)all Attributable Indebtedness in respect of Capitalized Leases and Synthetic Lease Obligations of such Person and all Synthetic Debt of such Person;

(g)all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment in respect of any Equity Interest in such Person or any other Person or any warrant, right or option to acquire such Equity Interest, valued, in the case of a redeemable preferred interest, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends;

(h)all Guarantees of such Person in respect of any of the foregoing; and

(i)all obligations owing in respect of Medicare and/or Medicaid.

For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.  The amount of any net obligation under any Swap Contract on any date shall be deemed to be the Swap Termination Value thereof as of such date.

“Initial First Lien Credit Agreement” has the meaning set forth in the Recitals.

“Initial Second Lien Credit Agreement” has the meaning set forth in the Recitals.

“Insolvency or Liquidation Proceeding” means (a) any voluntary or involuntary case or proceeding under the Bankruptcy Code or any other Debtor Relief Law with respect to any Grantor, (b) any other voluntary or involuntary insolvency, reorganization or bankruptcy case or proceeding, or any receivership, liquidation, reorganization or other similar case or proceeding with respect to any Grantor or with respect to a material portion of its respective assets, (c) any liquidation, dissolution, reorganization or winding up of any Grantor whether voluntary or involuntary and whether or not involving insolvency or bankruptcy or (d) any assignment for the benefit of creditors generally or any other marshalling of assets and liabilities of any Grantor.

“Lien” means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, or preference, priority or other security interest or preferential arrangement in the nature of a security interest of any kind or nature whatsoever

7

(including any conditional sale or other title retention agreement, any easement, right of way or other encumbrance on title to real property, and any financing lease having substantially the same economic effect as any of the foregoing).

“Maximum First Lien Indebtedness” means the original principal amount of $125,000,000 plus interest, fees and expenses (a) as provided in the First Lien Credit Agreement and (b) owing in connection with any DIP Financing less (i) the amount of all repayments and prepayments applied to the principal amount of any term loans under the First Lien Credit Agreement and (ii) the amount of all repayments and prepayments of the principal amount of any revolving loan or letter of credit under the First Lien Credit Agreement, to the extent accompanied by a corresponding permanent reduction in the applicable commitment amount (other than reductions in sub-facility commitment amounts where not accompanied by a reduction in the related facility commitment amounts) and with respect to repayments and prepayments described in clause (ii), other than repayments and prepayments made as a result of a Refinancing or DIP Financing, the proceeds of which are used to repay the outstanding First Lien Obligations; provided, that the amount of any DIP Financing as contemplated in Section 6.01 hereof shall be included for purposes of calculating Maximum First Lien Indebtedness.

“Operating Lease” means, as to any Person as determined in accordance with GAAP, any lease of property (whether real, personal or mixed) by such Person as lessee which is not a Capital Lease.

“Person” means any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, governmental authority or other entity.

“Recovery” has the meaning set forth in Section 6.05.

“Refinance” means, in respect of any indebtedness, to refinance, replace or repay, or to issue other indebtedness, in exchange or replacement for, such indebtedness.  “Refinanced” and “Refinancing” shall have correlative meanings.

“Requisite Lenders” means those lenders under the First Lien Credit Agreement or the Second Lien Credit Agreement, as applicable, that are necessary to approve the contemplated action.

“Second Lien Claimholders” means, at any relevant time, the holders of Second Lien Obligations at such time, including, without limitation, the Second Lien Lenders and any agent under the Second Lien Credit Agreement.

“Second Lien Collateral” means all of the assets and property of any Grantor, whether real, personal or mixed, with respect to which a Lien is granted as security for any Second Lien Obligations.

“Second Lien Collateral Agent” has the meaning set forth in the preamble hereof.

“Second Lien Collateral Documents” means the Collateral Documents (as defined in the Second Lien Credit Agreement) and any other agreement, document or instrument pursuant to

8

which a Lien is granted securing any Second Lien Obligations or under which rights or remedies with respect to such Liens are governed.

“Second Lien Credit Agreement” means (a) the Initial Second Lien Credit Agreement and (b) any other credit agreement, loan agreement, note agreement, promissory note, indenture, or other agreement or instrument evidencing or governing the terms of any indebtedness or other financial accommodation that has been incurred to extend, increase (subject to the limitations set forth herein), replace, refinance or refund in whole or in part the indebtedness and other obligations outstanding under the Initial Second Lien Credit Agreement or other agreement or instrument referred to in this clause (b).  Any reference to the Second Lien Credit Agreement hereunder shall be deemed a reference to any Second Lien Credit Agreement then in existence.

“Second Lien Enforcement Date” means the date which is 120 days after the occurrence of (a) an Event of Default (under and as defined in the Second Lien Credit Agreement) and (b) the First Lien Collateral Agent’s receipt of written notice from the Second Lien Collateral Agent certifying that (i) an Event of Default (under and as defined in the Second Lien Credit Agreement) has occurred and is continuing and (ii) the Second Lien Obligations are currently due and payable in full (whether as a result of acceleration thereof or otherwise) in accordance with terms of the Second Lien Credit Agreement; provided that the Second Lien Enforcement Date shall be stayed and shall not occur and shall be deemed not to have occurred (1) at any time the First Lien Collateral Agent or the First Lien Claimholders have commenced and are diligently pursuing in good faith any enforcement action with respect to all or a material portion of the Collateral, (2) at any time any Grantor is then a debtor under or with respect to (or otherwise subject to) any Insolvency or Liquidation Proceeding or (3) if the acceleration of the Second Lien Obligations (if any) is rescinded in accordance with the terms of the Second Lien Credit Agreement or otherwise.

“Second Lien Lenders” means the “Lenders” under and as defined in the Initial Second Lien Credit Agreement.

“Second Lien Loan Documents” means the Second Lien Credit Agreement and the Loan Documents (as defined in the Second Lien Credit Agreement) and each of the other agreements, documents and instruments providing for or evidencing any other Second Lien Obligation, and any other document or instrument executed or delivered at any time in connection with any Second Lien Obligations, including any intercreditor or joinder agreement among holders of Second Lien Obligations, to the extent such are effective at the relevant time, as each may be modified from time to time to the extent permitted by this Agreement.

“Second Lien Obligations” means all (a) outstanding “Obligations” as defined in and arising under the Second Lien Credit Agreement and the other Second Lien Loan Documents (it being understood, for avoidance of doubt, that obligations owed to a Hedge Bank and/or a Cash Management Bank that is both a First Lien Claimholder and a Second Lien Claimholder at the time such Secured Hedge Agreement and/or Secured Cash Management Agreement was entered into by any Borrower shall be considered First Lien Obligations).  “Second Lien Obligations” shall include (i) all interest accrued or accruing (or which would, absent commencement of an Insolvency or Liquidation Proceeding, accrue) in accordance with the rate specified in the relevant Second Lien Loan Document and (ii) all fees, costs and charges incurred in connection

9

with the Second Lien Loan Documents and provided for thereunder (including, without limitation, legal fees), in each case after commencement of an Insolvency or Liquidation Proceeding irrespective of whether any claim for such interest, fees, costs or charges is allowed as a claim in such Insolvency or Liquidation Proceeding.

“Secured Cash Management Agreement” means any Cash Management Agreement that is entered into by and between either Borrower and any Cash Management Bank.

“Secured Hedge Agreement” means any interest rate Swap Contract required or permitted under the First Lien Credit Agreement or the Second Lien Credit Agreement that is entered into by and between either Borrower and any Hedge Bank.

“Standstill Period” has the meaning set forth in Section 3.01(a)(i)(A) hereof.

“Subsidiary” of a Person means a corporation, partnership, joint venture, limited liability company or other business entity of which a majority of the shares of securities or other interests having ordinary voting power for the election of directors or other governing body (other than securities or interests having such power only by reason of the happening of a contingency) are at the time beneficially owned, or the management of which is otherwise controlled, directly, or indirectly through one or more intermediaries, or both, by such Person.  Unless otherwise specified or the context otherwise requires, all references herein to a “Subsidiary” or to “Subsidiaries” shall refer to a Subsidiary or Subsidiaries of Holdings and shall include the PMG Loan Parties (as defined in each of the First Lien Credit Agreement and the Second Lien Credit Agreement); provided, however, that the parties agree that Brotman Medical Center, Inc., a California corporation, in which Holdings’ Subsidiary, Prospect Hospital Advisory Services, Inc., holds less than a majority or the shares, is not considered a Subsidiary.

“Swap Contract” means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any master agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement (any such master agreement, together with any related schedules, a “Master Agreement”), including any such obligations or liabilities under any Master Agreement.

“Swap Termination Value” means, in respect of any one or more Swap Contracts, after taking into account the effect of any legally enforceable netting agreement relating to such Swap Contracts, (a) for any date on or after the date such Swap Contracts have been closed out and termination value(s) determined in accordance therewith, such termination value(s), and (b) for

10

any date prior to the date referenced in clause (a), the amount(s) determined as the mark-to-market value(s) for such Swap Contracts, as determined based upon one or more mid-market or other readily available quotations provided by any recognized dealer in such Swap Contracts (which may include a Lender or any Affiliate of a Lender).

“Synthetic Debt” means, with respect to any Person as of any date of determination thereof, all obligations of such Person in respect of transactions entered into by such Person that are intended to function primarily as a borrowing of funds but are not otherwise included in the definition of “Indebtedness” or as a liability on the consolidated balance sheet of such Person and its Subsidiaries in accordance with GAAP.

“Synthetic Lease Obligation” means the monetary obligation of a Person under (a) a so-called synthetic, off-balance sheet or tax retention lease, or (b) an agreement for the use or possession of property (including sale and leaseback transactions), in each case, creating obligations that do not appear on the balance sheet of such Person but which, upon the application of any Debtor Relief Laws to such Person, would be characterized as the indebtedness of such Person (without regard to accounting treatment).

“UCC” means the Uniform Commercial Code as in effect in the State of New York; provided that, if perfection or the effect of perfection or non-perfection or the priority of any security interest in any Collateral is governed by the Uniform Commercial Code as in effect in a jurisdiction other than the State of New York, “UCC” means the Uniform Commercial Code as in effect from time to time in such other jurisdiction for purposes of the provisions hereof relating to such perfection, effect of perfection or non-perfection or priority.

“United States” means the United States of America.

Section 1.02Other Interpretive Provisions.

(a)The definitions of terms herein shall apply equally to the singular and plural forms of the terms defined.  Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms.  The words “include”, “includes” and “including” shall be deemed to be followed by the phrase “without limitation.”  The word “will” shall be construed to have the same meaning and effect as the word “shall”.  Unless the context requires otherwise (i) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restriction on such amendments, supplements or modifications set forth herein), (ii) any reference herein to any Person shall be construed to include such Person’s successors and assigns, (iii) the words “herein”, “hereof” and “hereunder”, and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (iv) all references herein to Recitals, Exhibits or Sections shall be construed to refer to Recitals, Exhibits, Articles or Sections of this Agreement and (v) the words “asset” and “property” shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights.

11

(b)In the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including;” the words “to” and “until” each mean “to but excluding;” and the word “through” means “to and including.”

(c)Section headings herein are included for convenience of reference only and shall not affect the interpretation of this Agreement.

ARTICLE II

LIEN PRIORITIES

Section 2.01Relative Priorities.  Notwithstanding the date, manner or order of grant, attachment or perfection of any Liens securing the Second Lien Obligations granted on the Collateral or of any Liens securing the First Lien Obligations granted on the Collateral and notwithstanding any provision of the UCC, or any applicable Law or the Second Lien Loan Documents, the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) hereby agrees that:  (a) any Lien on the Collateral securing any First Lien Obligations now or hereafter held by or on behalf of the First Lien Collateral Agent or any First Lien Claimholders or any agent or trustee therefor, regardless of how acquired, whether by grant, possession, statute, operation of law, subrogation or otherwise, shall be senior in all respects and prior to any Lien on the Collateral securing any of the Second Lien Obligations; and (b) any Lien on the Collateral now or hereafter held by or on behalf of the Second Lien Collateral Agent, any Second Lien Claimholders or any agent or trustee therefor regardless of how acquired, whether by grant, possession, statute, operation of law, subrogation or otherwise, shall be junior and subordinate in all respects to all Liens on the Collateral securing any First Lien Obligations.

Section 2.02Failure to Perfect.  All Liens on the Collateral securing any First Lien Obligations shall be and remain senior in all respects and prior to all Liens on the Collateral securing any Second Lien Obligations for all purposes, notwithstanding any failure of the First Lien Collateral Agent or the First Lien Claimholders to adequately perfect its security interests in the Collateral, the subordination of any Lien on the Collateral securing any First Lien Obligations to any Lien securing any other obligation of any Grantor, or the avoidance, invalidation or lapse of any Lien on the Collateral securing any First Lien Obligations.

Section 2.03Nature of First Lien Obligations.  The Second Lien Collateral Agent (for itself and on behalf of the other Second Lien Claimholders) acknowledges that (a) a portion of the First Lien Obligations are revolving in nature, (b) the amount thereof that may be outstanding at any time or from time to time may be increased or reduced and subsequently reborrowed, (c) the terms of the First Lien Obligations may be modified, extended or amended from time to time, and (d), subject to the limitations on the aggregate principal amount of First Lien Obligations set forth in the definition of “First Lien Obligations” or in Section 5.03, the aggregate amount of the First Lien Obligations may be increased or Refinanced, in either event, without notice to or consent by the Second Lien Claimholders and without affecting the provisions hereof.  The lien priorities provided in Sections 2.01 and 2.02 shall not be altered or otherwise affected by any such amendment, modification, supplement, extension, repayment, reborrowing, increase, replacement, renewal, restatement or Refinancing of either the First Lien Obligations or the Second Lien Obligations, or any portion thereof.

12

Section 2.04Prohibition on Contesting Liens.  Each of the Second Lien Collateral Agent (for itself and on behalf of each Second Lien Claimholder) and the First Lien Collateral Agent (for itself and on behalf of each First Lien Claimholder) agrees that it shall not (and hereby waives any right to) contest or support any other Person in contesting, in any proceeding (including any Insolvency or Liquidation Proceeding), the priority, validity or enforceability of a Lien held by or on behalf of any of the First Lien Claimholders in the First Lien Collateral or by or on behalf of any of the Second Lien Claimholders in the Second Lien Collateral, as the case may be; provided that nothing in this Agreement shall be construed to prevent or impair the rights of the First Lien Collateral Agent or any First Lien Claimholder to enforce this Agreement, including the priority of the Liens securing the First Lien Obligations as provided in Sections 2.01 and 3.01.

Section 2.05No New Liens.

(a)Limitation on other Collateral for First Lien Claimholders.  So long as any Second Lien Obligations remain outstanding, and subject to Article VI, (i) the First Lien Collateral Agent agrees that, after the date hereof, neither the First Lien Collateral Agent nor any First Lien Claimholder shall acquire or hold any Lien on any assets of any Grantor securing any First Lien Obligations which assets are not also subject to the second-priority Lien of the Second Lien Collateral Agent under the Second Lien Collateral Documents, and (ii) each Grantor agrees not to grant any Lien on any of its assets, or permit any of its Subsidiaries to grant a Lien on any of its assets, in favor of the First Lien Collateral Agent or the First Lien Claimholders unless it, or such Subsidiary, has granted a similar Lien on such assets in favor of the Second Lien Collateral Agent or the Second Lien Claimholders.  If the First Lien Collateral Agent or any First Lien Claimholder shall (nonetheless and in breach hereof) acquire any Lien on any assets of any Grantor or any of their respective Subsidiaries securing any First Lien Obligations which assets are not also subject to the second-priority Lien of the Second Lien Collateral Agent under the Second Lien Collateral Documents, then the First Lien Collateral Agent (or the relevant First Lien Claimholder), shall, without the need for any further consent of any other Person and notwithstanding anything to the contrary in any other First Lien Loan Document (x) in addition to holding such Lien for the benefit of itself and the other First Lien Claimholders as security for the First Lien Obligations, also hold and be deemed to have held such Lien for the benefit of the Second Lien Collateral Agent as security for the Second Lien Obligations subject to the priorities set forth herein or (y) release such Lien.

(b)Limitation on other Collateral for Second Lien Claimholders.  Until the date upon which the Discharge of First Lien Obligations shall have occurred, (i) the Second Lien Collateral Agent agrees that, after the date hereof, neither the Second Lien Collateral Agent nor any Second Lien Claimholder shall acquire or hold any Lien on any assets of any Grantor securing any Second Lien Obligations which assets are not also subject to the senior priority Lien of the First Lien Collateral Agent under the First Lien Collateral Documents, and (ii) each Grantor agrees not to grant any Lien on any of its assets, or permit any of its Subsidiaries to grant a Lien on any of its assets, in favor of the Second Lien Collateral Agent or the Second Lien Claimholders unless it, or such Subsidiary, has granted a similar Lien on such assets in favor of the First Lien Collateral

13

Agent or the First Lien Claimholders.  If the Second Lien Collateral Agent or any Second Lien Claimholder shall (nonetheless and in breach hereof) acquire any Lien on any assets of any Grantor or any of their respective Subsidiaries securing any Second Lien Obligations which assets are not also subject to the first-priority Lien of the First Lien Collateral Agent under the First Lien Collateral Documents, then the Second Lien Collateral Agent (or the relevant Second Lien Claimholder), shall, without the need for any further consent of any other Person and notwithstanding anything to the contrary in any other Second Lien Loan Document (x) in addition to holding such Lien for the benefit of itself and the other Second Lien Claimholders as security for the Second Lien Obligations, also hold and be deemed to have held such Lien for the benefit of the First Lien Collateral Agent as security for the First Lien Obligations or (y) release such Lien.

Section 2.06Similar Liens and Agreements.  The parties hereto agree that it is their intention that the First Lien Collateral and the Second Lien Collateral be identical.  In furtherance of the foregoing and of Section 8.09, the parties hereto agree, subject to the other provisions of this Agreement:

(a)upon request by the First Lien Collateral Agent or the Second Lien Collateral Agent, to cooperate in good faith (and to direct their counsel to cooperate in good faith) from time to time in order to determine the specific items included in the First Lien Collateral and the Second Lien Collateral and the steps taken to perfect their respective Liens thereon and the identity of the respective parties obligated under the First Lien Loan Documents and the Second Lien Loan Documents; and

(b)that the documents and agreements creating or evidencing the Liens on the First Lien Collateral and the Second Lien Collateral and guarantees for the First Lien Obligations and the Second Lien Obligations shall be in all material respects the same forms of documents other than with respect to the senior and subordinate nature of the security interests in the Collateral securing the respective First Lien Obligations and Second Lien Obligations thereunder.

In addition, to the extent any guaranty is entered into by any Grantor in respect of the Second Lien Obligations (whether or not the First Lien Collateral Agent or First Lien Claimholders have consented thereto), a guaranty by such Person shall be entered into in respect of the First Lien Obligations, and for all purposes hereunder such Person shall be deemed a guarantor of the First Lien Obligations and the Second Lien Obligations.  Furthermore, to the extent any guaranty is entered into by any Grantor in respect of the First Lien Obligations (whether or not the Second Lien Agent or the Second Lien Claimholders have consented thereto), a guaranty by such Person shall be entered into in respect of the Second Lien Obligations and, for all purposes hereunder, such Person shall be deemed a guarantor of the Second Lien Obligations and the First Lien Obligations.

14

ARTICLE III

ENFORCEMENT

Section 3.01Exercise of Remedies.

(a)So long as the Discharge of First Lien Obligations has not occurred, whether or not any Insolvency or Liquidation Proceeding has been commenced by or against any Borrower or any other Grantor:

(i)the Second Lien Collateral Agent and the Second Lien Claimholders:

(A)from the date hereof until the occurrence of the Second Lien Enforcement Date (such period, the “Standstill Period”), will not exercise or seek to exercise any rights or remedies (including any right of set-off or recoupment) with respect to any Collateral (including, without limitation, the exercise of any right under any lockbox agreement, account control or collection agreement, landlord waiver or bailee’s letter or similar agreement or arrangement to which the Second Lien Collateral Agent or any Second Lien Claimholder is a party) or institute or commence (or join with any other Person in commencing) any enforcement, collection, execution, levy or foreclosure action or proceeding (including, without limitation, any Insolvency or Liquidation Proceeding) with respect to any Lien held by it under the Second Lien Collateral Documents or any other Second Lien Loan Document or otherwise;

(B)will not contest, protest or object to any foreclosure proceeding or action brought by the First Lien Collateral Agent or any First Lien Claimholder or any other exercise by the First Lien Collateral Agent or any First Lien Claimholder, of any rights and remedies relating to the Collateral under the First Lien Loan Documents or otherwise, including, but not limited to, any motion by the First lien Collateral agent to sell the Collateral pursuant to Section 363 of the Bankruptcy Code, provided that the respective interests of the Second Lien Claimholders attach to the proceeds thereof, subject to the relative priorities described in Article II; provided, however, that this Section 3.01(B) shall constitute consent by the Second Lien Collateral Agent and the Second Lien Claimholders pursuant to Section 363(f) of the Bankruptcy Code to the Section 363 sale of any or all of the Collateral; and

(C)subject to the rights of the Second Lien Collateral Agent under clause (i)(A) above, will not object to the forbearance by the First Lien Collateral Agent or the First Lien Claimholders from bringing or pursuing any foreclosure proceeding or action or any other exercise of any rights or remedies relating to the Collateral; and

(ii)subject to Section 5.01, until the Discharge of the First Lien Obligations, the First Lien Collateral Agent and the First Lien Claimholders shall have the exclusive right to enforce rights, exercise remedies (including set-off and the right to credit bid their debt) and make determinations regarding the release, disposition, or restrictions with respect to the Collateral without any consultation

15

with or the consent of the Second Lien Collateral Agent or any Second Lien Claimholder; provided, that

(A)in any Insolvency or Liquidation Proceeding commenced by or against any Borrower or any other Grantor, the Second Lien Collateral Agent may file a claim or statement of interest with respect to the Second Lien Obligations;

(B)the Second Lien Collateral Agent may take any action (not adverse to the Liens on the Collateral securing the First Lien Obligations, or the rights of any First Lien Collateral Agent or the First Lien Claimholders to exercise remedies in respect thereof) in order to preserve or protect its Lien on the Collateral;

(C)the Second Lien Claimholders shall be entitled to file any responsive or defensive pleadings in opposition to any motion, claim, adversary proceeding or other pleading made by any person objecting to or otherwise seeking the disallowance of the claims of the Second Lien Claimholders, including, without limitation, any claims secured by the Collateral, if any, in each case in accordance with the terms of this Agreement;

(D)the Second Lien Claimholders shall be entitled to file any pleadings, objections, motions or agreements which assert rights or interests available to unsecured creditors of the Grantors arising under either the Debtor Relief Law or applicable non-bankruptcy law;

(E)the Second Lien Claimholders shall be entitled to file any proof of claim and other filings and make any arguments and motions that are, in each case, in accordance with the terms of this Agreement, with respect to the Second Lien Obligations and the Collateral;

(F)the Second Lien Claimholders shall be entitled, in any Insolvency or Liquidation Proceeding, to vote on any plan of reorganization, to the extent  consistent with the provisions hereof; and

(G)the Second Lien Collateral Agent or any Second Lien Claimholder may exercise any of its rights or remedies with respect to the Collateral upon the occurrence and during the effective continuation of the Second Lien Enforcement Date.

In exercising rights and remedies with respect to the Collateral, the First Lien Collateral Agent and the First Lien Claimholders may enforce the provisions of the First Lien Loan Documents and exercise remedies thereunder, all in such order and in such manner as they may determine advisable in the exercise of their sole discretion.  Such exercise and enforcement shall include the rights of an agent appointed by the First Lien Collateral Agent and the First Lien Claimholders to sell or otherwise dispose of Collateral upon foreclosure, to incur expenses in connection with such sale or disposition,

16

and to exercise all the rights and remedies of a secured creditor under the UCC of any applicable jurisdiction and of a secured creditor under Debtor Relief Laws of any applicable jurisdiction.

(b)The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that it will not take or receive any Collateral or any proceeds of Collateral in connection with the exercise of any right or remedy (including set-off or recoupment) with respect to any Collateral, and that any Collateral or proceeds taken or received by it will be paid over to the First Lien Collateral Agent pursuant to Section 4.02, unless and until the Discharge of First Lien Obligations has occurred, except as expressly provided in the proviso in Section 3.01(a)(ii) and Section 6.07.  Without limiting the generality of the foregoing, unless and until the Discharge of First Lien Obligations has occurred, except as expressly provided in the proviso in Section 3.01(a)(ii), the sole right of the Second Lien Collateral Agent and the Second Lien Claimholders with respect to the Collateral is to hold a Lien on the Collateral pursuant to the Second Lien Collateral Documents for the period and to the extent granted therein and to receive a share of the proceeds thereof, if any, after the Discharge of the First Lien Obligations has occurred in accordance with the terms of the Second Lien Loan Documents and applicable Law.

(c)Subject to the proviso in Section 3.01(a)(ii) and Section 6.01, (i) the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that the Second Lien Collateral Agent and the Second Lien Claimholders will not take any action that would hinder, delay or impede any exercise of remedies under the First Lien Loan Documents, including any sale, lease, exchange, transfer or other disposition of the Collateral, whether by foreclosure or otherwise, and (ii) the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) hereby waives any and all rights it or the Second Lien Claimholders may have as a junior lien creditor or otherwise to object to the manner or order in which the First Lien Collateral Agent or the First Lien Claimholders seek to enforce or collect the First Lien Obligations or the Liens granted in any of the First Lien Collateral.

(d)The Second Lien Collateral Agent hereby acknowledges and agrees that no covenant, agreement or restriction contained in the Second Lien Collateral Documents or any other Second Lien Loan Document shall be deemed to restrict in any way the rights and remedies of the First Lien Collateral Agent or the First Lien Claimholders with respect to the Collateral as set forth in this Agreement and the First Lien Loan Documents.

Section 3.02Actions Upon Breach.

(a)If any Second Lien Claimholder, contrary to this Agreement, commences or participates in any action or proceeding against any Borrower, any other Grantor or the Collateral, such Borrower or such Grantor, with the prior written consent of the First Lien Collateral Agent, may interpose as a defense or dilatory plea the making of this Agreement, and the First Lien Collateral Agent may intervene and interpose such defense

17

or plea in its name, in the name of the First Lien Claimholders or in the name of such Borrower or such Grantor.

(b)Should any Second Lien Claimholder, contrary to this Agreement, in any way take, or attempt or threaten to take, any action with respect to the Collateral (including, without limitation, any attempt to realize upon or enforce any remedy with respect to this Agreement), or fail to take any action required by this Agreement, the First Lien Collateral Agent (in its own name or in the name of any Borrower) or any Borrower may obtain relief against such Second Lien Claimholder by injunction, specific performance and/or other appropriate equitable relief, it being understood and agreed by the Second Lien Collateral Agent on behalf of each Second Lien Claimholder that (i) the First Lien Claimholders’ damages from such actions may be difficult to ascertain and may be irreparable, and (ii) the Second Lien Collateral Agent on behalf of each Second Lien Claimholder waives any defense that any Borrower, any other Grantor and/or the First Lien Claimholders cannot demonstrate damage or be made whole by the awarding of damages.

ARTICLE IV

PAYMENTS

Section 4.01Application of Proceeds.  So long as the Discharge of First Lien Obligations has not occurred, any proceeds of Collateral received in connection with the sale or other disposition of such Collateral, or collection on such Collateral upon the exercise of remedies, shall be applied by the First Lien Collateral Agent to the First Lien Obligations in such order as specified in the relevant First Lien Loan Documents.  Upon the Discharge of the First Lien Obligations, the First Lien Collateral Agent shall deliver to the Second Lien Collateral Agent any proceeds of Collateral held by it in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct to be applied by the Second Lien Collateral Agent to the Second Lien Obligations in such order as specified in the relevant Second Lien Loan Documents.

Section 4.02Payments Over.  So long as the Discharge of First Lien Obligations has not occurred, any Collateral or proceeds thereof (together with assets or proceeds subject to Liens referred to in the final sentence of Section 2.05(b)) received by the Second Lien Collateral Agent or any Second Lien Claimholders in connection with the exercise of any right or remedy (including set-off) in respect of the Collateral shall be segregated and held in trust and forthwith paid over to the First Lien Collateral Agent for the benefit of the First Lien Claimholders in the same form as received, with any necessary endorsements or as a court of competent jurisdiction may otherwise direct.  The First Lien Collateral Agent is hereby authorized to make any such endorsements as agent for the Second Lien Collateral Agent or any such Second Lien Claimholders.  This authorization is coupled with an interest and is irrevocable until such time as this Agreement is terminated in accordance with its terms.

18

ARTICLE V

OTHER AGREEMENTS

Section 5.01Releases.

(a)If, in connection with:

(i)the exercise of any First Lien Collateral Agent’s remedies in respect of the Collateral, including any sale, lease, exchange, transfer or other disposition of any such Collateral (an “Exercise of Remedies”); or

(ii)any sale, lease, exchange, transfer or other disposition of any Collateral permitted under the terms of the First Lien Loan Documents (whether or not an event of default thereunder, and as defined therein, has occurred and is continuing) (a “Disposition”); or

(iii)any release of Liens on the assets of any Grantor, all of the Equity Interests of which is being released pursuant to any other provision of this Section 5.01(a);

the First Lien Collateral Agent (on behalf of itself or any of the First Lien Claimholders) releases any of its Liens on any part of the Collateral, or releases any Grantor from its obligations under its guaranty of the First Lien Obligations, in each case other than in connection with the Discharge of the First Lien Obligations, then the Liens, if any, of the Second Lien Collateral Agent, for itself or for the benefit of the Second Lien Claimholders, on such Collateral, and the obligations of such Grantor under its guaranty of the Second Lien Obligations, shall be automatically, unconditionally and simultaneously released (the “Second Lien Release”) and the Second Lien Collateral Agent (on behalf of itself or any such Second Lien Claimholders) shall promptly execute and deliver to the First Lien Collateral Agent or such Grantor such termination statements, releases and other documents as the First Lien Collateral Agent or such Grantor may request to effectively confirm such release.

(b)Until the Discharge of First Lien Obligations occurs, the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) hereby irrevocably constitutes and appoints the First Lien Collateral Agent and any officer or agent of the First Lien Collateral Agent, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of the Second Lien Collateral Agent or such holder or in the First Lien Collateral Agent’s own name, from time to time in the First Lien Collateral Agent’s discretion, for the purpose of carrying out the terms of this Section 5.01, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary to accomplish the purposes of this Section 5.01, including any endorsements or other instruments of transfer or release.  This authorization is coupled with an interest and is irrevocable until such time as this Agreement is terminated in accordance with its terms.

(c)Until the Discharge of First Lien Obligations occurs, to the extent that the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) (i) has released any Lien on Collateral or any Grantor from its obligation under its guaranty and any such Liens or guaranty are later reinstated or (ii) obtains any new Liens or additional

19

guaranties from Grantors, then the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) shall be granted a Lien on any such Collateral and an additional guaranty, as the case may be, subject to the priorities set forth in Article II.

Section 5.02Insurance.  The First Lien Collateral Agent and the Second Lien Collateral Agent shall be named as additional insureds and the Control Agent shall be named as loss payee (on behalf of the First Lien Collateral Agent, the First Lien Claimholders, the Second Lien Collateral Agent and the Second Lien Claimholders) under any insurance policies maintained from time to time by any Grantor.  Until the date upon which the Discharge of First Lien Obligations shall have occurred, as between the First Lien Collateral Agent and the First Lien Claimholders, on the one hand, and the Second Lien Collateral Agent and the Second Lien Claimholders on the other, the First Lien Collateral Agent and the First Lien Claimholders shall have the sole and exclusive right (a) to adjust or settle any insurance policy or claim covering any Collateral in the event of any loss thereunder and (b) to approve any award granted in any condemnation or similar proceeding affecting any Collateral.  Until the date upon which the Discharge of First Lien Obligations shall have occurred, all proceeds of any such policy and any such award in respect of any Collateral that are payable to the First Lien Collateral Agent and the Second Lien Collateral Agent shall be paid to the First Lien Collateral Agent for the benefit of the First Lien Claimholders to the extent required under the First Lien Loan Documents and thereafter to the Second Lien Collateral Agent for the benefit of the Second Lien Claimholders to the extent required under the applicable Second Lien Loan Documents and then to the owner of the subject property or as a court of competent jurisdiction may otherwise direct.  If the Second Lien Collateral Agent or any Second Lien Claimholder shall, at any time, receive any proceeds of any such insurance policy or any such award in contravention of this Agreement, it shall pay such proceeds over to the First Lien Collateral Agent in accordance with the terms of Section 4.02.

Section 5.03Amendments to First Lien Loan Documents and Second Lien Loan Documents.

(a)The First Lien Loan Documents may be amended, supplemented or otherwise modified in accordance with their terms and the First Lien Credit Agreement may be Refinanced, in each case without the consent of the Second Lien Collateral Agent or the Second Lien Claimholders; provided, however, that the holders of such Refinancing debt shall bind themselves in writing to the terms of this Agreement and any such amendment, supplement, modification or Refinancing shall not (i) provide for a principal amount of, without duplication, term loans, revolving loan commitments and letter of credit facilities (but excluding hedging and cash management obligations) in excess of the Maximum First Lien Indebtedness, (ii) increase the “Applicable Rate” or similar component of the interest rate or yield provisions applicable to the First Lien Obligations by more than 2.0% (excluding increases (A) resulting from application of the pricing grid set forth in the First Lien Credit Agreement as in effect on the date hereof or (B) resulting from the accrual of interest at the Default Rate (as such term is defined in the First Lien Credit Agreement as in effect on the date hereof)), (iii) extend the scheduled maturity date of the First Lien Obligations or any Refinancing thereof beyond the scheduled maturity date of the Second Lien Credit Agreement or any Refinancing thereof or (iv) contravene the provisions of this Agreement; provided, however that the

20

extension by the First Lien Collateral Agent and/or or the First Lien Claimholders of any DIP Financing pursuant to Section 6.01 shall not be deemed to contravene this Agreement in any way which would require the consent of the Second Lien Collateral Agent or any Second Lien Claimholder.

(b)Without the prior written consent of the First Lien Collateral Agent, no Second Lien Loan Document may be amended, supplemented or otherwise modified or entered into; provided that the Second Lien Loan Documents may be amended in a manner that (i) extends the date or reduces the amount of any required repayment, prepayment or redemption of the principal of such Indebtedness under the Second Lien Credit Agreement, (ii) reduces the rate or extends the date for payment of the interest, premium (if any) or fees payable on the Second Lien Obligations, (iii) makes the covenants, events of default or remedies relating to Second Lien Obligations less restrictive on any Grantor, or (iv) increase the “Applicable Rate” or similar component of the interest rate or yield provisions applicable to the Second Lien Obligations by not more than 2.0% (excluding increases resulting from the accrual of interest at the Default Rate (as such term is defined in the Second Lien Credit Agreement as in effect on the date hereof)).

(c)Notwithstanding the foregoing clause (a) and (b) of this Section 5.03, until the date upon which the Discharge of First Lien Obligations shall have occurred, without the prior written consent of the First Lien Collateral Agent, no Second Lien Collateral Document may be amended, supplemented or otherwise modified or entered into to the extent such amendment, supplement or modification, or the terms of any new Second Lien Credit Agreement or Second Lien Collateral Document, would contravene any of the terms of this Agreement.  The Second Lien Collateral Agent agrees that each Second Lien Collateral Document shall include the following language or language substantially similar:

“Notwithstanding anything contained herein to the contrary, the lien and security interest granted to the Administrative Agent, for the benefit of the Lenders, pursuant to this Agreement, and the exercise of any right or remedy by the Administrative Agent, for the benefit of the Lenders, under this Agreement, are subject to the provisions of the Intercreditor Agreement, dated as of August 8, 2007 as the same may be amended, restated, supplemented, modified or replaced from time to time (the “Intercreditor Agreement”) by and among Bank of America, N.A., as First Lien Administrative Agent, Bank of America, N.A., as Second Lien Administrative Agent, Bank of America, N.A., as Control Agent and the Grantors (as defined therein) from time to time a party thereto.  In the event of any conflict between the terms of the Intercreditor Agreement and this Agreement, the terms of the Intercreditor Agreement shall govern and control.”

In addition, the Second Lien Collateral Agent agrees that each Second Lien Collateral Document under which any Lien on real property owned by any Grantor is granted to secure the Second Lien Obligations covering any Collateral shall contain such other language as the First Lien Collateral Agent may reasonably request to reflect the

21

priority of the First Lien Collateral Document covering such Collateral over such Second Lien Collateral Document.

(d)Notwithstanding the foregoing clauses (a) and (b) of this Section 5.03, until the date upon which the Discharge of First Lien Obligations shall have occurred, in the event the First Lien Collateral Agent or the First Lien Claimholders enter into any amendment, waiver or consent in respect of any of the First Lien Collateral Documents for the purpose of adding to, or deleting from, or waiving or consenting to any departures from any provisions of any First Lien Collateral Document or changing in any manner the rights of the First Lien Collateral Agent, the First Lien Claimholders, or the Grantors thereunder, then such amendment, waiver or consent shall automatically apply in a comparable manner to any comparable provision of the Second Lien Collateral Documents without the consent of the Second Lien Collateral Agent or the Second Lien Claimholders and without any action by the Second Lien Collateral Agent or any Grantor; provided, however, (i) that no such amendment, waiver or consent shall be effective to (A) release any Lien of the Second Lien Collateral Documents, (B) remove assets subject to the Lien of the Second Lien Collateral Documents, (C) adversely affect the perfection or priority of any such Lien, except, in each case, to the extent that a release of, or adverse effect on the perfection or priority of, such Lien is permitted by Section 5.01 or Article VI, (D) reduce the principal of, or interest or other amounts payable on, any amount payable under the Second Lien Credit Agreement or any Second Lien Loan Document, (E) postpone any date fixed for any payment of principal of, or interest or other amounts payable on, any amounts payable under the Second Lien Credit Agreement or any Second Lien Loan Document, (F) permit any Liens on the Collateral not permitted under the Second Lien Loan Documents or Article VI, or (G) impose duties on the Second Lien Collateral Agent, in each case without the consent of the Second Lien Collateral Agent and (ii) notice of such amendment, waiver or consent shall have been given to the Second Lien Collateral Agent no later than 10 days after its effectiveness (provided that the failure to give such notice shall not affect the effectiveness or validity thereof) provided further that this paragraph is intended solely to set forth provisions by which the Second Lien Collateral Documents shall be automatically affected by amendments, waivers and consents given by the First Lien Collateral Agent and First Lien Claimholders under the First Lien Credit Agreement and the First Lien Collateral Documents and is not intended to impose any liability on the First Lien Collateral Agent or First Lien Claimholders.

Section 5.04Rights As Unsecured Creditors.  The Second Lien Collateral Agent and the Second Lien Claimholders may exercise rights and remedies as unsecured creditors against any Grantor in accordance with the terms of the Second Lien Loan Documents and applicable law.  Except as otherwise set forth in Section 2.01, nothing in this Agreement shall prohibit the receipt by the Second Lien Collateral Agent or any Second Lien Claimholders of the required payments of interest and principal so long as such receipt is not the direct or indirect result of the exercise by the Second Lien Collateral Agent or any Second Lien Claimholders of rights or remedies as a secured creditor (including set-off or recoupment) or enforcement of any Lien held by any of them.  Nothing in this Agreement impairs or otherwise adversely affects any rights or remedies the First Lien Collateral Agent or the First Lien Claimholders may have with respect to the Collateral, including, without limitation, rights under Section 4.02.  In the event

22

that any Second Lien Claimholder becomes a judgment Lien creditor as a result of its enforcement of its rights as an unsecured creditor, such judgment Lien shall be subject to the terms of this Agreement for all purposes (including in relation to the Liens securing the First Lien Obligations) to the same extent as all other Liens securing the Second Lien Obligations (created pursuant to the Second Lien Collateral Documents) subject to this Agreement.

Section 5.05Control Agent for Perfection.

(a)The First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) each hereby appoint Bank of America, N.A., as its collateral agent (in such capacity, together with any successor in such capacity appointed by the First Lien Collateral Agent and the Second Lien Collateral Agent, the “Control Agent”) for the limited purpose of acting as the agent on behalf of the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) with respect to the Control Collateral for purposes perfecting the Liens of such parties on the Control Collateral.  The Control Agent accepts such appointment and agrees to hold the Control Collateral in its possession or control (or in the possession or control of its agents or bailees) as Control Agent for the benefit of the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) and any permitted assignee of any thereof solely for the purpose of perfecting the security interest granted to such parties in such Control Collateral, subject to the terms and conditions of this Section 5.05.  The First Lien Collateral Agent and the Second Lien Collateral Agent hereby acknowledge that the Control Agent will obtain “control” under the UCC over each Controlled Account as contemplated by the First Lien Collateral Documents and the Second Lien Collateral Documents for the benefit of both the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) pursuant to the control agreements relating to each respective Controlled Account.

(b)The Control Agent, the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders), and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) each hereby agrees that the First Lien Collateral Agent shall have the sole and exclusive right and authority to give instructions to, and otherwise direct, the Control Agent in respect of the Control Collateral or any control agreement with respect to any Control Collateral until the earlier of (i) the date upon which the Discharge of First Lien Obligations shall have occurred and (ii) the Second Lien Enforcement Date, and neither the Second Lien Collateral Agent nor any Second Lien Claimholder will impede, hinder, delay or interfere with the exercise of such rights by the First Lien Collateral Agent in any respect.  The Grantors hereby jointly and severally agree to pay, reimburse, indemnify and hold harmless the Control Agent to the same extent and on the same terms that the Grantors are required to do so for the First Lien Collateral Agent in accordance with the First Lien Credit Agreement.  The First Lien Claimholders and the Second Lien Claimholders hereby jointly and severally agree to pay, reimburse, indemnify and hold harmless the Control Agent to the same extent and

23

on the same terms that the First Lien Claimholders are required to do so for the First Lien Collateral Agent in accordance with the First Lien Credit Agreement and the Second Lien Claimholders are required to do so for the Second Lien Collateral Agent in accordance with the Second Lien Credit Agreement.

(c)The provisions of Article IX of the First Lien Credit Agreement and Article IX of the Second Lien Credit Agreement shall inure to the benefit of the Control Agent in respect of this Agreement, the First Lien Collateral Documents and the Second Lien Collateral Documents and shall be binding upon all Grantors, all First Lien Claimholders and all Second Lien Claimholders and upon the parties hereto in such respect.  In furtherance and not in derogation of the rights, privileges and immunities of the Control Agent therein set forth:

(i)The Control Agent is authorized to take all such actions as are provided to be taken by it as Control Agent hereunder, under any First Lien Collateral Document, under any Second Lien Collateral Document or as instructed by the First Lien Collateral Agent or the Second Lien Collateral Agent as provided herein, in each case together with all other actions reasonably incidental thereto.  As to any matters not expressly provided for herein (including, without limitation, the timing and methods of realization upon the Collateral) or in one or more of the First Lien Collateral Documents or Second Lien Collateral Documents, the Control Agent shall act or refrain from acting in accordance with written instructions from the First Lien Collateral Agent or the Second Lien Collateral Agent, as applicable, or, in the absence of such instructions or provisions, in accordance with its reasonable discretion.

(ii)The Control Agent shall not be responsible for the existence, genuineness or value of any of the Collateral or for the validity, perfection, priority or enforceability of any Lien created under and First Lien Collateral Document or Second Lien Collateral Document in any of the Collateral, whether impaired by operation of law or by reason of any action or omission to act on its part hereunder unless such action or omission constitutes gross negligence or willful misconduct.  The Control Agent shall not have a duty to ascertain or inquire as to the performance or observance of any of the terms of this Agreement, any First Lien Collateral Document or any Second Lien Collateral Document by any Grantor.  This Agreement shall not subject the Control Agent to any obligation or liability except as expressly set forth herein.  In particular, the Control Agent shall have no duty to investigate whether the obligations of any Grantor to the First Lien Collateral Agent or the Second Lien Collateral Agent or any other First Lien Claimholder or Second Lien Claimholder are in default or whether the First Lien Collateral Agent or the Second Lien Collateral Agent is entitled under the First Lien Collateral Documents or the Second Lien Collateral Documents, as applicable, or otherwise to give any instructions or notice of exclusive control.  The Control Agent is fully entitled to rely upon such instructions as it believes in good faith to have originated from the First Lien Collateral Agent or the Second Lien Collateral Agent, as applicable.

24

(d)Except as set forth below, the Control Agent shall have no obligation whatsoever to the First Lien Collateral Agent, the Second Lien Collateral Agent or any First Lien Claimholder or any Second Lien Claimholder including, without limitation, any obligation to assure that the Control Collateral is genuine or owned by any Grantor or one of their respective Subsidiaries or to preserve rights or benefits of any Person except as expressly set forth in this Section 5.05.  In acting on behalf of the Second Lien Collateral Agent and the Second Lien Claimholders and the First Lien Collateral Agent and the First Lien Claimholders, the duties or responsibilities of the Control Agent under this Section 5.05 shall be limited solely (i) to physically holding the Control Collateral delivered to the Control Agent by any Grantor as agent for the First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) for purposes of perfecting the Lien held by the First Lien Collateral Agent and the Second Lien Collateral Agent, (ii) obtaining “control” under the UCC over each Controlled Account as contemplated by the First Lien Collateral Documents and the Second Lien Collateral Documents in accordance with Section 5.05(a), and (iii) delivering such collateral as set forth in Section 5.05(f) and 5.05(g). The rights of the Second Lien Collateral Agent shall at all times be subject to the terms of this Agreement and to the First Lien Collateral Agent’s rights under the First Lien Loan Documents.

(e)Neither the Control Agent nor the First Lien Collateral Agent shall have by reason of the Second Lien Loan Documents or this Agreement or any other document a fiduciary relationship in respect of the Second Lien Collateral Agent or any Second Lien Claimholder.

(f)Upon the Discharge of First Lien Obligations (other than in connection with a Refinancing of the First Lien Obligations), the Control Agent shall deliver to the Second Lien Collateral Agent the Control Collateral together with any necessary endorsements (or otherwise allow the Second Lien Collateral Agent to obtain control of such Control Collateral) or as a court of competent jurisdiction may otherwise direct and the Second Lien Collateral Agent shall accept and succeed to the role of the Control Agent as the agent for perfection on the Control Collateral.

(g)The Control Agent shall have an unfettered right to resign as Control Agent upon thirty (30) days notice to the First Lien Collateral Agent and the Second Lien Collateral Agent.  Upon the effective date of such resignation, the Control Agent shall deliver the Control Collateral to the successor Control Agent.  If upon the effective date of such resignation no successor Control Agent has been appointed by the First Lien Collateral Agent and the Second Lien Collateral Agent, the Control Agent shall deliver to the First Lien Collateral Agent the Control Collateral together with any necessary endorsements (or otherwise allow the First Lien Collateral Agent to obtain control of such Control Collateral) or as a court of competent jurisdiction may otherwise direct and the First Lien Collateral Agent shall accept and succeed to the role of the Control Agent as the agent for perfection on the Control Collateral.

Section 5.06When Discharge of First Lien Obligations Deemed to Not Have Occurred.  If at any time after the Discharge of First Lien Obligations has occurred, the

25

Borrowers (or either Borrower) thereafter enter into any Refinancing of any First Lien Loan Document evidencing a First Lien Obligation which Refinancing is permitted hereby and by the terms of the Second Lien Loan Documents, then such Discharge of First Lien Obligations shall automatically be deemed not to have occurred for all purposes of this Agreement (other than with respect to any actions taken prior to the date of such designation as a result of the occurrence of such first Discharge of First Lien Obligations), and the obligations under such Refinancing First Lien Loan Document shall automatically be treated as First Lien Obligations for all purposes of this Agreement, including for purposes of the Lien priorities and rights in respect of Collateral set forth herein, and the First Lien Collateral Agent under such First Lien Loan Documents shall be a First Lien Collateral Agent for all purposes of this Agreement.  Upon receipt of a notice stating that the Borrowers have (or either Borrower has) entered into a new First Lien Loan Document (which notice shall include the identity of the new collateral agent, such agent, the “New Agent”), the Second Lien Collateral Agent shall promptly (a) enter into such documents and agreements (including amendments or supplements to this Agreement) as the Borrowers or such New Agent shall reasonably request in order to provide to the New Agent the rights contemplated hereby, in each case consistent in all material respects with the terms of this Agreement and (b) deliver to the New Agent any Control Collateral held by it together with  any necessary endorsements (other otherwise allow the New Agent to obtain control of the Control Collateral).  If the new First Lien Obligations under the new First Lien Loan Documents are secured by assets of the Grantors of the type constituting Collateral that do not also secure the Second Lien Obligations, then the Second Lien Obligations shall be secured at such time by a Lien on such assets to the same extent provided in the Second Lien Collateral Documents.

Section 5.07Purchase Right.  Without prejudice to the enforcement of the First Lien Claimholders’ remedies, the First Lien Claimholders agree that at any time during the sixty (60) day period following (a) acceleration of the First Lien Obligations in accordance with the terms of the First Lien Credit Agreement or (b) the commencement of an Insolvency or Liquidation Proceeding (each, a “Purchase Event”), one or more of the Second Lien Claimholders may request, and the First Lien Claimholders hereby offer the Second Lien Claimholders the option, to purchase all, but not less than all, of the aggregate amount of outstanding First Lien Obligations outstanding at the time of purchase at par (including any applicable premium), without warranty or representation or recourse (except for representations and warranties required to be made by assigning lenders pursuant to the Assignment and Assumption (as such term is defined in the Initial First Lien Credit Agreement)).  If such right is exercised within the aforementioned sixty (60) day period, the parties shall endeavor to close promptly thereafter but in any event within ten (10) Business Days of the request.  If one or more of the Second Lien Claimholders exercise such purchase right, it shall be exercised pursuant to documentation mutually acceptable to each of the First Lien Collateral Agent and the Second Lien Collateral Agent.  If none of the Second Lien Claimholders exercise such right, the First Lien Claimholders shall have no further obligations pursuant to this Section 5.07 for such Purchase Event and may take any further actions in their sole discretion in accordance with the First Lien Loan Documents and this Agreement.

26

ARTICLE VI

INSOLVENCY OR LIQUIDATION PROCEEDINGS

Section 6.01Finance and Sale Issues.  Until the Discharge of First Lien Obligations has occurred, if any Borrower or any other Grantor shall be subject to any Insolvency or Liquidation Proceeding and the First Lien Collateral Agent shall desire to permit the use of cash collateral on which the First Lien Collateral Agent or any other creditor has a Lien or to permit any Borrower or any other Grantor to obtain financing, whether from the First Lien Claimholders or any other entity under Section 363 or Section 364 of the Bankruptcy Code or any similar Debtor Relief Law, which financing may include a Refinancing of the First Lien Obligations (each, a “DIP Financing”) in an aggregate outstanding principal amount, when combined with the outstanding amount of all First Lien Obligations, not to exceed the Maximum First Lien Indebtedness, then the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that (a) it will not (i) raise any objection to, or otherwise contest or interfere with, such use of cash collateral or DIP Financing, (ii) support any other Person objecting to, such sale, use, or lease of cash collateral or DIP Financing or (iii) request any form of adequate protection or any other relief in connection therewith (except as agreed by the First Lien Collateral Agent or to the extent expressly permitted by Section 6.03) and, to the extent the Liens securing the First Lien Obligations are subordinated to or pari passu with such DIP Financing, the Second Lien Collateral Agent will subordinate its Liens in the Collateral to (A) the Liens securing such DIP Financing (and all obligations relating thereto), (B) any adequate protection provided to the First Lien Claimholders and (C) any “carve-out” for professional and United States Trustee fees, claims of reclamation creditors or holders of claims under Section 503(b) of the Bankruptcy Code agreed to by the First Lien Collateral Agent; and (b) notice received two (2) calendar days prior to the entry of an order approving such usage of cash collateral or approving such DIP Financing shall be adequate notice; provided that the foregoing shall not prohibit the Second Lien Collateral Agent or the Second Lien Claimholders from objecting solely to any provisions in any DIP Financing relating to, describing or requiring any provision or content of a plan of reorganization other than provisions solely requiring that the DIP Financing be paid in full in cash.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that it will raise no objection to or oppose a sale or other disposition of any Collateral (and any post-petition assets subject to adequate protection liens in favor of  the First Lien Collateral Agent) free and clear of its Liens or other claims under Section 363 of the Bankruptcy Code if the Requisite Lenders under the First Lien Credit Agreement have consented to such sale or disposition of such assets so long as the respective interests of the Second Lien Claimholders attach to the proceeds thereof, subject to the terms of this Agreement.  If requested by the First Lien Collateral Agent in connection therewith, the Second Lien Collateral Agent shall affirmatively consent to such a sale or disposition.

Section 6.02Relief from the Automatic Stay.  Until the Discharge of First Lien Obligations has occurred, the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that none of them shall (a) seek relief from the automatic stay or any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral, without the prior written consent of the First Lien Collateral Agent and Requisite Lenders under the First Lien Collateral Agreement, or (b) oppose any request by the First Lien Collateral Agent or any

27

First Lien Claimholder to seek relief from the automatic stay or any other stay in any Insolvency or Liquidation Proceeding in respect of the Collateral.

Section 6.03Adequate Protection.

(a)The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that none of them shall contest (or support any other person contesting) (i) any request by the First Lien Collateral Agent or the First Lien Claimholders for adequate protection or (ii) any objection by the First Lien Collateral Agent or the First Lien Claimholders to any motion, relief, action or proceeding based on the First Lien Collateral Agent or the First Lien Claimholders claiming a lack of adequate protection.  In any Insolvency or Liquidation Proceeding, the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) may seek adequate protection in respect of the Second Lien Obligations, subject to the provisions of this Agreement, only if (x) the First Lien Claimholders (or any subset thereof) are granted adequate protection in the form of additional collateral including replacement liens on post-petition collateral, and (y) such additional protection is in the form of a Lien on such additional collateral, which Lien, if granted, will be subordinated to the adequate protection Liens securing the First Lien Obligations and the Liens securing any  DIP Financing (and all obligations relating thereto) on the same basis as the other Liens securing the Second Lien Obligations are so subordinated to the Liens securing the First Lien Obligations under this Agreement and the Liens securing any such DIP Financing.  In the event the Second Lien Collateral Agent (on behalf of itself or any of the Second Lien Claimholders) seeks or requests adequate protection in respect of Second Lien Obligations and such adequate protection is granted in the form of additional collateral, then the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that the First Lien Collateral Agent  shall also be granted a Lien on such additional collateral as security for the First Lien Obligations and for any DIP Financing and that any Lien on such additional collateral securing the Second Lien Obligations shall be subordinated to the Liens on such collateral securing the First Lien Obligations and any DIP Financing (and all obligations relating thereto) and to any other Liens granted to the First Lien Claimholders as adequate protection on the same basis as the other Liens securing the Second Lien Obligations are so subordinated to the Liens securing the First Lien Obligations under this Agreement and the Liens securing DIP Financing.

(b)Similarly, if the First Lien Claimholders (or any subset thereof) are granted adequate protection in the form of a superpriority claim, then the Second Lien Collateral Agent (on behalf of itself or any of the Second Lien Claimholders) may seek or request a superpriority claim, which superpriority claim will be junior in all respects to the superpriority claim granted to the First Lien Collateral Agent and the First Lien Claimholders, and, in the event that the Second Lien Collateral Agent (on behalf of itself or any of the Second Lien Claimholders) seeks or requests adequate protection in respect of Second Lien Obligations and such adequate protection is granted in the form of a superpriority claim, then the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that the First Lien Collateral Agent and the providers of any DIP Financing also shall be granted a superpriority claim, which superpriority

28

claim will be senior in all respects to the superpriority claim granted to the Second Lien Collateral Agent and the Second Lien Claimholders.

Section 6.04No Waiver.  Nothing contained herein shall prohibit or in any way limit the First Lien Collateral Agent or any First Lien Claimholder from objecting in any Insolvency or Liquidation Proceeding or otherwise to any action taken by the Second Lien Collateral Agent or any of the Second Lien Claimholders, including the seeking by the Second Lien Collateral Agent or any Second Lien Claimholders of adequate protection or the asserting by the Second Lien Collateral Agent or any Second Lien Claimholders of any of its rights and remedies under the Second Lien Loan Documents or otherwise; provided, however, that this Section 6.04 shall not limit the rights of the Second Lien Claimholders under the proviso in Section 3.01(a)(ii) or under Section 6.03 or Section 6.08.

Section 6.05Avoidance Issues.  If any First Lien Claimholder is required in any Insolvency or Liquidation Proceeding, or otherwise, to turn over or otherwise pay to the estate of any Borrower or any other Grantor any amount in respect of a First Lien Obligation (a “Recovery”), then such First Lien Claimholders shall be entitled to a reinstatement of First Lien Obligations with respect to all such recovered amounts.  If this Agreement shall have been terminated prior to such Recovery, this Agreement shall be reinstated in full force and effect, and such prior termination shall not diminish, release, discharge, impair or otherwise affect the obligations of the parties hereto from such date of reinstatement.   Collateral or proceeds thereof received by the Second Lien Collateral Agent or any Second Lien Claimholder after a Discharge of First Lien Obligations and prior to the reinstatement of such First Lien Obligations shall be delivered to the First Lien Collateral Agent upon such reinstatement in accordance with Section 4.02.

Section 6.06Separate Grants of Security and Separate Classification.  Each of the Grantors, the First Lien Claimholders and the Second Lien Claimholders acknowledges and agrees that (a) the grants of Liens pursuant to the First Lien Collateral Documents and the Second Lien Collateral Documents constitute two separate and distinct grants of Liens and (b) because of, among other things, their differing rights in the Collateral, the Second Lien Obligations are fundamentally different from the First Lien Obligations and must be separately classified in any plan of reorganization proposed or adopted in an Insolvency or Liquidation Proceeding.  To further effectuate the intent of the parties as provided in the immediately preceding sentence, if it is held that the claims of the First Lien Claimholders and Second Lien Claimholders in respect of the Collateral constitute only one secured claim (rather than separate classes of senior and junior secured claims), then the First Lien Claimholders shall be entitled to receive, in addition to amounts distributed to them from, or in respect of, the Collateral in respect of principal, pre-petition interest and other claims, all amounts owing (or that would be owing if there were such separate classes of senior and junior secured claims) in respect of post-petition interest, fees, costs, premium and other charges, irrespective of whether a claim for such amounts is allowed or allowable in such Insolvency or Liquidation Proceeding, before any distribution from, or in respect of, any Collateral is made in respect of the claims held by the Second Lien Claimholders, with the Second Lien Claimholders hereby acknowledging and agreeing to turn over to the First Lien Claimholders amounts otherwise received or receivable by them to the extent necessary to effectuate the intent of this sentence, even if such turnover has the effect of reducing the claim or recovery of the Second Lien Claimholders.

29

Section 6.07Reorganization Securities.  If, in any Insolvency or Liquidation Proceeding, debt obligations of the reorganized debtor secured by Liens upon any property of the reorganized debtor are distributed pursuant to a plan of reorganization or similar dispositive restructuring plan, both on account of First Lien Obligations and on account of Second Lien Obligations, then, to the extent the debt obligations distributed on account of the First Lien Obligations and on account of the Second Lien Obligations are secured by Liens upon the same property, the provisions of this Agreement will survive the distribution of such debt obligations pursuant to such plan and will apply with like effect to the Liens securing such debt obligations.

Section 6.08Post-Petition Claims.

(a)Neither the Second Lien Collateral Agent nor any other Second Lien Claimholder shall oppose or seek to challenge any claim by the First Lien Collateral Agent or any First Lien Claimholder for allowance in any Insolvency or Liquidation Proceeding of First Lien Obligations consisting of post-petition interest, fees, costs, charges or expenses to the extent of the value of the First Lien Collateral Agent’s Lien held for the benefit of the First Lien Claimholders, without regard to the existence of the Lien of the Second Lien Collateral Agent on behalf of the Second Lien Claimholders on the Collateral.

(b)Neither the First Lien Collateral Agent nor any other First Lien Claimholder shall oppose or seek to challenge any claim by the Second Lien Collateral Agent or any Second Lien Claimholder for allowance in any Insolvency or Liquidation Proceeding of Second Lien Obligations consisting of post-petition interest, fees, costs, charges or expenses to the extent of the value of the Lien of the Second Lien Collateral Agent on behalf of the Second Lien Claimholders on the Collateral (after taking into account the First Lien Obligations).

Section 6.09Waiver.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) waives any claim it or they may hereafter have against the First Lien Collateral Agent or any First Lien Claimholder arising out of the election of the First Lien Collateral Agent or any First Lien Claimholder of the application of Section 1111(b)(2) of the Bankruptcy Code, or out of any cash collateral or financing arrangement or out of any grant of a security interest in connection with the Collateral in any Insolvency or Liquidation Proceeding.

Section 6.10Expense Claims.  Neither the Second Lien Collateral Agent nor any Second Lien Claimholder will (a) contest the payment of fees, expenses or other amounts to the First Lien Collateral Agent or any First Lien Claimholder under Section 506(b) of the Bankruptcy Code or otherwise to the extent provided for in the First Lien Credit Agreement or (b) assert or enforce, at any time prior to the Discharge of First Lien Obligations, any claim under Section 506(c) of the Bankruptcy Code senior to or on parity with the First Lien Obligations for costs or expenses of preserving or disposing of any Collateral.

Section 6.11Other Matters.  To the extent that the Second Lien Collateral Agent or any Second Lien Claimholder has or acquires rights under Section 361, Section 363 or Section 364 of the Bankruptcy Code with respect to any of the Collateral, the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees not to assert any

30

of such rights without the prior written consent of the First Lien Collateral Agent; provided that if requested by the First Lien Collateral Agent, the Second Lien Collateral Agent shall timely exercise such rights in the manner requested by the First Lien Collateral Agent, including any rights to payments in respect of such rights.

Section 6.12Effectiveness in Insolvency or Liquidation Proceedings.  This Agreement, which the parties hereto expressly acknowledge is a “subordination agreement” under Section 510(a) of the Bankruptcy Code, shall be effective before, during and after the commencement of an Insolvency or Liquidation Proceeding.  All references in this Agreement to any Grantor shall include such Person as a debtor-in-possession and any receiver or trustee for such Person in any Insolvency or Liquidation Proceeding.

ARTICLE VII

RELIANCE; WAIVERS; ETC.

Section 7.01Non-Reliance.

(a)The consent by the First Lien Claimholders to the execution and delivery of the Second Lien Loan Documents and the grant to the Second Lien Collateral Agent on behalf of the Second Lien Claimholders of a Lien on the Collateral and all loans and other extensions of credit made or deemed made on and after the date hereof by the First Lien Claimholders to the Grantors shall be deemed to have been given and made in reliance upon this Agreement.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) acknowledges that it and the Second Lien Claimholders have, independently and without reliance on the First Lien Collateral Agent or any First Lien Claimholder, and based on documents and information deemed by them appropriate, made their own credit analysis and decision to enter into the Second Lien Credit Agreement, the other Second Lien Loan Documents, this Agreement and the transactions contemplated hereby and thereby and they will continue to make their own credit decision in taking or not taking any action under the Second Lien Credit Agreement, the other Second Lien Loan Documents or this Agreement.

(b)The consent by the Second Lien Claimholders to the execution and delivery of the First Lien Loan Documents and the grant to the First Lien Collateral Agent on behalf of the First Lien Claimholders of a Lien on the Collateral and all loans and other extensions of credit made or deemed made on and after the date hereof by the Second Lien Claimholders to the Grantors shall be deemed to have been given and made in reliance upon this Agreement.  The First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) acknowledges that it and the First Lien Claimholders have, independently and without reliance on the Second Lien Collateral Agent or any Second Lien Claimholder, and based on documents and information deemed by them appropriate, made their own credit analysis and decision to enter into the First Lien Credit Agreement, the other First Lien Loan Documents, this Agreement and the transactions contemplated hereby and thereby and they will continue to make their own credit decision in taking or not taking any action under the First Lien Credit Agreement, the other First Lien Loan Documents or this Agreement.

31

Section 7.02No Warranties or Liability.

(a)The First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) acknowledges and agrees that each of the Second Lien Collateral Agent and the Second Lien Claimholders have made no express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectibility or enforceability of any of the Second Lien Loan Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.  The Second Lien Claimholders will be entitled to manage and supervise their respective loans and extensions of credit under the Second Lien Loan Documents in accordance with law and as they may otherwise, in their sole discretion, deem appropriate.

(b)The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders), acknowledges and agrees that the First Lien Collateral Agent and the First Lien Claimholders have made no express or implied representation or warranty, including with respect to the execution, validity, legality, completeness, collectibility or enforceability of any of the First Lien Loan Documents, the ownership of any Collateral or the perfection or priority of any Liens thereon.  The First Lien Claimholders will be entitled to manage and supervise their respective loans and extensions of credit under their respective First Lien Loan Documents in accordance with law and as they may otherwise, in their sole discretion, deem appropriate.

(c)The Second Lien Collateral Agent and the Second Lien Claimholders shall have no duty to the First Lien Collateral Agent or any of the First Lien Claimholders, and the First Lien Collateral Agent and the First Lien Claimholders shall have no duty to the Second Lien Collateral Agent or any of the Second Lien Claimholders, to act or refrain from acting in a manner which allows, or results in, the occurrence or continuance of an event of default or default under any agreements with any Borrower or any other Grantor (including the First Lien Loan Documents and the Second Lien Loan Documents), regardless of any knowledge thereof which they may have or be charged with.

Section 7.03No Waiver of Lien Priorities.

(a)No right of the First Lien Claimholders, the Control Agent, the First Lien Collateral Agent or any of them to enforce any provision of this Agreement or any First Lien Loan Document shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of any Borrower or any other Grantor or by any act or failure to act by any First Lien Claimholder or the First Lien Collateral Agent, or by any noncompliance by any Person with the terms, provisions and covenants of this Agreement, any of the First Lien Loan Documents or any of the Second Lien Loan Documents, regardless of any knowledge thereof which the First Lien Collateral Agent or the First Lien Claimholders, or any of them, may have or be otherwise charged with.

(b)Without in any way limiting the generality of the foregoing paragraph (but subject to the rights of the Borrowers and the other Grantors under the First Lien Loan Documents and subject to the provisions of Section 5.03(a)), the First Lien Claimholders or the First Lien Collateral Agent may, at any time and from time to time in accordance

32

with the First Lien Loan Documents or applicable law, without the consent of, or notice to, the Second Lien Collateral Agent or any Second Lien Claimholders, without incurring any liabilities to the Second Lien Collateral Agent or any Second Lien Claimholders and without impairing or releasing the Lien priorities and other benefits provided in this Agreement (even if any right of subrogation or other right or remedy of the Second Lien Collateral Agent or any Second Lien Claimholders is affected, impaired or extinguished thereby) do any one or more of the following:

(i)make loans and advances to any Grantor or issue, guaranty or obtain letters of credit for account of any Grantor or otherwise extend credit to any Grantor, in any amount and on any terms, whether pursuant to a commitment or as a discretionary advance and whether or not any default or event of default or failure of condition is then continuing (subject, in each case, to the limits set forth in the definition of “First Lien Obligations” and Section 5.03);

(ii)change the manner, place or terms of payment or change or extend the time of payment of, or amend, renew, exchange, increase or alter, the terms of any of the First Lien Obligations or any Lien on any First Lien Collateral or guaranty thereof or any liability of any Borrower or any other Grantor, or any liability incurred directly or indirectly in respect thereof (including any increase in or extension of the First Lien Obligations, without any restriction as to the amount, tenor or terms of any such increase or extension, subject to the limits set forth in the definition of “First Lien Obligations”) or, subject to the provisions of this Agreement, otherwise amend, renew, exchange, extend, modify or supplement in any manner any Liens held by the First Lien Collateral Agent or any of the First Lien Claimholders, the First Lien Obligations or any of the First Lien Loan Documents;

(iii)subject to the provisions of this Agreement, sell, exchange, release, surrender, realize upon, enforce or otherwise deal with in any manner and in any order any part of the Collateral or any liability of any Borrower or any other Grantor to the First Lien Claimholders or the First Lien Collateral Agent, or any liability incurred directly or indirectly in respect thereof;

(iv)settle or compromise any First Lien Obligation or any other liability of any Borrower or any other Grantor or any security therefor or any liability incurred directly or indirectly in respect thereof and apply any sums by whomsoever paid and however realized to any liability (including the First Lien Obligations) in any manner or order;

(v)exercise or delay in or refrain from exercising any right or remedy against any Borrower or any security or any other Grantor or any other Person, elect any remedy and otherwise deal freely with any Borrower, any other Grantor or any First Lien Collateral and any security and any guarantor or any liability of any Borrower or any other Grantor to the First Lien Claimholders or any liability incurred directly or indirectly in respect thereof;

33

(vi)take or fail to take any Lien securing the First Lien Obligations or any other collateral security for any First Lien Obligations or take or fail to take any action which may be necessary or appropriate to ensure that any Lien securing First Lien Obligations or any other Lien upon any property is duly enforceable or perfected or entitled to priority as against any other Lien or to ensure that any proceeds of any property subject to any Lien are applied to the payment of any First Lien Obligation or any Obligation secured thereby; or

(vii)otherwise release, discharge or permit the lapse of any or all Liens securing the First Lien Obligations or any other Liens upon any property at any time securing any First Lien Obligations.

(c)The Second Lien Collateral Agent  (on behalf of itself and the Second Lien Claimholders) also agrees that the Control Agent, the First Lien Claimholders and the First Lien Collateral Agent shall have no liability to the Second Lien Collateral Agent or any Second Lien Claimholders, and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) hereby waives all claims against the Control Agent, any First Lien Claimholder and the First Lien Collateral Agent, arising out of any and all actions which the Control Agent, the First Lien Claimholders or the First Lien Collateral Agent may take or permit or omit to take with respect to:  (i) the First Lien Loan Documents, (ii) the collection of the First Lien Obligations or (iii) the foreclosure upon, or sale, liquidation or other disposition of, any Collateral (including, without limitation, the Control Collateral, as applicable).  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees that the First Lien Claimholders and the First Lien Collateral Agent have no duty to them in respect of the maintenance or preservation of the Collateral, the First Lien Obligations or otherwise.

(d)The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) agrees not to assert and hereby waives, to the fullest extent permitted by law, any right to demand, request, plead or otherwise assert or otherwise claim the benefit of, any marshalling, appraisal, valuation or other similar right that may otherwise be available under applicable law with respect to the Collateral or any other similar rights a junior secured creditor may have under applicable law.

Section 7.04Obligations Unconditional.  All rights, interests, agreements and obligations of the First Lien Collateral Agent and the First Lien Claimholders and the Second Lien Collateral Agent and the Second Lien Claimholders, respectively, hereunder shall remain in full force and effect irrespective of:

(a)any lack of validity or enforceability of any First Lien Loan Documents or any Second Lien Loan Documents or any setting aside or avoidance of any Lien;

(b)except as otherwise set forth in this Agreement, any change in the time, manner or place of payment of, or in any other terms of, all or any of the First Lien Obligations or Second Lien Obligations, or any amendment or waiver or other modification, including any increase in the amount thereof, whether by course of conduct

34

or otherwise, of the terms of any First Lien Loan Document or any Second Lien Loan Document;

(c)any exchange of any security interest in any Collateral or any other collateral, or any amendment, waiver or other modification, whether in writing or by course of conduct or otherwise, of all or any of the First Lien Obligations or Second Lien Obligations or any guarantee thereof;

(d)the commencement of any Insolvency or Liquidation Proceeding in respect of any Borrower or any other Grantor; or

(e)any other circumstances which otherwise might constitute a defense available to, or a discharge of, any Borrower or any other Grantor in respect of the First Lien Obligations, or of the Second Lien Collateral Agent or any Second Lien Claimholder in respect of this Agreement.

Section 7.05Certain Notices.

(a)Promptly upon the satisfaction of the conditions set forth in clauses (a) through (f) of the definition of Discharge of First Lien Obligations, the First Lien Collateral Agent shall deliver written notice confirming same to the Second Lien Collateral Agent provided that the failure to give any such notice shall not result in any liability of the First Lien Collateral Agent or the First Lien Claimholders hereunder or in the modification, alteration, impairment, or waiver of the rights of any party hereunder.

(b)Promptly upon (or as soon as practicable following) the commencement by the First Lien Collateral Agent of any enforcement action or the exercise of any remedy with respect to any Collateral (including by way of a public or private sale of Collateral), the First Lien Collateral Agent shall notify the Second Lien Collateral Agent of such action; provided that the failure to give any such notice shall not result in any liability of the First Lien Collateral Agent or the First Lien Claimholders hereunder or in the modification, alteration, impairment, or waiver of the rights of any party hereunder.

ARTICLE VIII

MISCELLANEOUS

Section 8.01Inconsistencies with Other Documents.  In the event of any conflict or inconsistency between this Agreement and any First Lien Loan Document or the Second Lien Loan Document, the terms of this Agreement shall control.  The parties hereto acknowledge that the terms of this Agreement are not intended to negate any specific rights granted to the Borrowers in the First Lien Loan Documents and the Second Lien Loan Documents.

Section 8.02Effectiveness; Continuing Nature of this Agreement; Severability.  This Agreement shall become effective when executed and delivered by the parties hereto.  This is a continuing agreement of lien subordination and the First Lien Claimholders may continue, at any time and without notice to the Second Lien Collateral Agent or any Second Lien

35

Claimholder subject to the Second Lien Loan Documents, to extend credit and other financial accommodations and lend monies to or for the benefit of the Borrowers or any Grantor constituting First Lien Obligations in reliance hereof.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders), hereby waives any right it may have under applicable law to revoke this Agreement or any of the provisions of this Agreement.  This Agreement shall survive, and shall continue in full force and effect, in any Insolvency or Liquidation Proceeding.  Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall not invalidate the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall as to such jurisdiction, be ineffective only to the extent of such prohibition or unenforceability without invalidating the remainder of such provision or the remaining provisions hereof or affecting the validity or enforceability of such provision in any other jurisdiction.  All references to any Borrower or any other Grantor shall include such Borrower or such Grantor as debtor and debtor-in-possession and any receiver or trustee for any Borrower or any other Grantor (as the case may be) in any Insolvency or Liquidation Proceeding.  This Agreement shall terminate and be of no further force and effect, (a) with respect to the Second Lien Collateral Agent, the Second Lien Claimholders and the Second Lien Obligations, upon the later of (i) the date upon which the obligations under the Second Lien Credit Agreement terminate and payment has been made in full in cash of all other Second Lien Obligations outstanding on such date and (ii) if there are other Second Lien Obligations outstanding on such date, the date upon which such Second Lien Obligations terminate and (b) with respect to the First Lien Collateral Agent, the First Lien Claimholders and the First Lien Obligations, the date of Discharge of First Lien Obligations, subject to the rights of the First Lien Claimholders under Section 5.06 and Section 6.05.

Section 8.03Amendments; Waivers.  No amendment, modification or waiver of any of the provisions of this Agreement by the Second Lien Collateral Agent or the First Lien Collateral Agent shall be deemed to be made unless the same shall be in writing signed on behalf of each party hereto or its authorized agent and each waiver, if any, shall be a waiver only with respect to the specific instance involved and shall in no way impair the rights of the parties making such waiver or the obligations of the other parties to such party in any other respect or at any other time.  Notwithstanding the foregoing, neither Borrower shall have any right to consent to or approve any amendment, modification or waiver of any provision of this Agreement except to the extent its rights or obligations are directly affected.

Section 8.04Information Concerning Financial Condition of the Borrowers and their Subsidiaries.

(a)The First Lien Collateral Agent and the First Lien Claimholders, on the one hand, and the Second Lien Claimholders and the Second Lien Collateral Agent, on the other hand, shall each be responsible for keeping themselves informed of (i) the financial condition of the Borrowers and their Subsidiaries and all endorsers and/or guarantors of the First Lien Obligations or the Second Lien Obligations and (ii) all other circumstances bearing upon the risk of nonpayment of the First Lien Obligations or the Second Lien Obligations.  The First Lien Collateral Agent and the First Lien Claimholders shall have no duty to advise the Second Lien Collateral Agent or any Second Lien Claimholder of information known to it or them regarding such condition or any such circumstances or otherwise.  In the event the First Lien Collateral Agent or any

36

of the First Lien Claimholders, in its or their sole discretion, undertakes at any time or from time to time to provide any such information to the Second Lien Collateral Agent or any Second Lien Claimholder, it or they shall be under no obligation (w) to make, and the First Lien Collateral Agent and the First Lien Claimholders shall not make, any express or implied representation or warranty, including with respect to the accuracy, completeness, truthfulness or validity of any such information so provided, (x) to provide any additional information or to provide any such information on any subsequent occasion, (y) to undertake any investigation or (z) to disclose any information which, pursuant to accepted or reasonable commercial finance practices, such party wishes to maintain confidential or is otherwise required to maintain confidential.

(b)The Grantors agree that any information provided to the First Lien Collateral Agent, the Second Lien Collateral Agent, the Control Agent, any First Lien Claimholder or any Second Lien Claimholder may be shared by such Person with any First Lien Claimholder, any Second Lien Claimholder, the Control Agent, the First Lien Collateral Agent or the Second Lien Collateral Agent notwithstanding a request or demand by such Grantor that such information be kept confidential.

Section 8.05Subrogation.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders), hereby waives any rights of subrogation it may acquire as a result of any payment hereunder until the Discharge of First Lien Obligations has occurred.

Section 8.06Application of Payments.  All payments received by the First Lien Collateral Agent or the First Lien Claimholders may be applied, reversed and reapplied, in whole or in part, to such part of the First Lien Obligations provided for in the First Lien Loan Documents.  The Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders), assents to any extension or postponement of the time of payment of the First Lien Obligations or any part thereof and to any other indulgence with respect thereto, to any substitution, exchange or release of any security which may at any time secure any part of the First Lien Obligations and to the addition or release of any other Person primarily or secondarily liable therefor.

Section 8.07SUBMISSION TO JURISDICTION.

(a)EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK SITTING IN THE BOROUGH OF MANHATTAN, NEW YORK AND OF THE UNITED STATES DISTRICT COURT SITTING IN THE SOUTHERN DISTRICT OF NEW YORK AND ANY APPELLATE COURT THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE COURTS OR, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, IN SUCH FEDERAL COURT.  EACH OF THE PARTIES HERETO AGREES THAT A FINAL JUDGMENT

37

IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.  NOTHING IN THIS AGREEMENT OR IN ANY OTHER FIRST LIEN LOAN DOCUMENT OR SECOND LIEN LOAN DOCUMENT SHALL AFFECT ANY RIGHT THAT THE FIRST LIEN COLLATERAL AGENT, THE SECOND LIEN COLLATERAL AGENT, ANY FIRST LIEN CLAIMHOLDER OR SECOND LIEN CLAIMHOLDER MAY OTHERWISE HAVE TO BRING ANY ACTION OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER FIRST LIEN LOAN DOCUMENT OR SECOND LIEN LOAN DOCUMENT AGAINST THE BORROWER OR ANY OTHER GRANTOR OR ITS PROPERTIES IN THE COURTS OF ANY JURISDICTION.

(b)EACH PARTY HERETO IRREVOCABLY AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY OBJECTION THAT IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY IN ANY COURT REFERRED TO IN PARAGRAPH (A) OF THIS SECTION.  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING IN ANY SUCH COURT.

(c)EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY).  EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PERSON HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PERSON WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.

Section 8.08California Judicial Reference.  If any action or proceeding is filed in a court of the State of California by or against any party hereto in connection with any of the transactions contemplated by this Agreement (a) the court shall, and is hereby directed to, make a general reference pursuant to California Code of Civil Procedure Section 638 to a referee (who shall be a single active or retired judge) to hear and determine all of the issues in such action or proceeding (whether of fact or of law) and to report a statement of decision, provided that at the option of any party to such proceeding, any such issues pertaining to a “provisional remedy” as defined in California Code of Civil Procedure Section 1281.8 shall be heard and determined by the court, and (b) the Borrowers shall be solely responsible to pay all fees and expenses of any referee appointed in such action or proceeding.

38

Section 8.09Notices.  Except as otherwise provided in this Agreement, all notices and communications hereunder shall be in writing (for purposes hereof, the term “writing” shall include information in electronic format such as electronic mail and internet web pages), or by telephone subsequently confirmed in writing.  Any notice shall be effective if delivered by hand delivery or sent via electronic mail, posting on an internet web page, telecopy, recognized overnight courier service or certified mail, return receipt requested, and shall be presumed to be received by a party hereto (i) on the date of delivery if delivered by hand or sent by electronic mail, posting on an internet web page, or by telecopy, (ii) on the next Business Day if sent by recognized overnight courier service and (iii) on the third (3rd) Business Day following the date sent by certified mail, return receipt requested.  A telephonic notice to the First Lien Collateral Agent, the Second Lien Collateral Agent or the Control Agent as understood by the First Lien Collateral Agent, the Second Lien Collateral Agent or the Control Agent will be deemed to be the controlling and proper notice in the event of a discrepancy with or failure to receive a confirming written notice.

Section 8.10Further Assurances.  The First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders), and the Borrowers agree that each of them shall take such further action and shall execute and deliver such additional documents and instruments (in recordable form, if requested) as the First Lien Collateral Agent or the Second Lien Collateral Agent may reasonably request to effectuate the terms of and the lien priorities contemplated by this Agreement.

Section 8.11APPLICABLE LAW.  THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

Section 8.12Binding on Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the First Lien Collateral Agent, the First Lien Claimholders, the Second Lien Collateral Agent, the Second Lien Claimholders, the Control Agent and their respective successors and assigns.

Section 8.13Specific Performance.  Each of the First Lien Collateral Agent and the Second Lien Collateral Agent may demand specific performance of this Agreement.  The First Lien Collateral Agent (on behalf of itself and the First Lien Claimholders) and the Second Lien Collateral Agent (on behalf of itself and the Second Lien Claimholders) hereby irrevocably waive any defense based on the adequacy of a remedy at law and any other defense which might be asserted to bar the remedy of specific performance in any action which may be brought by any First Lien Collateral Agent or the Second Lien Collateral Agent, as the case may be.

Section 8.14Titles and Captions.  Titles and Captions of Articles, Sections and Subsections in this Agreement are for convenience only, and neither limit nor amplify the provisions of this Agreement.

Section 8.15Counterparts; Integration.  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. 

39

This Agreement constitutes the entire contract among the parties relating to the subject matter hereof and supersedes any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.  Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement.

Section 8.16Authorization.  By its signature, each Person executing this Agreement on behalf of a party hereto represents and warrants to the other parties hereto that it is duly authorized to execute this Agreement.

Section 8.17No Third Party Beneficiaries.  Nothing in this Agreement express or implied shall be construed to confer upon any Person (other than the parties hereto and their respective successors and assigns permitted hereby) any legal or equitable right, remedy or claim under or by reason of this Agreement.

Section 8.18Provisions Solely to Define Relative Rights.  The provisions of this Agreement are and are intended solely for the purpose of defining the relative rights of the First Lien Claimholders on the one hand and the Second Lien Claimholders on the other hand.  Nothing in this Agreement is intended to or shall impair the rights of any Borrower or any other Grantor, or the obligations of any Borrower or any other Grantor, which are absolute and unconditional, to pay the First Lien Obligations and the Second Lien Obligations as and when the same shall become due and payable in accordance with their terms.

40

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

BANK OF AMERICA, N.A., as First Lien Collateral Agent
By:
	Name:
	Title:

Notice Address:

Agency Management

Mail Code:  WA1-501-32-37

800 Fifth Avenue, Floor 32

Seattle, WA 98104

Attention:Tiffany Shin

Telephone:  (206)358-0078

Telecopier:  (206)358-0971

Electronic Mail:  tiffany.shin@bankofamerica.com

BANK OF AMERICA, N.A., as Second Lien Collateral Agent
By:
	Name:
	Title:

Notice Address:

Agency Management

Mail Code:  WA1-501-32-37

800 Fifth Avenue, Floor 32

Seattle, WA 98104

Attention:Tiffany Shin

Telephone:  (206)358-0078

Telecopier:  (206)358-0971

Electronic Mail:  tiffany.shin@bankofamerica.com

BANK OF AMERICA, N.A., as Control Agent
By:
	Name:
	Title:

Notice Address:

Agency Management

Mail Code:  WA1-501-32-37

800 Fifth Avenue, Floor 32

Seattle, WA 98104

Attention:Tiffany Shin

Telephone:  (206)358-0078

Telecopier:  (206)358-0971

Electronic Mail:  tiffany.shin@bankofamerica.com

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

PROSPECT MEDICAL HOLDINGS, INC., as Borrower
By:
	Name:
	Title:

PROSPECT MEDICAL GROUP, INC., as Borrower
By:
	Name:
	Title:

Notice Address:

400 Corporate Pointe, Suite 525

Culver City, CA 90230

Attention:Jacob Y. Terner, M.D.

Telephone:  (310) 338-8677

Telecopier:  (714) 560-7361

Electronic Mail:

SIERRA MEDICAL MANAGEMENT, INC.
By:
	Name:
	Title:

PROSPECT MEDICAL SYSTEMS, INC.
By:
	Name:
	Title:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

PROSPECT HOSPITAL ADVISORY SERVICES, INC.
By:
	Name:
	Title:

PROSPECT ADVANTAGE NETWORK, INC.
By:
	Name:
	Title:

PROSPECT HOSPITALS SYSTEM, LLC
By:
	Name:
	Title:

ALTA HOLLYWOOD HOSPITALS, INC.
By:
	Name:
	Title:

ALTA LOS ANGELES HOSPITALS, INC.
By:
	Name:
	Title:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

PROMED HEALTH CARE ADMINISTRATORS
By:
	Name:
	Title:
PINNACLE  HEALTH RESOURCES
By:
	Name:
	Title:
PROSPECT PHYSICIAN ASSOCIATES, INC.
By:
	Name:
	Title:
PROSPECT HEALTH SOURCE MEDICAL GROUP, INC.
By:
	Name:
	Title:
PROSPECT PROFESSIONAL CARE MEDICAL GROUP, INC.
By:
	Name:
	Title:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

NUESTRA FAMILIA MEDICAL GROUP, INC.
By:
	Name:
	Title:
APAC MEDICAL GROUP, INC.
By:
	Name:
	Title:
PROSPECT NWOC MEDICAL GROUP, INC.
By:
	Name:
	Title:
SIERRA PRIMARY CARE MEDICAL GROUP, A MEDICAL CORPORATION
By:
	Name:
	Title:
STARCARE MEDICAL GROUP, INC.
By:
	Name:
	Title:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

PEGASUS MEDICAL GROUP, INC.
By:
	Name:
	Title:
ANTELOPE VALLEY MEDICAL ASSOCIATES, INC.
By:
	Name:
	Title:
SANTA ANA/TUSTIN PHYSICIANS GROUP, INC.
By:
	Name:
	Title:
PROMED HEALTH SERVICES COMPANY
By:
	Name:
	Title:
GENESIS HEALTHCARE OF SOUTHERN CALIFORNIA, INC., A MEDICAL GROUP
By:
	Name:
	Title:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

POMONA VALLEY MEDICAL GROUP, INC.
By:
	Name:
	Title:
UPLAND MEDICAL GROUP, A PROFESSIONAL MEDICAL CORPORATION
By:
	Name:
	Title:

Notice Address:

[Prospect Medical Holdings, Inc. Intercreditor Agreement]

EX-10.42

Exhibit 10.42

THIRD AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT

THIS THIRD AMENDED AND RESTATED ASSIGNABLE OPTION AGREEMENT (this “Agreement”) is effective as of the 8th of August, 2007, by and among Prospect Medical Systems, Inc., a Delaware corporation (“PMS”), Prospect Medical Group, Inc., a California professional corporation (“PMG”), and Jacob Y. Terner, M.D. (“Shareholder”), with reference to the following facts:

RECITALS

A.PMG owns and operates a professional corporation that is organized and operated as a medical group and an independent practice association (the “Practice”).

B.All of the issued and outstanding shares of PMG are owned by Shareholder.

C.Pursuant to the Assignable Option Agreement effective as of January 13, 2000,  among the parties hereto, as amended and restated by that Amended and Restated Assignable Option Agreement dated as of September 27, 2004 and by that Second Amended and Restated Assignable Option Agreement dated as of June 1, 2007 (collectively, the Prior Assignable Option Agreement”), PMG and Shareholder granted to PMS and PMS acquired from PMG and Shareholder an assignable option to purchase all of the assets of PMG and the right to designate the purchaser (“Successor Physician”) of all or part of the issued and outstanding stock in PMG.  When used in this Agreement, the term “Assets” shall mean all of PMG’s and Shareholder’s right, title, interest and estate in and to all the assets of every kind and description used in or pertaining to the Practice, including but not limited to the assets set forth on Exhibit A.  When used in this Agreement, the term “Stock” shall mean all of Shareholder’s right, title, interest and estate in and to all of the issued and outstanding stock in PMG, including any rights to any additional stock, preemptive rights, warrants, and the like, as set forth on Exhibit B.

D.PMS, PMG and Shareholder desire to enter into this Agreement to incorporate within the terms, conditions and provisions of one agreement all of the terms, conditions and provisions governing assignable options to purchase all of the Assets and the right to designate the Successor Physician of all or part of the issued and outstanding Stock and to amend and restate the terms, conditions and provisions set forth in the Prior Assignable Option Agreement.

NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged by the parties, PMS, PMG and Shareholder agree to amend and restate the Prior Assignable Option Agreement in its entirety to read as follows:

1.Grant of Option.

1.1PMG hereby grants to PMS an assignable option to purchase all or any part of the Assets (the “Assets Option”), on the terms and subject to the conditions set forth in this Agreement.

1.2PMG and Shareholder hereby grant to PMS, the assignable right to designate a Successor Physician or Successor Physicians, which person or persons must be duly licensed

physicians in the State of California or otherwise permitted by law to be a shareholder in a professional corporation, to purchase all or part of the Stock (the “Stock Option”), on the terms and subject to the conditions set forth herein.  In its sole discretion, PMS may designate the amount of Stock which is to be purchased.  The Assets Option and the Stock Option are collectively referred to herein as the “Option.”

1.3PMG and Shareholder represent and warrant that as of the day and year first above written and during the term of this Agreement, Exhibit A and Exhibit B are true and complete listings of the Assets and Stock, respectively, as revised from time to time pursuant to this Agreement.

1.4Except as set forth in (a) the First Lien Pledge Agreement dated as of August 8, 2007 by and among Shareholder, PMG, PMS, Prospect Medical Holdings, a Delaware corporation (“Holdings”) and Bank of America, N.A., as Administrative Agent and (b) the Second Lien Pledge Agreement dated as of August 8, 2007 by and among Shareholder, PMG, PMS, Holdings and Bank of America, N.A., as Administrative Agent (collectively, the “Pledge Agreements”), PMG shall not recognize any share transfer or other action not in compliance with the terms of this Agreement.  When used in this Agreement, the term “Applicable Management Company” shall mean (i) with respect to Sierra Primary Care Medical Group, A Medical Corporation, a California professional corporation (“Sierra Primary”), Pegasus Medical Group, Inc., a California professional corporation (“Pegasus”) or Antelope Valley Medical Associates, Inc., a California professional corporation (“Antelope”), Sierra Medical Management, Inc., a Delaware corporation (“SMM”) (ii) with respect to  PMG, Prospect Health Source Medical Group, Inc., a California professional corporation (“Prospect Health”), Prospect Professional Care Medical Group, Inc., a California professional corporation (“Prospect Professional”), Prospect NWOC Medical Group, Inc., a California professional corporation (“Prospect NWOC”), APAC Medical Group, Inc., a California professional corporation (“APAC”), StarCare Medical Group, Inc., a California professional corporation (“StarCare”), Genesis Healthcare of Southern California, Inc., a Medical Group, a California professional corporation (“Genesis”), Nuestra Familia Medical Group, Inc., a California professional corporation (“Nuestra”) or Santa Ana/Tustin Physicians Group, Inc., a California professional corporation (“Santa Ana/Tustin”), PMS (iii) with respect to Pomona Valley Medical Group, Inc., a California professional corporation (“Pomona Valley”) and Upland Medical Group, A Professional Medical Corporation, a California professional corporation, ProMed Health Care Administrators, a California corporation (“PHCA”).

PMS, SMM and PHCA are each a “Management Company” and collectively, the “Management Companies”). Prospect Hospital Advisory Services, Inc., a Delaware corporation (“PHA”), Prospect Advantage Network, Inc., a California corporation (“PAN”) and ProMed Health Services Company, a California corporation (“PHS”), and together with PHA and PAN, each a “Non-Management Subsidiary” and collectively, the “Non-Management Subsidiaries”. PMG, Sierra Primary, Santa Ana/Tustin, Pegasus, Antelope, Nuestra, Prospect Health, Prospect Professional, Prospect NWOC, APAC, StarCare, Genesis, Prospect Physician, Pomona Valley, and Upland are each a “Professional Corporation” and collectively, the “Professional Corporations”).

2

2.Term of Agreement. The term of this Agreement commences as of the day and year first above written and continues for thirty (30) years (“Term”).  So long as the term of that certain  Amended and Restated Management Services Agreement, made and entered into as of June 4, 1996, by and between PMS and PMG (as amended, supplemented, restated or otherwise modified from time to time, the “Management Services Agreement”) is automatically extended pursuant thereto, the term of this Agreement shall be automatically extended for additional coextensive terms of ten (10) years each.  In the event that the Management Services Agreement is terminated pursuant to its terms, this Agreement shall terminate upon the effective date of termination of said Management Services Agreement.

3.Option Price. The purchase price for the Option (the “Option Price”) is One Hundred Dollars ($100) and PMG and Shareholder acknowledge receipt of such payment.

4.Exercise of Option.  Subject to applicable Law:

4.1During the Term of this Agreement, PMS may elect to exercise the Option at any time.  In the event of an election by PMS to exercise the Option, PMS may exercise either the Assets Option or the Stock Option, or both, at PMS’s sole discretion.

4.2Notwithstanding the provisions of Section 4.1 above, if the Management Services Agreement is terminated by either PMG or PMS, for any reason, PMS’s right to exercise the Option is automatically and immediately exercised as of the termination date of the Management Services Agreement such that PMS may exercise either the Assets Option or the Stock Option, or both, at such time.

4.3To the extent that the Assets Option is exercised by PMS, PMS will send PMG a written notice (the “Assets Exercise Notice”) specifying the Assets to be purchased.  PMS may exercise the Assets Option as many times as PMS elects in its sole discretion.

4.4To the extent that the Stock Option is exercised by PMS, PMS will send PMG a written notice (the “Stock Exercise Notice”) specifying the Stock to be purchased.  PMS may designate the Successor Physician(s) who will exercise the Stock Option as many times as PMS elects in its sole discretion.

4.5The Assets Option and the Stock Option are independent of each other, and can be exercised at different times during the Term.

4.6PMS may cancel any Assets Exercise Notice or Stock Exercise Notice at any time.

4.7PMG and Shareholder shall cooperate with PMS in any due diligence, and PMG and Shareholder shall cause each other Professional Corporation and PC Shareholder to cooperate with PMS or any Applicable Management Company in any due diligence.

4.8PMG and Shareholder shall execute and deliver such agreements, documents and instruments at Closing (as defined below) as PMS may request evidencing or relating to the purchase of Assets or Stock, as the case may be, each in form and substance satisfactory to PMS,

3

including without limitation, the Non-Competition Agreement in the form of Exhibit C attached hereto.

5.Assignment of the Option.  PMS may elect to assign either the Assets Option or the Stock Option or both to any person, by a written assignment, signed by both PMS and the assignee, which designates the Assets and/or Stock.  The assignee shall agree as a condition of the assignment to be bound by the terms of this Agreement.  Thereafter, only the assignee named in the assignment shall have the right to exercise the applicable Assets Option and/or the Stock Option as to the designated Assets and/or Stock, and that assignee, rather than PMS, shall enter into a purchase agreement upon exercise of the Assets Option and/or the Stock Option, as applicable.  Written notice of any such assignment shall be given by PMS to PMG and Shareholder within a reasonable time period following execution of any assignment pursuant to this Agreement.  When the context so requires in this Agreement, the term “PMS” shall be deemed to refer to an assignee holding an assignment of an Asset Option or Stock Option, and the terms “party” and “parties” shall be deemed to include that assignee.

6.Purchase Price of the Assets or Stock.

6.1Purchase Price.

(a)Assets Purchase Price.  The purchase price for the Assets to be purchased pursuant to the exercise of the Assets Option shall be $1,000 plus an assumption of all liabilities and obligations of PMG, whether contingent, liquidated or disputed (“Assets Purchase Price”).  The purchase price of any partial purchase of the Assets shall be a pro-rata percentage of the full Assets Purchase Price.

(b)Stock Purchase Price.  The purchase price for the Stock to be purchased pursuant to the exercise of the Stock Option shall be $1,000 (“Stock Purchase Price”).  The purchase price of less than all of the issued and outstanding Stock is a pro-rata percentage of the full Stock Purchase Price.

6.2Payment. For the Assets, PMS shall pay to PMG the Assets Purchase Price at Closing (as defined below) in the form of immediately available funds transferred by wire to an account at a financial institution designated by PMG.  For the Stock, PMS shall cause the Successor Physician to pay the Shareholder the Stock Purchase Price.

6.3Closing.  The transactions contemplated by this Agreement are to close fifteen (15) days after the date of either the Assets Exercise Notice or the Stock Exercise Notice, as the case may be (“Closing”), unless extended by PMS.

7.Additional Obligations of PMG and Shareholder.

7.1Affirmative Covenants.  To the extent that PMG or Shareholder participate in the Practice and own, control, or use the Assets, PMG and Shareholder shall, and shall cause each other Professional Corporation and PC Shareholder to:

(a)Conduct of Practice.  Conduct PMG’s and each such other Professional Corporation’s business efficiently and without voluntary interruption and preserve all rights,

4

privileges, and franchises held by PMG and each such other Professional Corporation and by PMG’s Practice and the practice of each such other Professional Corporation, including the maintenance of all contracts, copyrights, trademarks, licenses, registrations, etc.;

(b)Use.  Make use of the Assets and the assets of each such other Professional Corporation with reasonable care to prevent diminution in value of the Practice and the practice of each such other Professional Corporation and the Assets and the assets of each such other Professional Corporation, and keep the Assets and the assets of each such other Professional Corporation in good repair;

(c)Value.  Perform all acts necessary to maintain, preserve, and protect the Assets and the assets of each such other Professional Corporation, and maintain fire and extended coverage insurance on the Assets in the amounts and under policies acceptable to PMS and the Applicable Management Companies, and provide PMS and the Applicable Management Companies with the original policies and certificates at PMS’s or the Applicable Management Company’s request;

(d)Financing Statements.  Execute and deliver to PMS and the Applicable Management Companies, all financing statements and other documents that PMS or any Applicable Management Company requests, in order to put third parties on notice of this Agreement;

(e)Access.  Permit PMS and each Applicable Management Company, its representatives, and its agents to inspect the Assets and the assets of the each other Professional Corporations at any time, and to make copies of records pertaining to the Assets and the assets of each other Professional Corporation, at reasonable times at the applicable Management Company’s request;

(f)Reports. Furnish PMS and the Applicable Management Companies any reports relating to the Assets and the assets of each other Professional Corporation at PMS’s or at the Applicable Management Company’s request;

(g)Defaults. Notify PMS and the Applicable Management Companies promptly in writing of any default, potential default, or any development that might have a material adverse effect on the Assets, the assets of each other Professional Corporation, the Stock or the equity interest in any other Professional Corporation, or the Practice or any practice of any other Professional Corporation, or of any litigation that may have a material adverse effect on the Practice or any practice of any other Professional Corporation;

(h)Expenses.  Pay all expenses, including attorneys’ fees, incurred by PMS in the perfection, preservation, realization, enforcement, and exercise of its rights under this Agreement, including but not limited to accounting, correspondence, collection efforts, filing, recording, and recordkeeping;

(i)Indemnity.  Indemnify PMS against losses, liabilities, or damages, costs and expenses of any and, including reasonable attorneys’ fees, caused to PMS by reason of its interest in the Assets and/or the Stock;

5

(j)Taxes.  Pay promptly when due all taxes and assessments owed in connection with the Assets and the assets of each other Professional Corporation and the Stock and the equity interest in each other Professional Corporation; and

(k)Delivery of Certificates.  Deliver to PMS, all certificates heretofore issued representing all of the shares of PMG’s capital stock held of record or beneficially owned by Shareholder, and each certificate hereafter issued representing any share of the PMG’s’ capital stock, with each certificate endorsed in blank for transfer.  Notwithstanding the foregoing, this Section 7.1(k) shall only apply in the event that the Pledge Agreements are no longer in effect.

7.2Negative Covenants.  Except as required under the Pledge Agreements or under the First Lien Credit Agreement, dated as of the date hereof (as amended, supplemented, restated or modified from time to time, the “First Lien Credit Agreement”), among Holdings, PMG, Bank of America, N.A., as First Lien Administrative Agent, and the Lenders party thereto, and the Second Lien Credit Agreement, dated as of the date hereof (as amended, supplemented, restated or modified from time to time, the “Second Lien Credit Agreement” and together with the First Lien Credit Agreement, the “Credit Agreements”) among Holdings, PMG, Bank of America, N.A., as Second Lien Administrative Agent, and the Lenders party thereto, and the other loan documents executed in connection with the Credit Agreements, without the prior written consent of PMS or the Applicable Management Companies, PMG and Shareholder shall not (and shall not permit any other Professional Corporation or Successor Physician to):

(a)Transfer.  Sell, lease, transfer, or otherwise dispose of the Assets or the assets of any other Professional Corporation or Stock or the equity interest in any other Professional Corporation;

(b)Debt.  Incur, guarantee, assume or otherwise become liable for any borrowing or increase any existing indebtedness; or discharge or cancel any debt owed to PMG or any other Professional Corporation;

(c)No Further Hypothecation.  Except as contemplated by the Credit Agreements and related loan documents, pledge, hypothecate, encumber, redeem or dispose of the Assets or any of the assets of any other Professional Corporation, the Stock or any interest therein, or any equity interest in any other Professional Corporation or an interest therein until all of PMG’s obligations under this Agreement have been fully satisfied or the Assets or the Stock has been released;

(d)Location.  Move the Assets from their present locations without the prior written consent of the PMS;

(e)Use.  Use the Assets, or the assets of other Professional Corporations, or the Stock, or any equity interest in any other Professional Corporations, for any unlawful purpose or in any way that would void any effective insurance;

(f)Name and Location Changes.  Change the name or place of business or use a fictitious business name without the prior express consent of PMS; and

6

(g)Issuance of Stock; Change in Ownership; Mergers and Consolidation.  Permit any issuance of Stock, any equity interest in any other Professional Corporation, other equity, or debt; permit any change in the composition or respective percentage ownership of PMG or any other Professional Corporation; permit PMG or any other Professional Corporation to be merged, consolidated or otherwise reorganized with or into any other corporation, partnership, trade, business, or the like; amend or otherwise modify its articles of incorporation and bylaws; dissolve; or enter into any agreement with any person to do any of the foregoing.

8.Confidentiality; Subordination.

8.1Confidentiality.  The parties shall use all good faith efforts to keep the contents of this Agreement and all other aspects of the negotiations preceding execution of this Agreement confidential.  Unless required by law, PMS, PMG and Shareholder shall not disclose the contents of this Agreement or the negotiations leading to this Agreement to third parties without the prior written consent of the other party.  PMS shall ensure that all of the assignees likewise comply with the obligations of confidentiality imposed by this Section, except that PMS and the assignees may disclose the contents of such to their respective agents, representatives, contractors, and employees to the extent necessary to exercise their respective rights or perform their respective obligations hereunder.

8.2Subordination.  Notwithstanding anything herein to the contrary, each of PMG, PMS and Holdings hereby subordinates all of its rights under this Agreement to the rights of the First Lien Administrative Agent and the Second Lien Administrative Agent under the Pledge Agreements until the indefeasible payment in full in cash of all Obligations (as such term is defined in each of the respective Credit Agreements) and termination of all commitments to lend under the First Lien Credit Agreement.

9.General.

9.1Compliance with Law.  PMG and Shareholder shall, and shall cause each other Professional Corporation to, comply with all applicable requirements of the Joint Commission on the Accreditation of Healthcare Organizations, the Medicare and Medicaid programs, applicable state law and regulations, and other licensing and accreditation authorities.

9.2Relationship of Parties.  In the exercise of their respective rights and the performance of their respective obligations under this Agreement, PMG and Shareholder, on the one hand, and PMS (or any assignee), on the other hand, are acting in the capacity of the grantor and grantee of an option to purchase all or a portion of the Assets and/or Stock, and nothing in this Agreement is intended nor shall be construed to create between the parties an employer/employee relationship, a partnership or joint venture relationship or a landlord/tenant relationship.

9.3Assignment.  All of PMS’s rights and duties under this Agreement may be assigned or delegated by PMS or Holdings, including but not limited to an assignment to Bank of America, N.A., in its capacity as Administrative Agent and/or Control Agent under the Credit Agreements (subject to the terms of the Intercreditor Agreement as such term is defined in the Credit Agreements); provided, however, that PMS or Holdings, shall give written notice of any

7

such assignment to PMG and Shareholder within a reasonable time period.  Notwithstanding any other provision of this Agreement, neither this Agreement nor the rights and duties of this Agreement may be assigned or delegated by PMG or Shareholder.  This Agreement binds the successors, heirs, and authorized assignees of the parties.

9.4Entire Agreement.  Except as expressly provided in this Agreement and the Pledge Agreements to the contrary, this Agreement, including its incorporated exhibits, constitutes the entire agreement between the parties with respect to the Option, and supersedes all other and prior agreements on the same subject, whether written or oral and contains all of the covenants and agreements between the parties with respect to the subject matter hereof.  Except as expressly provided in this Agreement to the contrary, each party to this Agreement acknowledges that no representations, inducements, promises, or agreements, orally or otherwise, have been made by any other party hereto, or by anyone acting on behalf of any party hereto, that are not embodied herein, and that no agreement, statement, or promise not contained in this Agreement shall be valid or binding.  This Agreement amends and restates the Prior Assignable Option Agreement in its entirety.  The parties hereto acknowledge and agree that the rights and obligations under the Prior Assignable Option Agreement are in all respects continuing under this Agreement with only the terms being modified from and after the date hereof as provided in this Agreement.

9.5Counterparts.  This Agreement, and any amendments hereto, may be executed in counterparts, each of which shall constitute an original document, but which together shall constitute one and the same instrument.

9.6Headings.  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

9.7Notices.  Any notices required or permitted to be given hereunder by any party to another shall be in writing and shall be deemed delivered upon personal delivery, twenty-four (24) hours following deposit with a courier for overnight delivery or seventy two (72) hours following deposit in the U.S. Mail, registered or certified mail, postage prepaid, return-receipt requested, addressed to the parties at the following addresses or to such other addresses as the parties may specify in writing:

If to PMG
Or Shareholder:	c/o Prospect Medical Group, Inc.
	1920 East 17th Street, Suite 200
	Santa Ana, California
	Attention: Jacob Y. Terner, M.D.
If to PMS:
	c/o Prospect Medical Holdings, Inc.
	400 Corporate Pointe, Suite 525
	Culver City, California 90230
	Attention: Mike Heather, Chief Financial Officer

8

9.8Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of California.

9.9Amendment.  This Agreement may be amended at any time by agreement of the parties, provided that any amendment shall be in writing and executed by all parties.

9.10Severability.  If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remaining provisions will nevertheless continue in full force and effect, unless such invalidity or unenforceability would defeat an essential business purpose of this Agreement.

9.11Fees and Expenses.  PMS, PMG, and Shareholders each shall bear their own expenses, including, without limitation, attorneys’ and accountants’ fees, incurred in connection with the preparation of this Agreement and the transactions contemplated hereby.

9.12Exhibits and Schedules.  All exhibits and schedules attached to this Agreement are incorporated herein by this reference and all references herein to “Agreement” shall mean this Agreement together with all such exhibits and schedules.

9.13Time of Essence.  Time is expressly made of the essence of this Agreement and each and every provision hereof of which time of performance is a factor.

9.14Dispute Resolution.  In the event the parties hereto are unable to resolve any dispute in connection with this Agreement, the parties may mutually agree to arbitrate as set forth below.

(a)There shall be one arbitrator.  If the parties shall fail to select a mutually acceptable arbitrator within ten (10) days after the demand for arbitration is mailed, then the parties stipulate to arbitration before a retired judge sitting on the Los Angeles, California, Judicial Arbitration Mediation Services (JAMS) panel.

(b)The substantive law of the State of California shall be applied by the arbitrator.

(c)Arbitration shall take place in Los Angeles, California, unless the applicable Professional Corporation and a majority of the other parties otherwise agree.  As soon as reasonably practicable, a hearing with respect to the dispute or matter to be resolved shall be conducted by the arbitrator.  As soon as reasonably practicable thereafter, the arbitrator shall arrive at a final decision, which shall be reduced to writing, signed by the arbitrator and mailed to each of the parties and their legal counsel.

(d)All decisions of the arbitrator shall be final, binding and conclusive on the parties and shall constitute the only method of resolving disputes or matters subject to arbitration pursuant to this Agreement.  The arbitrator or a court of appropriate jurisdiction may issue a writ of execution to enforce the arbitrator’s judgment. Judgment may be entered upon such a decision in accordance with applicable law in any court having jurisdiction thereof.

9

(e)Notwithstanding the foregoing, because time is of the essence of this Agreement, the parties specifically reserve the right to seek a judicial temporary restraining order, preliminary injunction, or other similar short term equitable relief, and grant the arbitrator the right to make a final determination of the parties’ rights, including whether to make permanent or dissolve such court order.

(f)Notwithstanding the foregoing, any and all arbitration proceedings are conditional upon such proceedings being covered within the parties’ respective risk insurance policies.

9.15Attorneys’ Fees.  Should any of the parties hereto institute any action or procedure to enforce this Agreement or any provision hereof (including without limitation, arbitration), or for damages by reason of any alleged breach of this Agreement or of any provision hereof, or for a declaration of rights hereunder (including, without limitation, by means of arbitration), the prevailing party in any such action or proceeding shall be entitled to receive from the other party all costs and expenses, including without limitation reasonable attorneys’ fees, incurred by the prevailing party in connection with such action or proceeding.

9.16Further Assurances.  The parties shall take such actions and execute and deliver such further documentation as may reasonably be required in order to give effect to the transactions contemplated by this Agreement and the intentions of the parties hereto.

9.17Rights Cumulative.  The various rights and remedies herein granted to the respective parties hereto shall be cumulative and in addition to any other rights any such party may be entitled to under law.  The exercise of one or more rights or remedies by a party shall not impair the right of such party to exercise any other right or remedy, at law or equity.

9.18Spousal Consent.   Shareholder shall cause his spouse to execute a Spousal Joinder and Consent, substantially in the form of Exhibit A attached hereto, signifying such spouse’s consent to this Agreement and such spouse’s agreement that any rights that such spouse may have, as a result of a community property or other interest in the Stock, shall be subject to the provisions of this Agreement.  It is intended by this Agreement that Shareholder shall subject his entire interest in the Stock to the terms of this Agreement, irrespective of any community property or other interest of his spouse.

<The remainder of the page is intentionally blank.>

10

IN WITNESS WHEREOF, PMS, PMG and Shareholder execute this Agreement by their duly authorized representatives as set forth below.

“PMS”			“PMG”
PROSPECT MEDICAL SYSTEMS, INC., a Delaware corporation			PROSPECT MEDICAL GROUP, INC., a California professional corporation
By:			By:
Name:		Mike Heather	Name:		Jacob Y. Terner, M.D.
Title:	Chief Financial Officer		Title:	Chief Executive Officer
			“SHAREHOLDER”
			JACOB Y. TERNER
			Jacob Y. Terner, individually

[Signature Page to the Third Amended and Restated

Assignable Option Agreement]

SPOUSAL JOINDER AND CONSENT

I am the spouse of Jacob Y. Terner, M.D., a shareholder (the “Shareholder”) of Prospect Medical Group, Inc., a California professional medical corporation (“PMG”).  To the extent that I have any interest in any of the Assets (as that term is defined in the Third Amended and Restated Assignable Option Agreement (the “Assignable Option Agreement”), entered into as of this date, by and among Shareholder, PMG and Prospect Medical Systems, Inc., a Delaware corporation (“PMS”), I hereby join in the Assignable Option Agreement and agree to be bound by its terms and conditions to the same extent as my spouse.  I have read the Assignable Option Agreement, understand its terms and conditions, and to the extent that I have felt it necessary, have retained independent legal counsel to advise me concerning the legal effect of the Assignable Option Agreement and this Spousal Joinder and Consent.

I understand and acknowledge that PMS is significantly relying on the validity and accuracy of this Spousal Joinder and Consent in entering into the Assignable Option Agreement.

Executed this          day of August, 2007.

Signature:

Printed or Typed Name: Sandra W. Terner

[Signature Page to the Spousal Joinder and Consent to the  Amended and Restated

Assignable Option Agreement]

EXHIBIT A

ASSETS

1.All contracts and agreements, including all payor contracts, vendor contracts, loan agreements, leases and subleases.

2.All risk pool or other incentive arrangement payments relating to the Practice, including hospital incentive funds, and any capitation advances to physicians.

3.All cash, bank balances, monies in possession of any bank, other cash items, marketable securities of PMG and prepaid deposits relating to the Practice.

4.All accounts receivable of PMG (“Accounts Receivable”) relating to the Practice.  As used herein, “Accounts Receivable” shall include all rights to payment for goods or services rendered, whether or not yet earned by performance, all other obligations and receivables from others no matter how evidenced relating to the Practice, including purchase orders, notes, instruments, drafts and acceptances and all guarantees of the foregoing and security therefor, relating to the Practice.

5.All supplies and inventory relating to the Practice.

6.All patient records, files and X-rays relating to the Practice.

7.All of PMG’s goodwill relating to the Practice, which may include location goodwill, name recognition goodwill, patient allegiance, etc.

8.All business, financial and accounting records and books of account relating to the Practice, exclusive of PMG’s Articles, Bylaws, corporate minutes, stock shares and general ledger.

9.PMG’s right to reimbursement for all professional services provided to managed care and fee-for-service patients relating to the Practice.

10.All of PMG’s furniture, fixtures, leasehold improvements, machinery, equipment, inventories, supplies and other like tangible personal property used in the Practice.

11.All trademarks, trade names, fictitious business names, copyrights, logos, licenses, ownership interests in telephone numbers at the Practice, or related items of PMG that in any way pertain to the Practice.

EXHIBIT B

STOCK

4,000 shares of common stock of Prospect Medical Group, Inc., a California professional corporation (“PMG”) representing 100% of the outstanding shares of PMG.  All of the foregoing stock of PMG has been pledged to the First Lien Administrative Agent pursuant to the terms of that certain First Lien Pledge Agreement, dated as of August 8, 2007 executed in favor of the First Lien Administrative Agent by Jacob Y. Terner, as the same may be amended, supplemented, restated or otherwise modified from time to time, and to the Second Lien Administrative Agent pursuant to the terms of that certain Second Lien Pledge Agreement, dated as of August 8, 2007 created in favor of the Second Lien Administrative Agent by Jacob Y. Terner, as the same may be amended, supplemented, restated or otherwise modified from time to time.

EXHIBIT C

NON-COMPETITION AGREEMENT

THIS NON-COMPETITION AGREEMENT (“Agreement”) is made as of this       th day of [                        ], and is effective as of                          ,         , by and between Prospect Medical Systems, Inc., a Delaware corporation (“Systems”), Prospect Medical Group, Inc., a California professional corporation (“PC”), Jacob Y. Terner, M.D. (“Professional”), and                                    (“Successor Physician”).

All capitalized terms used herein and not otherwise expressly defined shall have the same meanings set forth in the Assignable Option Agreement (defined below).

RECITALS

A.Systems is in the business of managing medical groups in the State of California, including PC.

B.On                      ,       , Systems exercised its Option to designate Successor Physician to acquire the stock or assets of PC under the terms of that certain Third Amended and restated Assignable Option Agreement, dated August     , 2007 by and between Systems, PC and Professional (as the same may be amended, supplemented, restated or otherwise modified from time to time, the “Assignable Option Agreement”).

C.Pursuant to the terms of System’s Option, Professional is to sell either the assets or the stock of PC in accordance with the terms of that certain acquisition agreement by and between PC, Professional and Successor Physician (“Acquisition Agreement”).

D.In consideration for Professional’s sale of PC’s stock or assets to Successor Physician, the parties desire to enter into this Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing promises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows.

1.Professional’s Covenants.  As a material inducement for Successor Physician to acquire the stock or assets of PC from Professional and contingent on the full and faithful performance of the obligations of the parties under the Acquisition Agreement, for a period of twenty-four (24) months commencing as of the date when Professional sells, hypothecates, or otherwise transfers (i) his stock in the PC or (ii) a material portion of the assets of the PC (the “Effective Date”), Professional covenants as follows:

1.1That Professional will not, directly or indirectly (whether as a sole proprietor, partner, stockholder, director, officer, employee, independent contractor or in any other capacity as principal or agent) (i) establish, operate or provide professional medical services within ten (10) miles of any location at which PC conducts business or any location at which other

professional corporations managed by Systems as of the Effective Date conduct business; or (ii) compete with Systems in the provision of the same services or services substantially similar to those services provided by Systems. Professional shall be deemed to compete with Systems if Professional provides to any medical association(s) or group(s) of physicians within ten (10) miles of any location at which PC conducts business during the term of this Agreement any services that are the same or substantially similar to any services provided by Systems pursuant to the terms of its management services agreements.

1.2That Professional will not, directly or indirectly, (whether as a sole proprietor, partner, stockholder, director, officer, employee, independent contractor or in any other capacity as principal or agent) (i) hire or induce any party to recruit or hire any person who is an employee or independent contractor of PC or Systems or any of their affiliates; (ii) whether for himself or any other person or entity, call upon, solicit, divert or take away, or attempt to solicit, call upon, divert or take away any customers, business or clients of PC or Systems or their affiliates (including, without limitation, any third party payors); (iii) solicit, or induce any party to solicit, any contractors of PC or Systems or their affiliates, to enter into the same or a similar type of contract with any other party; (iv) for himself or for any other entity, solicit, divert or take away or attempt to solicit, divert or take away any of PC’s patients; or (v) disrupt, damage, impair or interfere with the business of PC or Systems or their affiliates.

These covenants on the part of Professional shall be construed as an agreement independent of any other provision in this Agreement; and the existence of any claim or cause of action of Professional against PC or Systems, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by PC or Systems of these covenants.

It is agreed by the parties hereto that if any portion of the covenants specified in subparagraphs 1.1 and 1.2 above are held to be unreasonable, arbitrary or against public policy, the covenants herein shall be considered divisible both as to time and geographic area; and each month of the specified period shall be deemed a separate period of time, and each quarter mile shall be deemed a separate geographic area so that the lesser period of time or geographic area shall remain effective as along as the time or geographic area are not unreasonable, arbitrary, or against public policy.  The parties hereto agree that, in the event any court determines the specified time period or the specified geographic area to be unreasonable, arbitrary or against public policy, a lesser time period or geographic area which is determined to he reasonable, nonarbitrary and not against public policy may be enforced against Professional, where such provisions shall be deemed reformed to the maximum time or geographic or other limitations permitted by applicable law, as determined by such court in such action.

The parties agree that the remedy at law for any breach of such covenant or of the related covenants set forth herein would be inadequate, and that therefore PC, Systems or any other person entitled to enforce such covenants shall be entitled to seek injunctive relief thereon in addition to its rights to monetary damages.

2.Confidentiality

2.1PC’s Confidential and Proprietary Information.  In the course of Professional’s engagement by PC, Professional has had access to certain confidential or proprietary information

relating to the patients and operations of PC including, without limitation, patient lists, training material, brochures, practice development aids, techniques and other trade secrets, which information will become the confidential and proprietary information of PC (collectively, the “PC’s Confidential and Proprietary Information”).  Professional shall maintain all of PC’s Confidential and Proprietary Information in the strictest confidence and shall not directly or indirectly use such information at any time, or divulge any of PC’s Confidential and Proprietary Information at any time to any third parties, other than (i) PC, Systems or their respective representatives who have a reasonable need for such information and who have similarly agreed to hold such information in confidence, without the express prior written consent of PC; (ii) as may be reasonably necessary in connection with any litigation or dispute in relation to Professional’s prior operation of the practice through Practice; or (iii) upon court order to do so.  Professional shall not remove from any of PC’s practice sites or make copies or other reproductions of any of PC’s Confidential and Proprietary Information without the express prior written consent of PC. Upon the Effective Date of this Agreement, Professional shall immediately return any and all original documents and materials containing any of PC’s Confidential and Proprietary Information, including any and all copies or other reproductions thereof, to PC.

2.2Systems’ Confidential and Proprietary Information.

2.2.1Professional recognizes the proprietary interest of Systems in any of Systems’ Confidential and Proprietary Information (as hereinafter defined). Professional acknowledges and agrees that any and all Confidential and Proprietary Information of Systems communicated to, learned of, or otherwise acquired by Professional in the course of Professional’s engagement by the PC shall be the property of Systems.  Professional further acknowledges and understands that Professional’s use or disclosure of Systems’ Confidential and Proprietary Information will result in irreparable injury and damage to Systems.  As used herein, “Systems’ Confidential and Proprietary Information” means all trade secrets and other confidential and/or proprietary information of Systems and its affiliates, including information derived from reports, investigations, research, work in progress, codes, marketing and sales programs, financial projections, costs summaries, pricing formula, contract analysis, financial information, projections, confidential filings with any state or federal agency, and all other confidential concepts, methods of doing business, ideas, materials or information (other than the PC’s patient records) of Systems whether prepared for, by or on behalf of Systems or its employees, officers, directors, agents, representatives, or consultants.

2.2.2Professional acknowledges and agrees that Systems is entitled to prevent the disclosure or improper use of any of Systems’ Confidential and Proprietary Information.  Professional agrees at all times to hold in strictest confidence and not to disclose to any person, firm or corporation and not to use, except in the pursuit of the business of PC or Systems, Systems’ Confidential and Proprietary Information, without the prior written consent of Systems; unless (i) such information becomes known or available to the public generally through no wrongful act of Professional or (ii) disclosure is required by law or the rule, regulation or order of any governmental authority under color of law; provided, that prior to disclosing any of Systems’ Confidential and Proprietary Information pursuant to this clause (ii), Professional shall, if possible, give prior written notice thereof to Systems and provide Systems with the opportunity to contest such disclosure.  Professional shall take all necessary and proper

precautions against disclosure of any of Systems’ Confidential and Proprietary Information to unauthorized persons.  Upon execution of this Agreement, Professional shall cease all use of any of Systems’ Confidential and Proprietary Information and shall execute such documents as may be reasonably necessary to evidence abandonment of any claim thereto.

2.2.3Upon the execution of this Agreement, and at any time upon the request of Systems, Professional will promptly deliver or cause to be delivered to Systems all documents, data and other information in their possession that contains or is related to any of Systems’ Confidential and Proprietary Information regarding Systems or its affiliates.  Professional shall not take or retain any documents or other information, or any reproduction or excerpt thereof, containing any of Systems’ Confidential and Proprietary Information.

3.Professional’s Representation.  Professional specifically acknowledges, represents, and warrants that (i) each of Professional’s covenants set forth in this Agreement are being made in connection with the Acquisition Agreement; (ii) such covenants are reasonable and necessary to protect the legitimate interests of Systems, PC and their respective affiliates; and (iii) Successor Physician would not have entered into the Acquisition Agreement in the absence of such restrictions.

4.Miscellaneous.

4.1Successors and Assigns.  This Agreement shall be binding upon and shall inure to the benefit of the parties and their respective heirs (as applicable), legal representatives, and permitted successors and assigns.  No party may assign this Agreement or the rights, interests or obligations hereunder; provided, however, each of Systems and PC may assign any or all of its respective rights and interests hereunder to one or more of its respective affiliates. Any assignment in contravention of this Section shall be null and void.

4.2Counterparts.  This Agreement, and any amendments thereto, may be executed in counterparts, each of which shall constitute an original document, but which together shall constitute one and the same instrument.

4.3Headings.  The section headings contained in this Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of this Agreement.

4.4Amendment.  This Agreement may not be amended except by a writing executed by all parties.

4.5Time of Essence.  Time is expressly made of the essence of this Agreement and each and every provision hereof of which time of performance is a factor.

4.6Notices.  Any notices required or permitted to be given hereunder by any party to the other shall be in writing and shall be deemed delivered upon personal delivery; twenty-four (24) hours following deposit with a courier for overnight delivery; or five (5) days following deposit in the U.S. Mail, registered or certified mail, postage prepaid, return-receipt requested, addressed to the parties at the following addresses or to such other addresses as the parties may specify in writing:

If to Professional:	Jacob Y. Terner, M.D.
If to Systems:	Prospect Medical Systems, Inc.
If to PC:	Prospect Medical Group, Inc.
If to Successor Physician:

4.7Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of California without reference to the conflict of laws provisions thereof.

4.8Injunctive Relief.  The parties hereto acknowledge and agree that a breach by Professional of this Agreement will cause irreparable damage to Systems or PC, as applicable, the exact amount of which will be difficult to ascertain, and that remedies at law for any such breach will be inadequate.  Accordingly, Professional agrees that if Professional breaches this Agreement, then Systems and PC, as appropriate, shall be entitled to injunctive relief, and Professional agrees not to assert in any proceeding that Systems or PC, as applicable, has an adequate remedy at law.  Professional shall pay the reasonable fees and expenses, including attorneys fees, incurred by Systems, PC or any successor or assign in enforcing this Agreement.

4.9Severability.  If any provision or portion of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, the remainder of this Agreement will nevertheless continue in full force and effect and shall not be invalidated or rendered unenforceable or otherwise adversely affected, unless such invalidity or unenforceability would defeat an essential business purpose of this Agreement.  Without limiting the generality of the foregoing, if the provisions of this Agreement shall be deemed to create a restriction, which is unreasonable as to either duration or geographical area or both, the parties agree that the provisions of this Agreement shall be enforced for such duration and in such geographic area as any court of competent jurisdiction may determine to be reasonable.

4.10Attorneys’ Fees.  Should any of Systems, PC or Professional institute any action or procedure to enforce this Agreement or any provision hereof, or for damages by reason of any alleged breach of this Agreement or of any provision hereof, or for a declaration of rights hereunder (including without limitation arbitration), the prevailing party(ies) in any such action

or proceeding shall be entitled to receive from the other party all costs and expenses, including without limitation reasonable attorneys’ fees, incurred by the prevailing party(ies) in connection with such action or proceeding.

4.11Professional’s Practice of Medicine.  Notwithstanding anything to the contrary in this Agreement, nothing herein is meant to limit or restrict Professional’s ability to practice medicine as a physician within any radius, including within 10 miles of any PC location, in the State of California.

[The remainder of the page is intentionally blank.]

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

“Systems”
PROSPECT MEDICAL SYSTEMS, INC.
a Delaware corporation
By:
	Mike Heather
Title:	Chief Financial Officer
“PC”
PROSPECT MEDICAL GROUP, INC.,
a California professional corporation
By:
	Jacob Y. Terner, M.D.
Title:	Sole Shareholder
“PROFESSIONAL”
JACOB Y. TERNER, M.D.
Jacob Y. Terner, M.D., as an individual
“SUCCESSOR PHYSICIAN”

EX-10.43

Exhibit 10.43

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

FIRST LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110879

Street Address of Property:  4059, 4081 and 4125 E. Olympic Boulevard, Los Angeles, California

This FIRST LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA LOS ANGELES HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain First Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (First Lien) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of ONE HUNDRED FIVE MILLION AND NO/100 DOLLARS ($105,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)           Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as first lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a first priority security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The First Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future

3

guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the second priority liens and security interests evidenced by that certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Los Angeles Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain Second Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of

4

the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform

5

Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the

6

Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

7

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a first priority security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

ARTICLE 2
Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)        Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)        Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All

8

expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)        Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)        Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

9

(e)        Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

(f)         Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in

10

the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)        Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

11

(h)        Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)         Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

(i)            Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)           Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

12

(iii)          Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)          Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)           All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)          All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)         Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)        Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.  Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused. 

13

Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)         Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)        Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)         No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant

14

to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)       Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

15

(n)        Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)        Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

(p)        Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by

16

Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)        Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)         Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

17

(s)        Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)         Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

Section 2.2             Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be

18

a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3             Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4             Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that

19

Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3
Assignment of Rents and Leases

Section 3.1             Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2             Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

20

(a)           Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)           All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)           Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)           To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)           Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)            No Rents have been waived, released, discounted, set off or compromised;

(g)           Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)           Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)            Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)            Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

(k)           Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)            Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s

21

expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)          Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)           There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)           Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3             No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4             Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

22

ARTICLE 4
Default

Section 4.1             Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)        Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)        Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14407 & 14433 Emelita Street and 5835 Sylmar Avenue;

(c)        Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO

23

ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)        Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)        Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)         Abandonment.  The owner of the Property abandons any of the Property.

(g)        Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)        Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)         Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2             Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the

24

agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5
Remedies

Section 5.1             Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)        Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)        Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)        Trustee’s Sale.

(i)            Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

25

(ii)           The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)          Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)          After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)           Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)        Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the

26

liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)        Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)         Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics

27

relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)        Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)        Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

(i)            enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)           enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the

28

Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)          make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)          either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)           endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)          take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)         Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2             Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any,

29

shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3             Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4             Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5             Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6             Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the

30

collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7             Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6
Miscellaneous

Section 6.1             Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2             Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3             Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

31

Section 6.4             Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5             No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

Section 6.6             Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or

32

affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7             Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8             WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR,

33

HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9             Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10           Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11           Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11,

34

which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12           Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

35

Section 6.13           No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14           Reconveyances.

(a)        Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)        Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)        Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15           Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of

36

this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16           Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17           Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18           Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19           Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants

37

running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20           Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21           Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22           No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.23           Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE

38

LIENS OR INTERESTS OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24           Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525	ALTA LOS ANGELES HOSPITALS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL HOLDINGS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California 90230
	By:
	Name:
	Title:
The address of Administrative Agent/Holder is:
Bank of America, N.A.
800 Fifth Avenue, 32nd Floor
Mail Code WA1-501-32-37
Seattle, Washington 98104
The address of Trustee is:
PRLAP, Inc.
P.O. Box 2240
Brea, California 92822

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

PARCEL 1:

LOT 5 IN BLOCK 1 OF TRACT NO. 4510, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

THE NORTHERLY 5.00 FEET OF LOTS 8 AND 9, TOGETHER WITH ALL LOTS 6, 7, 10, 11, 12, 13, 14 AND 15 IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THAT PORTION OF SAID LOTS 6, 7 AND 8, INCLUDED WITHIN THE WESTERLY 50.89 FEET OF SAID LOTS 6, 7 AND 8.

PARCEL 3:

AN EASEMENT FOR INGRESS AND EGRESS OVER THE EASTERLY 9.28 FEET OF THE WESTERLY 50.98 FEET OF LOTS 6, 7 AND 8, EXCEPT FROM LOTS 8, THE SOUTHERLY 45 FEET IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 4:

LOTS 6 AND 7 AND THE NORTHERLY 5 FEET OF LOT 8 IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THAT PORTION OF SAID LAND LYING EASTERLY OF THE WESTERLY LINE AND ITS SOUTHERLY PROLONGATION OF THE LAND DESCRIBED IN DEED TO THE COMMUNITY HOSPITAL OF LOS ANGELES, RECORDED ON DECEMBER 16, 1960 AS INSTRUMENT NO. 3400 IN BOOK D-1067 PAGE 779, OFFICIAL RECORDS.

PARCEL 5:

LOT 4 IN BLOCK 2 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 6:

THE NORTHERLY 5.00 FEET OF LOTS 9 AND 10, TOGETHER WITH ALL OF LOTS 7, 8, 11 AND 12 IN BLOCK 2 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM LOTS 7, 8, 11 AND 12 ALL GAS, OIL, HYDROCARBONS AND ALL MINERALS LYING, ON OR UNDER SAID LAND.

A-1

EX-10.44

Exhibit 10.44

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

FIRST LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110057

Street Address of Property:  6245 De Longpre Avenue, Los Angeles, California; 6228 Leland Way, Los Angeles, California

This FIRST LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA HOLLYWOOD HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain First Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (First Lien) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1
Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of ONE HUNDRED FIVE MILLION AND NO/100 DOLLARS ($105,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)        Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as first lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a first priority security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The First Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future

3

guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the second priority liens and security interests evidenced by that certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Hollywood Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain Second Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of

4

the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform

5

Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the

6

Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

7

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a first priority security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

ARTICLE 2
Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)           Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All

8

expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)           Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

9

(e)           Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

(f)            Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in

10

the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)           Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

11

(h)           Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)            Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

(i)            Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)           Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

12

(iii)          Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)          Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)           All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)          All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)         Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)        Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.  Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused. 

13

Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)            Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)           Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)            No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant

14

to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)          Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

15

(n)           Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)           Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

(p)           Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by

16

Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)           Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)            Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

17

(s)           Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)            Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

Section 2.2             Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be

18

a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3             Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4             Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that

19

Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3
Assignment of Rents and Leases

Section 3.1             Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2             Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

20

(a)           Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)           All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)           Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)           To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)           Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)            No Rents have been waived, released, discounted, set off or compromised;

(g)           Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)           Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)            Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)            Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

(k)           Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)            Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s

21

expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)          Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)           There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)           Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3             No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4             Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

22

ARTICLE 4
Default

Section 4.1             Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)           Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)           Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14433 Emelita Street, 5835 Sylmar Avenue and 14407 Emelita Street;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, , encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

(c)           Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO

23

ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)           Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)           Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)            Abandonment.  The owner of the Property abandons any of the Property.

(g)           Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)           Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)            Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2             Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the

24

agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5
Remedies

Section 5.1             Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)           Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)           Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)           Trustee’s Sale.

(i)            Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

25

(ii)           The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)          Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)          After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)           Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)           Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the

26

liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)           Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)            Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics

27

relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)           Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)           Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

(i)            enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)           enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the

28

Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)          make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)          either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)           endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)          take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)            Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2             Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any,

29

shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3             Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4             Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5             Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6             Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the

30

collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7             Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6
Miscellaneous

Section 6.1             Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2             Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3             Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

31

Section 6.4             Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5             No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

Section 6.6             Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or

32

affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7             Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8             WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR,

33

HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9             Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10           Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11           Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 

34

6.11, which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12           Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

35

Section 6.13           No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14           Reconveyances.

(a)           Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)           Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)           Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15           Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of

36

this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16           Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17           Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18           Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19           Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants

37

running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20           Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21           Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22           No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.23           Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE

38

LIENS OR INTERESTS OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24           Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525	ALTA HOLLYWOOD HOSPITALS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL HOLDINGS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California 90230
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32^nd Floor

Mail Code WA1-501-32-37

Seattle, Washington  98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

PARCEL 1:

LOTS 14, 15 AND 16 OF THE LELAND TRACT, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 9 PAGE 161 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

LOTS 9, 10, 13, 14, 15, 16 AND 17 OF TRACT NO. 5840, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 55 PAGES 58 AND 59 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THE EASTERLY 3.26 FEET OF SAID LOT 15, AND FROM ALL OF SAID LOT 16, EXCEPT THE EASTERLY 1.92 FEET THEREOF, ALL DEPOSITS, BODIES, VEINS, POOLS, STREAMS OR OTHER FORMATIONS OR CONDITIONS IN NATURE OF MINERALS, PETROLEUM, OIL, ASPHALTUM, NAPHTHA, NATURAL GAS AND HYDROCARBON SUBSTANCES IN AND UNDER SAID LAND, WITHOUT ANY RIGHT TO USE OF THE SURFACE AND SUBSURFACE ARE TO A DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND, AS RESERVED IN THE DEED FROM GEORGINA RITA HOLDORN BLAIRE, A MARRIED WOMAN, RECORDED OCTOBER 23, 1957 IN BOOK 55918 PAGE 425, OFFICIAL RECORDS.

PARCEL 3:

LOTS 12 AND 18 OF TRACT NO. 4884, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 55 PAGES 3 AND 4 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 4:

THAT PORTION OF BLOCK 2 OF COLEGROVE, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 53 PAGE 10 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, BOUNDED AS FOLLOWS: ON THE WEST BY THE EAST LINE OF TRACT NO. 5840, AS PER MAP RECORDED IN BOOK 55, PAGES 58 AND 59 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; ON THE EAST BY THE WEST LINE OF TRACT NO. 4884, AS PER MAP RECORDED IN BOOK 55 PAGES 3 AND 4 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; ON THE NORTH BY THE EASTERLY PROLONGATION OF THE NORTH LINE OF LOT 9 OF SAID TRACT NO. 5840 AND ON THE SOUTH BY THE EASTERLY PROLONGATION OF THE SOUTH LINE OF LOT 17 OF SAID TRACT NO. 5840.

A-1

EX-10.45

Exhibit 10.45

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

FIRST LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110879

Street Address of Property:  13222 Bloomfield Avenue, Norwalk, California  90650

This FIRST LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA LOS ANGELES HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain First Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (First Lien) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of ONE HUNDRED FIVE MILLION AND NO/100 DOLLARS ($105,000,000.00) at any one time.

Section 1.2Selected Definitions.

(a)Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as first lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a first priority security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The First Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future

3

guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the second priority liens and security interests evidenced by that certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Los Angeles Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain Second Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of

4

the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

(b)Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform

5

Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the

6

Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

(f)All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

7

Section 1.4Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a first priority security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1Grantor represents, warrants and covenants as follows:

(a)Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All

8

expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

9

(e)Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

(f)Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in

10

the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

11

(h)Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

(i)Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

12

(iii)Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.  Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused. 

13

Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant

14

to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

15

(n)Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

(p)Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by

16

Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

17

(s)Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

Section 2.2Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be

18

a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that

19

Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

20

(a)Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)No Rents have been waived, released, discounted, set off or compromised;

(g)Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

(k)Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s

21

expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

22

ARTICLE 4

Default

Section 4.1Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14433 Emelita Street, 5835 Sylmar Avenue, and 14407 Emelita Street;

(c)Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO

23

ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)Abandonment.  The owner of the Property abandons any of the Property.

(g)Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the

24

agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5

Remedies

Section 5.1Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)Trustee’s Sale.

(i)Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

25

(ii)The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the

26

liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics

27

relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

(i)enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the

28

Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any,

29

shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the

30

collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6

Miscellaneous

Section 6.1Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

31

Section 6.4             Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5             No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

Section 6.6             Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or

32

affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7             Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8             WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR,

33

HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9             Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10           Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11           Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11,

34

which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12           Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

35

Section 6.13           No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14           Reconveyances.

(a)           Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)           Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)           Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15           Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of

36

this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16           Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17           Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18           Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19           Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants

37

running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20           Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21           Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22           No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.23           Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE

38

LIENS OR INTERESTS OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24           Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525	ALTA LOS ANGELES HOSPITALS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL HOLDINGS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California 90230
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32^nd Floor

Mail Code WA1-501-32-37

Seattle, Washington 98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF                            

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Norwalk, County of Los Angeles, State of California, and more particularly described as follows:

The West 320 feet of that portion of the Northwest Quarter of Section 17, Township 3 South, Range 11 West, in the Rancho Los Coyotes, in the City of Norwalk, County of Los Angeles, State of California, as shown upon a map recorded in Book 41819 Pages 141, et seq., Official records, in the office of the county recorder of said county, described as follows:

Beginning at a point in the center line of Bloomfield Avenue, formerly Anaheim Street, 60 feet wide, as described in the deed to said county recorder on August 23, 1916 in Book 6283 Page 341 of Deeds, that is distant along said center line, North 0º 24’ 30” West 287.60 feet from the Easterly prolongation of the center line of Goller Avenue, as shown on the map of Tract No. 15205, as per map recorded in Book 354, Pages 11, et seq., of Maps, in the office of the county recorder of said county; thence North 89º 37’ 45” East 30 feet to the true point of beginning in the East line of said avenue; thence North 89º 37’ 45” East 630.61 feet; thence North 0º 37’ 15” West 272.60 feet to the South line of the land described in the Decree of Condemnation by the State of California, a certified copy of said decree being recorded December 28, 1950 in Book 35179 Page 201, Official Records; thence along said county line South 89º 37’ 45” West 629.60 feet to the said East line of Bloomfield Avenue; thence South 0º 24’ 30” East 272.60 feet to the true point of beginning.

Except any portion of said land included within a strip of land, 60 feet wide, the center line of said 60 foot strip of land being the West line of Section 17, Township 3 South, Range 11 West, in the Rancho Los Coyotes, as shown on map made by Charles T. Healey upon survey by him about 1870 for the Stearns Ranchos Company, as reserved for roads, railroads, and ditches in deeds from Alfred Robinson, Trustee or Stearns Ranchos Company, all said reservation, not theretofore release or conveyed, were quitclaimed to the County of Los Angeles, by the Stearns Ranchos Company, by deed dated May 17, 1918 and recorded on June 10, 1918 in Book 6678 Page 217 of Deeds.

A-1

EX-10.46

Exhibit 10.46

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

FIRST LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110057

Street Address of Property:  14407 & 14433 Emelita Street (Sylmar Area), Los Angeles, California, 91401 and 5835 Sylmar Avenue (Sylmar Area), Los Angeles, California  91401

This FIRST LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA HOLLYWOOD HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain First Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (First Lien) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the first priority lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of ONE HUNDRED FIVE MILLION AND NO/100 DOLLARS ($105,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)           Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as first lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a first priority security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The First Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future

3

guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the second priority liens and security interests evidenced by that certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Hollywood Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain Second Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of

4

the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform

5

Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the

6

Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

7

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a first priority security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

ARTICLE 2
Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)           Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All

8

expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)           Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

9

(e)           Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

(f)            Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in

10

the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)           Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

11

(h)           Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)            Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

(i)            Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)           Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

12

(iii)          Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)          Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)           All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)          All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)         Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)        Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.  Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused. 

13

Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)            Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)           Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)            No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant

14

to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)          Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral, hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

15

(n)           Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)           Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

(p)           Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by

16

Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)           Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)            Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

17

(s)           Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)            Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

Section 2.2             Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be

18

a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3             Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4             Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that

19

Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1             Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2             Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

20

(a)           Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)           All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)           Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)           To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)           Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)            No Rents have been waived, released, discounted, set off or compromised;

(g)           Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)           Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)            Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)            Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

(k)           Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)            Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s

21

expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)          Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)           There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)           Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3             No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4             Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

22

ARTICLE 4
Default

Section 4.1        Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)           Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)           Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

(c)           Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO

23

ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)           Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)           Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)            Abandonment.  The owner of the Property abandons any of the Property.

(g)           Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)           Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)            Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2             Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the

24

agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5
Remedies

Section 5.1        Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)           Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)           Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)           Trustee’s Sale.

(i)            Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

25

(ii)           The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)          Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)          After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)           Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)           Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the

26

liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)           Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)            Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics

27

relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)           Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)           Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

(i)            enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)           enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the

28

Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)          make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)          either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)           endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)          take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)            Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2        Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any,

29

shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3        Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4        Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5        Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6        Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law, hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the

30

collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7        Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6
Miscellaneous

Section 6.1        Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2        Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3        Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

31

Section 6.4        Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5        No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

Section 6.6        Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or

32

affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7        Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8        WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR,

33

HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9        Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10      Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11      Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11,

34

which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12      Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

35

Section 6.13      No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14      Reconveyances.

(a)       Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)      Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)       Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15      Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of

36

this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16      Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17      Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18      Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19      Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants

37

running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20      Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21      Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22      No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

Section 6.23      Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE

38

LIENS OR INTERESTS OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24      Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525 Culver City, California 90230	ALTA HOLLYWOOD HOSPITALS, INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525 Culver City, California 90230	PROSPECT MEDICAL HOLDINGS, INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California 90230
	By:
	Name:
	Title:
The address of Administrative Agent/Holder is:
Bank of America, N.A. 800 Fifth Avenue, 32nd Floor Mail Code WA1-501-32-37 Seattle, Washington 98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

STATE OF CALIFORNIA

COUNTY OF

On                                         , before me,                                             , a notary public, personally appeared                                           , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                          , before me,                                            , a notary public, personally appeared                                          , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                          , before me,                                            , a notary public, personally appeared                                          , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

Lots 21 to 24 inclusive, and Lots 53 to 60 inclusive, of Tract No. 7909, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 96 Page 81 of Maps, in the Office of the County Recorder of said county.

A-1

EX-10.47

Exhibit 10.47

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

SECOND LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110879

Street Address of Property:  4059, 4081 and 4125 E. Olympic Boulevard, Los Angeles, California

This SECOND LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA LOS ANGELES HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain Second Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (Second Lien ) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

[Alta Los Angeles Hospital – Second Lien]

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)           Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as second lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The Second Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Intercreditor Agreement”:  That certain Intercreditor Agreement, of even date herewith, among Bank of America, N.A., as first lien administrative agent, Bank of America, N.A., as second lien administrative agent, Borrowers and such other parties as may be added thereto from time to time in accordance with the terms thereof and as such Intercreditor Agreement may be amended or otherwise modified from time to time in accordance with the terms thereof.

3

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the first  priority liens and security interests evidenced by that certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Los Angeles Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain First Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

4

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

5

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the

6

requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or

not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

7

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

Section 1.6             Subordination.  The liens and security interests created by this Deed of Trust shall be, until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), a second priority lien (subject to permitted encumbrances and other permitted liens), subordinate in all respects (including the exercise of remedies with respect to the Collateral) to the prior lien of the applicable First Lien Loan Documents (as defined in the Intercreditor Agreement) on and subject to the terms and conditions set forth in the Intercreditor Agreement.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)           Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or

8

permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)           Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including

9

employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

(e)           Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

10

(f)            Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)           Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at

11

any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

(h)           Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)            Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

12

(i)            Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)           Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

(iii)          Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)          Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)           All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)          All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)         Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)        Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.

13

Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)            Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)           Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)            No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or

14

conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)          Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral,

15

hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

(n)           Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)           Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

16

(p)           Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)           Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)            Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan

17

Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

(s)           Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)            Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

18

Section 2.2             Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3             Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4             Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security

19

interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1             Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any

20

portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2             Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

(a)           Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)           All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)           Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)           To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)           Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)            No Rents have been waived, released, discounted, set off or compromised;

(g)           Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)           Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)            Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)            Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

21

(k)           Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)            Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)          Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)           There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)           Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3             No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4             Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If

22

Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

ARTICLE 4

Default

Section 4.1             Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)           Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)           Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14407 & 14433 Emelita Street and 5835 Sylmar Avenue;

(c)Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that

23

Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)            Abandonment.  The owner of the Property abandons any of the Property.

(g)           Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)           Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)            Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of

24

access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2             Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5

Remedies

Section 5.1             Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)           Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)           Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)Trustee’s Sale.

(i)           Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding

25

postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

(ii)          The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)         Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)         After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)          Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)           Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to

26

take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)           Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court

27

of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)            Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)           Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)           Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

28

(i)            enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)           enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)          make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)          either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)           endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)          take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)            Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2             Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and

29

charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any, shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3             Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4             Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5             Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6             Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law,

30

hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7             Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6

Miscellaneous

Section 6.1             Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2             Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the

Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of

31

Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3             Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

Section 6.4             Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5             No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

32

Section 6.6             Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7             Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8             WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND

33

LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR, HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9             Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10           Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of

34

such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11           Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11, which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12           Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or

35

association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

Section 6.13           No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14           Reconveyances.

(a)           Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)           Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)           Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering

36

of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15           Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16           Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17           Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18           Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or

37

delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19           Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20           Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21           Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22           No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

38

Section 6.23           Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OR INTEREST OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24           Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525 Culver City, California  90230	ALTA LOS ANGELES HOSPITALS, INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525 Culver City, California  90230	PROSPECT MEDICAL HOLDINGS, INC.
	By:
	Name:
	Title:

The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525 Culver City, California  90230	PROSPECT MEDICAL GROUP, INC.
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32^nd Floor
Mail Code WA1-501-32-37
Seattle, Washington  98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

[Alta Los Angeles Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF                                       

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Alta Los Angeles Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Alta Los Angeles Hospital – Second Lien]

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

PARCEL 1:

LOT 5 IN BLOCK 1 OF TRACT NO. 4510, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

THE NORTHERLY 5.00 FEET OF LOTS 8 AND 9, TOGETHER WITH ALL LOTS 6, 7, 10, 11, 12, 13, 14 AND 15 IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THAT PORTION OF SAID LOTS 6, 7 AND 8, INCLUDED WITHIN THE WESTERLY 50.89 FEET OF SAID LOTS 6, 7 AND 8.

PARCEL 3:

AN EASEMENT FOR INGRESS AND EGRESS OVER THE EASTERLY 9.28 FEET OF THE WESTERLY 50.98 FEET OF LOTS 6, 7 AND 8, EXCEPT FROM LOTS 8, THE SOUTHERLY 45 FEET IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 4:

LOTS 6 AND 7 AND THE NORTHERLY 5 FEET OF LOT 8 IN BLOCK 1 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THAT PORTION OF SAID LAND LYING EASTERLY OF THE WESTERLY LINE AND ITS SOUTHERLY PROLONGATION OF THE LAND DESCRIBED IN DEED TO THE COMMUNITY HOSPITAL OF LOS ANGELES, RECORDED ON DECEMBER 16, 1960 AS INSTRUMENT NO. 3400 IN BOOK D-1067 PAGE 779, OFFICIAL RECORDS.

PARCEL 5:

LOT 4 IN BLOCK 2 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 6:

THE NORTHERLY 5.00 FEET OF LOTS 9 AND 10, TOGETHER WITH ALL OF LOTS 7, 8, 11 AND 12 IN BLOCK 2 OF TRACT NO. 4510, AS PER MAP RECORDED IN BOOK 49 PAGES 27 AND 28 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT FROM LOTS 7, 8, 11 AND 12 ALL GAS, OIL, HYDROCARBONS AND ALL MINERALS LYING, ON OR UNDER SAID LAND.

A-1

EX-10.48

Exhibit 10.48

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

SECOND LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110057

Street Address of Property:  6245 De Longpre Avenue, Los Angeles, California; 6228 Leland Way, Los Angeles, California

This SECOND LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA HOLLYWOOD HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain Second Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (Second Lien ) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

[Hollywood Community Hospital – 2nd Lien]

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents. The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)           Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as second lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The Second Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Intercreditor Agreement”:  That certain Intercreditor Agreement, of even date herewith, among Bank of America, N.A., as first lien administrative agent, Bank of America, N.A., as second lien administrative agent, Borrowers and such other parties as may be added thereto from time to time in accordance with the terms thereof and as such Intercreditor Agreement may be amended or otherwise modified from time to time in accordance with the terms thereof.

3

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the first  priority liens and security interests evidenced by that certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Hollywood Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain First Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

4

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

5

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the

6

requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

7

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

Section 1.6             Subordination.  The liens and security interests created by this Deed of Trust shall be, until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), a second priority lien (subject to permitted encumbrances and other permitted liens), subordinate in all respects (including the exercise of remedies with respect to the Collateral) to the prior lien of the applicable First Lien Loan Documents (as defined in the Intercreditor Agreement) on and subject to the terms and conditions set forth in the Intercreditor Agreement.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)           Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or

8

permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)           Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including

9

employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

(e)           Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

10

(f)            Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)           Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at

11

any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

(h)           Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)            Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

12

(i)            Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)           Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

(iii)          Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)          Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)           All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)          All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)         Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)        Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements. 

13

Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)            Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)           Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)            No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or

14

conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)          Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral,

15

hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

(n)           Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)           Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

16

(p)           Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)           Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)            Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan

17

Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

(s)           Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)            Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

18

Section 2.2             Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3             Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4             Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security

19

interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1             Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any

20

portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2             Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

(a)           Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)           All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)           Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)           To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)           Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)            No Rents have been waived, released, discounted, set off or compromised;

(g)           Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)           Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)            Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)            Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

21

(k)           Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)            Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)          Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)           There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)           Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3             No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4             Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If

22

Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

ARTICLE 4

Default

Section 4.1             Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)           Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)           Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14433 Emelita Street, 5835 Sylmar Avenue and 14407 Emelita Street;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

(c)           Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that

23

Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)           Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)           Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)            Abandonment.  The owner of the Property abandons any of the Property.

(g)           Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)           Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)            Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of

24

access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2             Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5

Remedies

Section 5.1             Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)           Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)           Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)           Trustee’s Sale.

(i)            Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding

25

postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

(ii)           The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)          Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)          After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)           Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)           Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to

26

take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)           Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court

27

of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)            Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)           Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)           Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

28

(i)            enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)           enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)          make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)          either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)           endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)          take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)            Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2             Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and

29

charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any, shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3             Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4             Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5             Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6             Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law,

30

hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7             Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6

Miscellaneous

Section 6.1             Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2             Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of

31

Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3             Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

Section 6.4             Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5             No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

32

Section 6.6             Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7             Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8             WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND

33

LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR, HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9             Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10           Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of

34

such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11           Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11, which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12           Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or

35

association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

Section 6.13           No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14           Reconveyances.

(a)           Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)           Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)           Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering

36

of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15           Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16           Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17           Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18           Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or

37

delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19           Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20           Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21           Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22           No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

38

Section 6.23           Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OR INTEREST OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24           Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525	ALTA HOLLYWOOD HOSPITALS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL HOLDINGS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California 90230
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32^nd Floor
Mail Code WA1-501-32-37
Seattle, Washington  98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

[Hollywood Community Hospital – 2nd Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Hollywood Community Hospital – 2nd Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Hollywood Community Hospital – 2nd Lien]

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

PARCEL 1:

LOTS 14, 15 AND 16 OF THE LELAND TRACT, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 9 PAGE 161 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 2:

LOTS 9, 10, 13, 14, 15, 16 AND 17 OF TRACT NO. 5840, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 55 PAGES 58 AND 59 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY. EXCEPT THEREFROM THE EASTERLY 3.26 FEET OF SAID LOT 15, AND FROM ALL OF SAID LOT 16, EXCEPT THE EASTERLY 1.92 FEET THEREOF, ALL DEPOSITS, BODIES, VEINS, POOLS, STREAMS OR OTHER FORMATIONS OR CONDITIONS IN NATURE OF MINERALS, PETROLEUM, OIL, ASPHALTUM, NAPHTHA, NATURAL GAS AND HYDROCARBON SUBSTANCES IN AND UNDER SAID LAND, WITHOUT ANY RIGHT TO USE OF THE SURFACE AND SUBSURFACE ARE TO A DEPTH OF 500 FEET FROM THE SURFACE OF SAID LAND, AS RESERVED IN THE DEED FROM GEORGINA RITA HOLDORN BLAIRE, A MARRIED WOMAN, RECORDED OCTOBER 23, 1957 IN BOOK 55918 PAGE 425, OFFICIAL RECORDS.

PARCEL 3:

LOTS 12 AND 18 OF TRACT NO. 4884, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 55 PAGES 3 AND 4 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.

PARCEL 4:

THAT PORTION OF BLOCK 2 OF COLEGROVE, IN THE CITY OF LOS ANGELES, COUNTY OF LOS ANGELES, STATE OF CALIFORNIA, AS PER MAP RECORDED IN BOOK 53 PAGE 10 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY, BOUNDED AS FOLLOWS: ON THE WEST BY THE EAST LINE OF TRACT NO. 5840, AS PER MAP RECORDED IN BOOK 55, PAGES 58 AND 59 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; ON THE EAST BY THE WEST LINE OF TRACT NO. 4884, AS PER MAP RECORDED IN BOOK 55 PAGES 3 AND 4 OF MAPS, IN THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY; ON THE NORTH BY THE EASTERLY PROLONGATION OF THE NORTH LINE OF LOT 9 OF SAID TRACT NO. 5840 AND ON THE SOUTH BY THE EASTERLY PROLONGATION OF THE SOUTH LINE OF LOT 17 OF SAID TRACT NO. 5840.

A-1

EX-10.49

Exhibit 10.49

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

SECOND LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502
OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110879

Street Address of Property:  13222 Bloomfield Avenue, Norwalk, California  90650

This SECOND LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA LOS ANGELES HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain Second Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (Second Lien ) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

[Norwalk Community Hospital – Second Lien]

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1

Definitions; Granting Clauses; Secured Indebtedness

Section 1.1             Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) at any one time.

Section 1.2             Selected Definitions.

(a)           Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as second lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The Second Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Intercreditor Agreement”:  That certain Intercreditor Agreement, of even date herewith, among Bank of America, N.A., as first lien administrative agent, Bank of America, N.A., as second lien administrative agent, Borrowers and such other parties as may be added thereto from time to time in accordance with the terms thereof and as such Intercreditor Agreement may be amended or otherwise modified from time to time in accordance with the terms thereof.

3

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the first priority liens and security interests evidenced by that certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Los Angeles Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain First Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

4

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)            All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)           All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)          If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

5

(b)           Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3             Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)           The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)           All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)           All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the

6

requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)           All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)           If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

7

(f)            All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

Section 1.4             Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5             Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

Section 1.6             Subordination.  The liens and security interests created by this Deed of Trust shall be, until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), a second priority lien (subject to permitted encumbrances and other permitted liens), subordinate in all respects (including the exercise of remedies with respect to the Collateral) to the prior lien of the applicable First Lien Loan Documents (as defined in the Intercreditor Agreement) on and subject to the terms and conditions set forth in the Intercreditor Agreement.

ARTICLE 2

Representations, Warranties and Covenants

Section 2.1             Grantor represents, warrants and covenants as follows:

(a)           Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)           Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or

8

permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)           Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)           Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including

9

employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

(e)           Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

10

(f)Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at

11

any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

(h)Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

12

(i)Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

(iii)Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements.

13

Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or

14

conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral,

15

hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

(n)Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

16

(p)Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan

17

Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

(s)Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

18

Section 2.2Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security

19

interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3

Assignment of Rents and Leases

Section 3.1Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any

20

portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

(a)Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)No Rents have been waived, released, discounted, set off or compromised;

(g)Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

21

(k)Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If

22

Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

ARTICLE 4

Default

Section 4.1Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 14433 Emelita Street, 5835 Sylmar Avenue, and 14407 Emelita Street;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

(c)Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that

23

Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)Abandonment.  The owner of the Property abandons any of the Property.

(g)Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of

24

access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5

Remedies

Section 5.1Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)Trustee’s Sale.

(i)Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding

25

postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

(ii)The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to

26

take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court

27

of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

28

(i)enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and

29

charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any, shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law,

30

hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6

Miscellaneous

Section 6.1Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of

31

Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

Section 6.4Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

32

Section 6.6Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND

33

LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR, HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of

34

such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11, which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or

35

association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

Section 6.13No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14Reconveyances.

(a)Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering

36

of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or

37

delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

38

Section 6.23Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OR INTEREST OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525	ALTA LOS ANGELES HOSPITALS,
Culver City, California 90230	INC.
	By:
	Name:
	Title:

The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL HOLDINGS,
Culver City, California  90230	INC.
	By:
	Name:
	Title:
The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525	PROSPECT MEDICAL GROUP, INC.
Culver City, California  90230
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32^nd Floor

Mail Code WA1-501-32-37

Seattle, Washington  98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

[Norwalk Community Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Norwalk Community Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Norwalk Community Hospital – Second Lien]

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Norwalk, County of Los Angeles, State of California, and more particularly described as follows:

The West 320 feet of that portion of the Northwest Quarter of Section 17, Township 3 South, Range 11 West, in the Rancho Los Coyotes, in the City of Norwalk, County of Los Angeles, State of California, as shown upon a map recorded in Book 41819 Pages 141, et seq., Official records, in the office of the county recorder of said county, described as follows:

Beginning at a point in the center line of Bloomfield Avenue, formerly Anaheim Street, 60 feet wide, as described in the deed to said county recorder on August 23, 1916 in Book 6283 Page 341 of Deeds, that is distant along said center line, North 0º 24’ 30” West 287.60 feet from the Easterly prolongation of the center line of Goller Avenue, as shown on the map of Tract No. 15205, as per map recorded in Book 354, Pages 11, et seq., of Maps, in the office of the county recorder of said county; thence North 89º 37’ 45” East 30 feet to the true point of beginning in the East line of said avenue; thence North 89º 37’ 45” East 630.61 feet; thence North 0º 37’ 15” West 272.60 feet to the South line of the land described in the Decree of Condemnation by the State of California, a certified copy of said decree being recorded December 28, 1950 in Book 35179 Page 201, Official Records; thence along said county line South 89º 37’ 45” West 629.60 feet to the said East line of Bloomfield Avenue; thence South 0º 24’ 30” East 272.60 feet to the true point of beginning.

Except any portion of said land included within a strip of land, 60 feet wide, the center line of said 60 foot strip of land being the West line of Section 17, Township 3 South, Range 11 West, in the Rancho Los Coyotes, as shown on map made by Charles T. Healey upon survey by him about 1870 for the Stearns Ranchos Company, as reserved for roads, railroads, and ditches in deeds from Alfred Robinson, Trustee or Stearns Ranchos Company, all said reservation, not theretofore release or conveyed, were quitclaimed to the County of Los Angeles, by the Stearns Ranchos Company, by deed dated May 17, 1918 and recorded on June 10, 1918 in Book 6678 Page 217 of Deeds.

A-1

EX-10.50

Exhibit 10.50

RECORDING REQUESTED BY AND

WHEN RECORDED MAIL TO:

Kennedy Covington Lobdell & Hickman, L.L.P.

214 North Tryon Street, Ste 4700

Charlotte, North Carolina  28202

Attn.:  Donnie E. Martin, Esq.

[SPACE ABOVE LINE FOR RECORDER’S USE ONLY]

SECOND LIEN DEED OF TRUST,

ASSIGNMENT OF RENTS AND LEASES,

SECURITY AGREEMENT AND

FIXTURE FILING

THIS DOCUMENT SERVES AS A FIXTURE FILING UNDER SECTION 9-502

OF THE CALIFORNIA UNIFORM COMMERCIAL CODE.

Grantor’s Organizational Identification Number:  CA-C2110057

Street Address of Property:  14407 & 14433 Emelita Street (Sylmar Area), Los Angeles, California, 91401 and 5835 Sylmar Avenue (Sylmar Area), Los Angeles, California  91401

This SECOND LIEN DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES, SECURITY AGREEMENT AND FIXTURE FILING (this “Deed of Trust”) is made as of August 8, 2007, by ALTA HOLLYWOOD HOSPITALS, INC., a California corporation (the “Grantor”), as trustor, in favor of PRLAP, INC., as trustee (“Trustee”), for the benefit of BANK OF AMERICA, N.A., a national banking association, as beneficiary in its capacity as administrative agent (“Administrative Agent”) for the lenders (each, a “Lender” and collectively, “Lenders”) from time to time party to that certain Second Lien Credit Agreement of even date herewith (the “Credit Agreement”) among Prospect Medical Group, Inc., a California professional corporation, and Prospect Medical Holdings, Inc., a Delaware corporation (collectively, “Borrowers”), Lenders and Administrative Agent.  Trustee is an affiliate of Administrative Agent.  The addresses for Grantor, Administrative Agent and Trustee are set forth at the end of this Deed of Trust.

STATEMENT OF PURPOSE

This Deed of Trust secures (i) (A) all “Guaranteed Obligations” of the Grantor under and as defined in that certain Continuing Guaranty (Second Lien ) of even date herewith made by the Grantor and certain other parties in favor of the Administrative Agent (as further amended, modified, renewed, replaced, restated, extended or reaffirmed from time to time, the “Guaranty”), pursuant to which Guaranty the Grantor has guaranteed the obligations of Borrowers (as defined herein) under the Credit Agreement and (B) all obligations of the Grantor under all of the Loan Documents (as defined herein); and (ii) the payment by the Grantor of all other sums, with interest thereon, advanced by the Administrative Agent to protect the security of this Deed of Trust.

[Van Nuys Psychiatric Hospital – Second Lien]

The Administrative Agent and the Lenders are unwilling to enter into the Credit Agreement, or to make available the Loan to the Borrowers pursuant thereto, unless the Grantor agrees to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness pursuant to the Guaranty and the other Loan Documents.  The Grantor is an indirect subsidiary of Prospect Medical Holdings, Inc. and will receive a direct benefit from the Loan under the Credit Agreement, and therefore the Grantor has agreed to execute and deliver this Deed of Trust, and to grant the lien and security interest created pursuant hereto, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s), to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness incurred pursuant to the Guaranty and the other Loan Documents.

ARTICLE 1
Definitions; Granting Clauses; Secured Indebtedness

Section 1.1Secured Indebtedness.  This Deed of Trust is made to secure the obligations of Grantor under the Loan Documents and all other matters and indebtedness defined below as Secured Indebtedness.  This Deed of Trust shall secure a maximum principal amount of FIFTY MILLION AND NO/100 DOLLARS ($50,000,000.00) at any one time.

Section 1.2Selected Definitions.

(a)Defined terms used herein, as indicated by the initial capitalization thereof, shall have the meanings ascribed to such terms in the Credit Agreement or other applicable Loan Document, unless otherwise provided herein.  Each of the following terms shall have the meaning assigned to it, such definitions to be applicable equally to the singular and the plural forms of such terms and to all genders:

“Administrative Agent”:  Bank of America, N.A, in its capacity as second lien administrative agent for Lenders, or any successor administrative agent.

“Borrowers”:  Unless the context clearly indicates otherwise, the Borrowers named in the introductory paragraph hereof, together with all heirs, devisees, representatives, successors and assigns of such Borrowers pursuant to Section 6.18 below, or any of them.

“Collateral”:  All of the Property constituting personal property or fixtures in which Grantor is granting Administrative Agent a security interest for the ratable benefit of Lenders under this Deed of Trust, together with all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.

“Credit Agreement”:  The Second Lien Credit Agreement dated of even date herewith evidencing and governing the Loan, executed by and among Borrowers, Administrative Agent and Lenders, as it may from time to time be amended, modified, restated, replaced or supplemented.

2

“Debtor Relief Law”:  Any federal, state or local law, domestic or foreign, as now or hereafter in effect relating to bankruptcy, insolvency, liquidation, receivership, reorganization, arrangement, composition, extension or adjustment of debts, or any similar law affecting the rights of creditors.

“Default”:  Any of the events described in Section 4.1 of this Deed of Trust.

“Dispute”:  Any controversy, claim or dispute between Grantor and Administrative Agent or any other Lender(s) or Holder, including any such controversy, claim or dispute arising out of or relating to (i) this Agreement, (ii) any other Loan Document, (iii) any related agreements or instruments, or (iv) the transaction contemplated herein or therein (including any claim based on or arising from an alleged personal injury or business tort).

“Holder”:  Administrative Agent for the ratable benefit of Lenders or the subsequent beneficiary at the time in question under this Deed of Trust.

“Indemnified Matters”:  Any and all claims, demands, liabilities (including strict liability), losses, damages (including consequential damages), causes of action, judgments, penalties, fines, costs and expenses (including reasonable fees and expenses of attorneys and other professional consultants and experts, and of the investigation and defense of any claim, whether or not such claim is ultimately defeated, and the settlement of any claim or judgment including all value paid or given in settlement) of every kind, known or unknown, foreseeable or unforeseeable, which may be imposed upon, asserted against or incurred or paid by any Indemnified Party at any time and from time to time, whenever imposed, asserted or incurred, because of, resulting from, in connection with, or arising out of any transaction, act, omission, event or circumstance in any way connected with the Property or with this Deed of Trust or any other Loan Document, including any bodily injury or death or property damage occurring in or upon or in the vicinity of the Property through any cause whatsoever at any time, any act performed or omitted to be performed hereunder or under any other Loan Document, any breach by Borrowers or Grantor of any representation, warranty, covenant, agreement or condition contained in this Deed of Trust or in any other Loan Document to which Grantor is a party, any Default, or any claim under or with respect to any Lease.

“Indemnified Party”:  Each of the following persons and entities:  (i) Administrative Agent, any Lender and any Holder; (ii) Trustee; (iii) any persons or entities owned or controlled by, owning or controlling, or under common control or affiliated with, Administrative Agent, any Lender, any Holder and/or Trustee; (iv) any participants and future co-lenders in the Loan; (v) the directors, officers, partners, employees, attorneys, agents and representatives of each of the foregoing persons and entities; and (vi) the heirs, personal representatives, successors and assigns of each of the foregoing persons and entities.

“Intercreditor Agreement”:  That certain Intercreditor Agreement, of even date herewith, among Bank of America, N.A., as first lien administrative agent, Bank of America, N.A., as second lien administrative agent, Borrowers and such other parties as may be added thereto from time to time in accordance with the terms thereof and as such Intercreditor Agreement may be amended or otherwise modified from time to time in accordance with the terms thereof.

3

“Law”:  Any federal, state or local law, statute, ordinance, code, rule, regulation, license, permit, authorization, decision, order, injunction or decree, domestic or foreign.

“Lease”:  Each existing or future lease, sublease (to the extent of Grantor’s rights thereunder) or other agreement under the terms of which any person has or acquires any right to occupy or use the Property or any part thereof or interest therein, and each existing or future guaranty of payment or performance thereunder, and any and all existing or future security therefor and letter-of-credit-rights with respect thereto, whether or not the letter of credit is evidenced by a writing.

“Legal Requirement”:  Any law, agreement, covenant, restriction, easement or condition (including, without limitation of the foregoing, any condition or requirement imposed by any insurance or surety company), as any of the same now exists or may be changed or amended or come into effect in the future.

“Lender”:  Each Lender from time to time party to the Credit Agreement.

“Loan”:  Collectively, the extensions of credit to be provided to the Borrowers by the Administrative Agent and the Lenders pursuant to the terms of the Credit Agreement.

 “Loan Documents”:  This Deed of Trust and any other document now or hereafter evidencing, governing, securing or otherwise executed in connection with the Loan, including the Credit Agreement, the Notes, the Collateral Documents, the Guaranty, each Secured Hedge Agreement, each Secured Cash Management Agreement, the Credit Succession Agreement and each other document executed in connection with the Credit Agreement, as each of them may have been or may be from time to time renewed, extended, supplemented, increased or modified.

“Permitted Encumbrances”:  (i) Any matters set forth in any policy of mortgagee title insurance issued to Administrative Agent for the benefit of Lenders which are acceptable to Administrative Agent as of the date hereof, (ii) the liens and security interests evidenced by this Deed of Trust, (iii) the first  priority liens and security interests evidenced by that certain First Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing made as of the date hereof by Alta Hollywood Hospitals, Inc., as trustor, in favor of PRLAP, Inc., as trustee, for the benefit of Bank of America, N.A., a national banking association, as beneficiary in its capacity as administrative agent for the lenders from time to time party to that certain First Lien Credit Agreement of even date herewith among the Borrowers, the lenders party thereto and Bank of America, N.A., (iv) statutory liens for real estate taxes and assessments on the Property which are not yet delinquent, (v) other liens and security interests (if any) in favor of Administrative Agent for the benefit of Lenders, (vi) the rights of tenants in possession as of the date hereof, if any, pursuant to Leases approved by Administrative Agent and the rights of future tenants under any Leases made in accordance with the Loan Documents, and the assignment of such Leases pursuant to this Deed of Trust, and (vii) any matters arising after the date hereof which may be acceptable to Administrative Agent or any Holder in its sole and absolute discretion, which Permitted Encumbrances in the aggregate do not materially adversely affect the value or use of the Property or Borrowers’ ability to repay the Secured Indebtedness.

4

“Rents”:  All of the rents, revenue, accounts, deposit accounts, payment intangibles, commercial tort claims, income, profits and proceeds derived and to be derived from the Property or arising from the use or enjoyment of any portion thereof or from any Lease, including the proceeds from any negotiated lease termination or buyout of such Lease, liquidated damages following default under any such Lease, all proceeds payable under any policy of insurance covering loss of rents resulting from untenantability caused by damage to any part of the Property, all of Grantor’s rights to recover monetary amounts from any tenant in bankruptcy, including rights of recovery for use and occupancy and damage claims arising out of Lease defaults, including rejections, under any applicable Debtor Relief Law, together with any sums of money that may now or at any time hereafter be or become due and payable to Grantor by virtue of any and all royalties, overriding royalties, bonuses, delay rentals and any other amount of any kind or character arising under any and all present and future oil, gas, mineral and mining leases covering the Property or any part thereof, and all proceeds and other amounts paid or owing to Grantor under or pursuant to any and all contracts and bonds relating to the construction or renovation of the Property.

“Secured Indebtedness”:  The following obligations, indebtedness, duties and liabilities and all renewals, extensions, supplements, increases and modifications thereof and thereto, in whole or in part, from time to time:

(i)All indebtedness, liabilities, duties, covenants, promises and other obligations owed by Borrowers, its Subsidiaries and Affiliates, to Administrative Agent and/or Lenders pursuant to the Loan Documents, but expressly excluding any guaranty executed by a third party, whether now existing or hereafter arising, and whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts;

(ii)All amounts that Administrative Agent, Lenders or any other Holder may from time to time advance pursuant to the terms and conditions of this Deed of Trust with respect to an obligation secured by a lien or encumbrance prior to the lien of this Deed of Trust or for the protection of this Deed of Trust, together with interest thereon; and

(iii)If and only if evidenced by a writing reciting that it is secured by this Deed of Trust, any other loan, future advance, debt, obligation or liability owed by Borrowers of every kind or character, whether now existing or hereafter arising, whether joint or several, direct or indirect, primary or secondary, fixed or contingent, liquidated or unliquidated, and the cost of collection of all such amounts, and whether or not originally payable to Administrative Agent, Lenders or any other Holder, it being contemplated that Borrowers may hereafter become indebted to Administrative Agent, Lenders or another Holder for one or more of such further loans, future advances, debts, obligations and liabilities.

“Transfer”:  Any sale, lease, conveyance, assignment, pledge, encumbrance or transfer, whether voluntary, involuntary, by operation of law or otherwise.

“Trustee”:  The trustee identified in the introductory paragraph of this Deed of Trust, and any successor or substitute appointed and designated as herein provided, from time to time acting hereunder.

5

(b)Any term used or defined in the California Uniform Commercial Code, as in effect from time to time, which is not defined in this Deed of Trust has the meaning given to that term in the California Uniform Commercial Code, as in effect from time to time, when used in this Deed of Trust.  However, if a term is defined in Division 9 of the California Uniform Commercial Code differently than in another Division of the California Uniform Commercial Code, the term has the meaning specified in Division 9.

Section 1.3Granting Clause.  For good and valuable consideration, the receipt and sufficiency of which are acknowledged by Grantor, to secure the obligations of Borrowers under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby GRANTS, TRANSFERS and ASSIGNS to Trustee, in trust for the benefit of Administrative Agent for the ratable benefit of Lenders, with power of sale and right of entry and possession, all estate, right, title and interest which Grantor now has or may hereafter acquire in and to the following Premises, Accessories (each as hereafter defined) and other rights, interests and properties, and all rights, estates, powers and privileges appurtenant thereto (collectively, the “Property”):

(a)The real property described in Exhibit A, which is attached hereto and incorporated herein by reference (the “Land”), together with:  (i) any and all buildings, structures, improvements, alterations or appurtenances now or hereafter situated or to be situated on the Land (collectively, the “Improvements”); and (ii) all right, title and interest of Grantor, now owned or hereafter acquired, in and to (A) all streets, roads, alleys, easements, rights-of-way, licenses, rights of ingress and egress, vehicle parking rights and public places, existing or proposed, abutting, adjacent, used in connection with or pertaining to the Land or the Improvements; (B) any strips or gores between the Land and abutting or adjacent properties; (C) all options to purchase the Land or the Improvements or any portion thereof or interest therein, and any greater estate in the Land or the Improvements; (D) all water, water rights (whether riparian, appropriative or otherwise, and whether or not appurtenant) and water stock, timber, crops and mineral interests on or pertaining to the Land; and (E) all development rights and credits and air rights (the Land, Improvements and other rights, titles and interests referred to in this clause (a) being herein sometimes collectively called the “Premises”);

(b)All fixtures, equipment, systems, machinery, furniture, furnishings, appliances, inventory, goods, building and construction materials, supplies, and other articles of personal property, of every kind and character, tangible and intangible (including software embedded therein), now owned or hereafter acquired by Grantor, which are now or hereafter attached to or situated in, on or about the Land or the Improvements, or used in or necessary to the complete and proper planning, development, use, occupancy or operation thereof, or acquired (whether delivered to the Land or stored elsewhere) for use or installation in or on the Land or the Improvements, and all renewals and replacements of, substitutions for and additions to the foregoing (the properties referred to in this clause (b) being herein sometimes collectively called the “Accessories,” all of which are hereby declared to be permanent accessions to the Land);

(c)All (i) plans and specifications for the Improvements, (ii) Grantor’s rights, but not liability for any breach by Grantor, under all commitments (including any commitments for financing to pay any of the Secured Indebtedness), insurance policies (or additional or supplemental coverage related thereto, including from an insurance provider meeting the

6

requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), contracts and agreements for the design, construction, operation or inspection of the Improvements and other contracts and general intangibles (including payment intangibles and any trademarks, trade names, goodwill, software and symbols) related to the Premises or the Accessories or the operation thereof, (iii) deposits and deposit accounts arising from or relating to any transactions related to the Premises or the Accessories (including Grantor’s rights in tenants’ security deposits, deposits with respect to utility services to the Premises, and any deposits, deposit accounts or reserves hereunder or under any other Loan Documents for taxes, insurance or otherwise), (iv) rebates or refunds of impact fees or other taxes, assessments or charges, money, accounts (including deposit accounts), instruments, documents, promissory notes and chattel paper (whether tangible or electronic) arising from or by virtue of any transactions related to the Premises or the Accessories, (v) permits, licenses, franchises, certificates, development rights, commitments and rights for utilities, and other rights and privileges obtained in connection with the Premises or the Accessories, (vi) Leases, Rents and other benefits of the Premises and the Accessories (without derogation of Article 3 hereof), (vii) as-extracted collateral produced from or allocated to the Land, including oil, gas and other hydrocarbons and other minerals and all products processed or obtained therefrom and the proceeds thereof, and (viii) engineering, accounting, title, legal, and other technical or business data concerning the Property, including software, which are in the possession of Grantor or in which Grantor can otherwise grant a security interest;

(d)All (i) accounts and proceeds (whether cash or non-cash and including payment intangibles), of or arising from the properties, rights, titles and interests referred to above in this Section 1.3, including the proceeds of any sale, lease or other disposition thereof, proceeds of each policy of insurance, present and future (or additional or supplemental coverage related thereto, including from an insurance provider meeting the requirements of the Loan Documents or from or through any state or federal government-sponsored program or entity), payable because of loss sustained to all or part of the Property (including premium refunds), whether or not such insurance policies are required by Administrative Agent, proceeds of the taking thereof or of any rights appurtenant thereto, including change of grade of streets, curb cuts or other rights of access, by condemnation, eminent domain or transfer in lieu thereof for public or quasi-public use under any law, proceeds arising out of any damage thereto, including any and all commercial tort claims, (ii) all letter-of-credit rights (whether or not the letter of credit is evidenced by a writing) Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, (iii) all commercial tort claims Grantor now has or hereafter acquires relating to the properties, rights, titles and interests referred to in this Section 1.3, and (iv) other interests of every kind and character which Grantor now has or hereafter acquires in, to or for the benefit of the properties, rights, titles and interests referred to above in this Section 1.3 and all property used or useful in connection therewith, including rights of ingress and egress and remainders, reversions and reversionary rights or interests;

(e)If the estate of Grantor in any of the property referred to above in this Section 1.3 is a leasehold estate, this conveyance shall include, and the lien and security interest created hereby shall encumber and extend to, all other or additional title, estates, interests or rights which are now owned or may hereafter be acquired by Grantor in or to the property demised under the lease creating the leasehold estate; and

7

(f)All proceeds and products of, additions and accretions to, substitutions and replacements for, and changes in any of the property referred to above in this Section 1.3.

Section 1.4Security Interest.  To secure the obligations of Borrowers, its Subsidiaries and Affiliates under the Loan Documents and all other matters and indebtedness constituting the Secured Indebtedness, Grantor hereby grants to Administrative Agent for the ratable benefit of Lenders a security interest in all of the Collateral, including all proceeds and products thereof and all supporting obligations ancillary thereto or arising in any way in connection therewith.  In addition to its rights hereunder or otherwise, Administrative Agent, on behalf of itself and Lenders, and any Holder shall have all of the rights of a secured party under the California Uniform Commercial Code, as in effect from time to time, or under the Uniform Commercial Code in force from time to time in any other state to the extent the same is applicable law.

Section 1.5Intercreditor Agreement.  Notwithstanding anything herein to the contrary, the lien and security interest granted to the Trustee, in trust for the benefit of the Administrative Agent for the ratable benefits of the Lenders pursuant to this Deed of Trust and the exercise of any right or remedy by the Trustee hereunder are subject to the provisions of the Intercreditor Agreement.  In the event of any conflict between the terms of the Intercreditor Agreement and this Deed of Trust, the terms of the Intercreditor Agreement shall govern.

Section 1.6Subordination.  The liens and security interests created by this Deed of Trust shall be, until the Discharge of the First Lien Obligations (as defined in the Intercreditor Agreement), a second priority lien (subject to permitted encumbrances and other permitted liens), subordinate in all respects (including the exercise of remedies with respect to the Collateral) to the prior lien of the applicable First Lien Loan Documents (as defined in the Intercreditor Agreement) on and subject to the terms and conditions set forth in the Intercreditor Agreement.

ARTICLE 2
Representations, Warranties and Covenants

Section 2.1Grantor represents, warrants and covenants as follows:

(a)Payment and Performance.  Grantor will timely and properly perform and comply with all of the covenants, agreements and conditions imposed upon it by this Deed of Trust and will not permit a Default to occur hereunder or thereunder.  Time shall be of the essence in this Deed of Trust.

(b)Title and Permitted Encumbrances.  Grantor has in Grantor’s own right, and Grantor covenants to maintain lawful, good and marketable title to the Property, is lawfully seized and possessed of the Property and every part thereof, and has the right to convey the same, free and clear of all liens, charges, claims, security interests, and encumbrances except for the Permitted Encumbrances.  Grantor will warrant generally and forever defend title to the Property, subject as aforesaid to the Permitted Encumbrances, to Trustee and its successors or substitutes and assigns, against the claims and demands of all persons claiming or to claim the same or any part thereof.  Grantor will punctually pay, perform, observe and keep all covenants, obligations and conditions in or pursuant to any Permitted Encumbrance and will not modify or

8

permit modification of any Permitted Encumbrance without the prior written consent of Holder.  Inclusion of any matter as a Permitted Encumbrance does not constitute approval or waiver by Holder or Lenders of any existing or future violation or other breach thereof by Grantor, the Property or otherwise.  If any right or interest of Holder or any Lender in the Property or any part thereof shall be endangered or questioned or shall be attacked directly or indirectly, Trustee, Holder and Lenders, or any of them (whether or not named as parties to legal proceedings with respect thereto), are hereby authorized and empowered to take such steps as in their discretion may be proper for the defense of any such legal proceedings or the protection of such right or interest of Holder and each Lender, including the employment of independent counsel, the prosecution or defense of litigation, and the compromise or discharge of adverse claims.  All expenditures so made of every kind and character shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Trustee or to Holder, for its own account or the account of Lenders (as the case may be), and the party (Trustee, Holder or Lenders, as the case may be) making such expenditures shall be subrogated to all rights of the person receiving such payment.

(c)Taxes and Other Impositions.  Grantor will pay or cause to be paid all taxes, assessments and other charges or levies imposed upon or against or with respect to the Property or the ownership, use, occupancy or enjoyment of any portion thereof, or any utility service thereto, as the same become due and payable, including all real estate taxes assessed against the Property or any part thereof, and shall deliver promptly to Holder such evidence of the payment thereof as Holder may require.

(d)Insurance Coverage.  Grantor shall obtain and maintain at Grantor’s sole expense:  (i) property insurance with respect to all insurable Property, against loss or damage by fire, lightning, windstorm, explosion, hail, tornado and such additional hazards as are presently included in Special Form (also known as “all-risk”) coverage and against any and all acts of terrorism and such other insurable hazards as Holder may require, in an amount not less than 100% of the full replacement cost, including the cost of debris removal, without deduction for depreciation and sufficient to prevent Grantor, Holder and Lenders from becoming a coinsurer, such insurance to be in “builder’s risk” completed value (non-reporting) form during and with respect to any construction on the Premises; (ii) if and to the extent any portion of the Improvements is, under the Flood Disaster Protection Act of 1973 (“FDPA”), as it may be amended from time to time, in a Special Flood Hazard Area, within a Flood Zone designated A or V in a participating community, a flood insurance policy in an amount required by Holder, but in no event less than the amount sufficient to meet the requirements of applicable law and the FDPA, as such requirements may from time to time be in effect; (iii) general liability insurance, on an “occurrence” basis against claims for “personal injury” liability, including bodily injury, death or property damage liability, for the benefit of Grantor as named insured and Holder as additional insured on behalf of itself and Lenders; (iv) statutory workers’ compensation insurance with respect to any work on or about the Premises (including employer’s liability insurance, if required by Holder), covering all employees of Grantor and any contractor; (v) if there is a general contractor, commercial general liability insurance, including products and completed operations coverage, and in other respects similar to that described in clause (iii) above, for the benefit of the general contractor as named insured and Grantor and Holder (on behalf of itself and Lenders) as additional insureds, in addition to statutory workers’ compensation insurance with respect to any work on or about the Premises (including

9

employer’s liability insurance, if required by Holder), covering all employees of the general contractor and any contractor; and (vi) such other insurance on the Property and endorsements as may from time to time be required by Holder (including soft cost coverage, automobile liability insurance, business interruption insurance or delayed rental income insurance, wind insurance, boiler and machinery insurance, sinkhole coverage, and/or permit to occupy endorsement) and against other insurable hazards or casualties which at the time are commonly insured against in the case of premises similarly situated, due regard being given to the height, type, construction, location, use and occupancy of buildings and improvements.

(e)Insurance Policy Requirements.  All insurance policies shall be issued and maintained by insurers, in amounts, with deductibles, limits and retentions and in forms satisfactory to Holder.  All insurance policies shall require at least ten (10) days’ prior written notice to Holder of any cancellation for nonpayment of premiums and at least thirty (30) days’ prior written notice to Holder of any other cancellation or any change of coverage.  All insurance companies must be licensed to do business in the state in which the Property is located and must have A. M. Best Company financial and performance ratings of A-:IX or better.  All insurance policies maintained, or caused to be maintained, by Grantor with respect to the Property, except for general liability insurance, shall provide that each such policy shall be primary without right of contribution from any other insurance that may be carried by Grantor, Holder or any Lender and that all of the provisions thereof, except the limits of liability, shall operate in the same manner as if there were a separate policy covering each insured.  If any insurer which has issued a policy of hazard, liability or other insurance required pursuant to this Deed of Trust or any other Loan Document becomes insolvent or the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law or if in Holder’s reasonable opinion the financial responsibility of such insurer is or becomes inadequate, Grantor shall, upon its discovery thereof or upon request by Holder therefor, promptly obtain and deliver to Holder, at Grantor’s expense in each instance, a like policy (or, if and to the extent permitted by Holder, acceptable evidence of insurance) issued by another insurer, which insurer and policy meet the requirements of this Deed of Trust or such other Loan Document, as the case may be.  Without limiting the discretion of Holder with respect to required endorsements to insurance policies, all such policies for loss of or damage to the Property shall contain a standard mortgagee clause (without contribution) naming Holder as mortgagee for the benefit of itself and Lenders with loss proceeds payable to Holder on behalf of itself and Lenders notwithstanding (i) any act, failure to act or negligence of or violation of any warranty, declaration or condition contained in any such policy by any named or additional insured, (ii) the occupation or use of the Property for purposes more hazardous than permitted by the terms of any such policy, (iii) any foreclosure or other action by Holder or Lenders under the Loan Documents, or (iv) any change in title to or ownership of the Property or any portion thereof, such proceeds to be held for application as provided in the Loan Documents.  The originals of each initial insurance policy (or to the extent permitted by Holder, a copy of the original policy and such evidence of insurance as may be acceptable to Holder) shall be delivered to Holder at the time of execution of this Deed of Trust, with all premiums fully paid current, and each renewal or substitute policy (or evidence of insurance) shall be delivered to Holder, with all premiums fully paid current, at least ten (10) days before the termination of the policy it renews or replaces.  Grantor shall pay all premiums on policies required hereunder as they become due and payable and promptly deliver to Holder evidence satisfactory to Holder of the timely payment thereof.

10

(f)Insurance Proceeds.  If any loss occurs at any time when Grantor has failed to perform Grantor’s covenants and agreements with respect to any insurance payable because of loss sustained to any part of the Property, whether or not such insurance is required by Holder, Holder, on behalf of itself and Lenders, shall nevertheless be entitled to the benefit of all insurance covering the loss and held by or for Grantor, to the same extent as if it had been made payable to Holder for the benefit of itself and Lenders.  Upon any foreclosure hereof or transfer of title to the Property in extinguishment of the whole or any part of the Secured Indebtedness, all of Grantor’s right, title and interest in and to the insurance policies referred to in this clause (f) (including unearned premiums) and all proceeds payable thereunder shall thereupon vest in the purchaser at foreclosure or other such transferee, to the extent permissible under such policies.  Holder shall have the right on behalf of Lenders (but not the obligation) to make proof of loss for, settle and adjust any claim under, and receive the proceeds of, all insurance for loss of or damage to the Property, regardless of whether or not such insurance policies are required by Holder, and the expenses incurred by Holder and Lenders in the adjustment and collection of insurance proceeds shall be a part of the Secured Indebtedness and shall be due and payable to Holder on demand (for its own account or for the account of Lenders, as applicable).  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or exercise diligence in the collection of any of such proceeds or for the obtaining, maintaining or adequacy of any insurance or for failure to see to the proper application of any amount paid over to Grantor.  Grantor shall at all times comply with the requirements of the insurance policies required hereunder and of the issuers of such policies and of any board of fire underwriters or similar body as applicable to or affecting the Property.

(g)Reserve for Insurance, Taxes and Assessments.  Upon request of Holder and upon the occurrence of a Default, to secure the payment and performance of the Secured Indebtedness, but not in lieu of such payment and performance, Grantor will deposit with Holder for the benefit of itself and Lenders a sum equal to real estate taxes, assessments and charges (which charges for the purposes of this clause (g) shall include any recurring charge which could result in a lien against the Property) against the Property for the current year and the premiums for such policies of insurance for the current year, all as estimated by Holder and prorated to the end of the calendar month following the month during which Holder’s request is made, and thereafter will deposit with Holder, on each date when an installment of principal and/or interest is due pursuant to the Credit Agreement, sufficient funds (as estimated from time to time by Holder) to permit Holder to pay at least fifteen (15) days prior to the due date thereof, the next maturing real estate taxes, assessments and charges and premiums for such policies of insurance.  Holder shall have the right to rely upon tax information furnished by applicable taxing authorities in the payment of such taxes or assessments and shall have no obligation to make any protest of any such taxes or assessments.  Any excess over the amounts required for such purposes shall be held by Holder for future use, applied to any Secured Indebtedness or refunded to Grantor, at Holder’s option, and any deficiency in such funds so deposited shall be made up by Grantor upon demand of Holder.  All such funds so deposited shall bear no interest, may be commingled with the general funds of Holder and shall be applied by Holder toward the payment of such taxes, assessments, charges and premiums when statements therefor are presented to Holder by Grantor (which statements shall be presented by Grantor to Holder a reasonable time before the applicable amount is due); provided, however, that, if a Default shall have occurred hereunder, such funds may at Holder’s option be applied to the payment of the Secured Indebtedness in the order determined by Holder in its sole discretion, and that Holder may (but shall have no obligation) at

11

any time, in its discretion, apply all or any part of such funds toward the payment of any such taxes, assessments, charges or premiums which are past due, together with any penalties or late charges with respect thereto.  The conveyance or transfer of Grantor’s interest in the Property for any reason (including the foreclosure of a subordinate lien or security interest or a transfer by operation of law) shall constitute an assignment or transfer of Grantor’s interest in and rights to such funds held by Holder under this clause (g) but subject to the rights of Holder and Lenders hereunder.

(h)Condemnation.  Grantor shall notify Holder immediately of any threatened or pending proceeding for condemnation affecting the Property or arising out of damage to the Property, and Grantor shall, at Grantor ‘s expense, diligently prosecute any such proceedings.  Holder shall have the right (but not the obligation) to participate in any such proceeding and to be represented by counsel of its own choice.  Holder shall be entitled to receive, on behalf of itself and Lenders, all sums which may be awarded or become payable to Grantor for the condemnation of the Property, or any part thereof, for public or quasi-public use, or by virtue of private sale in lieu thereof, and any sums which may be awarded or become payable to Grantor for injury or damage to the Property.  Grantor shall, promptly upon request of Holder, execute such additional assignments and other documents as may be necessary from time to time to permit such participation and to enable Holder to collect and receipt for any such sums.  Neither Holder nor Lenders shall be, under any circumstances, liable or responsible for failure to collect or to exercise diligence in the collection of any such sum or for failure to see to the proper application of any amount paid over to Grantor.  Holder is hereby authorized, in its own name on behalf of itself and Lenders or in Grantor’s name, to settle or compromise any condemnation claim or cause of action, and to execute and deliver valid acquittances for, and to appeal from, any award, judgment or decree arising from any such claim or cause of action.  All costs and expenses (including attorneys’ fees) incurred by Holder or Lenders in connection with any condemnation shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or for the account of Lenders, as applicable) pursuant to this Deed of Trust.

(i)Damages and Insurance and Condemnation Proceeds.  Grantor hereby absolutely and irrevocably assigns to Administrative Agent for the ratable benefit of itself and Lenders, and authorizes the payor to pay to Administrative Agent or any other Holder, the following claims, causes of action, awards, payments and rights to payment (collectively, “Claims”):  all awards of damages and all other compensation payable directly or indirectly because of a condemnation, proposed condemnation or taking which affects any part of the Property; all awards and other Claims arising out of any warranty affecting any part of the Property or for damage or injury to any part of the Property; all proceeds of any insurance policies payable because of loss sustained to any part of the Property, whether or not such insurance policies are required by Holder, and all interest that may accrue on any of the foregoing.  All proceeds of Claims described in this clause (i) shall be payable to Holder and shall be applied first to reimburse Holder and Lenders for their costs and expenses of recovering such proceeds, including attorneys’ fees.  Upon satisfaction of each of the following conditions, provided that no Default exists, Grantor shall be permitted to use the balance of the proceeds (“Net Claims Proceeds”) to pay the costs of repairing or reconstructing the Property:

12

(i)Holder shall have approved the plans and specifications, construction budget, construction schedule, contractor, architect, engineer and payment and performance bond (if required by Holder);

(ii)Grantor shall have presented sufficient evidence to Holder that after the repair or reconstruction, the Property will be completely restored to its use, value and condition immediately prior to the occurrence of the damage or condemnation;

(iii)Holder shall have determined that the Net Claims Proceeds are sufficient to pay the total cost of the repair or reconstruction, including all development costs and interest due on the Secured Indebtedness until the work is complete, or Grantor must provide (or deposit with Holder) its own funds equal to the difference between the Net Claims Proceeds and the total cost of the work, as estimated by Grantor and approved by Holder;

(iv)Grantor shall have presented sufficient evidence that the Property’s operations and income after the repair or reconstruction will be sufficient to pay the operating expenses of the Property including evidence that a sufficient number of existing Leases will continue in full force and effect (subject to rent abatement as may be provided in the Leases) or if any have been terminated, a sufficient number of terminated Leases shall have been replaced with Leases of equal quality in the reasonable judgment of Holder.  Any tenant having the right to terminate its Lease due to the damage or condemnation, which has not exercised that right, shall have confirmed in writing to Holder its irrevocable waiver of such termination right;

(v)All parties having operating, management or franchise interests in and arrangements concerning the Property shall have agreed that they will continue their interests and arrangements for the contract terms then in effect following the repair or reconstruction;

(vi)All parties having commitments to provide financing with respect to the Property, to purchase Grantor’s interest in full or in part in the Property or to purchase the Loan shall have agreed in a manner satisfactory to Holder that their commitments will continue in full force and effect and, if necessary, the expiration of such commitments shall be extended by the time necessary to complete the repair or reconstruction;

(vii)Grantor shall have presented sufficient evidence to Holder that all necessary governmental approvals and permits can be obtained to allow the rebuilding and reoccupancy of the Property;

(viii)Grantor shall have presented sufficient evidence to Holder that the reconstruction of the Improvements will take no longer than twelve (12) months to reconstruct and that such reconstruction will be completed prior to the stated maturity of the Loan.

If the foregoing conditions are met to Holder’s reasonable satisfaction, Holder shall hold the Net Claims Proceeds and any funds that Grantor is required to provide in an interest-bearing account and shall disburse them to Grantor to pay the costs of the work in accordance with normal and customary construction draw terms and conditions.  Interest on the funds shall accrue at the rate of interest then being paid by Holder to regular savings account customers and shall be credited to Grantor.  Grantor shall provide evidence acceptable to Holder that all work has been completed lien-free, in a workmanlike manner and in accordance with all Legal Requirements. 

13

Grantor agrees that the conditions described above are reasonable.  If the foregoing conditions are not satisfied, or if a Default occurs after Holder’s receipt of the Net Claims Proceeds, Holder may, at Holder’s absolute discretion and regardless of whether the security of Holder and Lenders is impaired, apply all or any of the Net Claims Proceeds to pay or prepay the Secured Indebtedness in such order and in such amounts as Holder may elect.  Following the application of any Net Claims Proceeds as contemplated by this clause (i), the unpaid portion of the Secured Indebtedness shall remain in full force and effect and the payment thereof shall not be excused.  Notwithstanding the foregoing, the rights of Holder and Lenders shall be subject to applicable law governing use of the Net Claims Proceeds, if any.

(j)Compliance with Legal Requirements.  The Property and the use, operation and maintenance thereof and all activities thereon do and shall at all times comply with all applicable Legal Requirements.  The Property is not, and shall not be, dependent on any other property or premises or any interest therein other than the Property to fulfill any requirement of any Legal Requirement.  Grantor shall not, by act or omission, permit any building or other improvement not subject to the lien of this Deed of Trust to rely on the Property or any interest therein to fulfill any requirement of any Legal Requirement.  No improvement upon or use of any part of the Property constitutes a nonconforming use under any zoning law or similar law or ordinance.  Grantor has obtained and shall preserve in force all requisite zoning, utility, building, health, environmental and operating permits from the governmental authorities having jurisdiction over the Property.  If Grantor receives a notice or claim from any person that the Property, or any use, activity, operation or maintenance thereof or thereon, is not in compliance with any Legal Requirement, Grantor will promptly furnish a copy of such notice or claim to Holder.  Grantor has received no notice and has no knowledge of any such noncompliance.

(k)Maintenance, Repair and Restoration.  Grantor will keep the Property in first class order, repair, operating condition and appearance, causing all necessary repairs, renewals, replacements, additions and improvements to be promptly made, and will not allow any of the Property to be misused, abused or wasted or to deteriorate.  Notwithstanding the foregoing, Grantor will not, without the prior written consent of Holder, (i) remove from the Property any fixtures or personal property covered by this Deed of Trust except such as is replaced by Grantor by an article of equal suitability and value, owned by Grantor, free and clear of any lien or security interest (except that created by this Deed of Trust), or (ii) make any structural alteration to the Property or any other alteration thereto which impairs the value thereof. If any act or occurrence of any kind or nature (including any condemnation or any casualty for which insurance was not obtained or obtainable) shall result in damage to or loss or destruction of the Property, Grantor shall give prompt notice thereof to Holder and Grantor shall promptly, at Grantor’s sole cost and expense and regardless of whether insurance or condemnation proceeds (if any) shall be available or sufficient for the purpose, secure the Property as necessary and commence and continue diligently to completion to restore, repair, replace and rebuild the Property as nearly as possible to its value, condition and character immediately prior to the damage, loss or destruction.

(l)No Other Liens.  Grantor will not, without the prior written consent of Holder, create, place or permit to be created or placed, or through any act or failure to act, acquiesce in the placing of, or allow to remain, any deed of trust, mortgage, voluntary or involuntary lien, whether statutory, constitutional or contractual, security interest, encumbrance or charge, or

14

conditional sale or other title retention document, against or covering the Property, or any part thereof, other than the Permitted Encumbrances, regardless of whether the same are expressly or otherwise subordinate to the lien or security interest created in this Deed of Trust, and should any of the foregoing become attached hereafter in any manner to any part of the Property without the prior written consent of Holder, Grantor will cause the same to be promptly discharged and released.  Grantor will own all parts of the Property and will not acquire any fixtures, equipment or other property (including software embedded therein) forming a part of the Property pursuant to a lease, license, security agreement or similar agreement, whereby any party has or may obtain the right to repossess or remove same, without the prior written consent of Holder.  If Holder consents to the voluntary grant by Grantor of any deed of trust, lien, security interest, or other encumbrance (hereinafter called “Subordinate Lien”) covering any of the Property or if the foregoing prohibition is determined by a court of competent jurisdiction to be unenforceable as to a Subordinate Lien, any such Subordinate Lien shall contain express covenants to the effect that:  (i) the Subordinate Lien is unconditionally subordinate to this Deed of Trust and all Leases; (ii) if any action (whether judicial or pursuant to a power of sale) shall be instituted to foreclose or otherwise enforce the Subordinate Lien, no tenant of any of the Leases shall be named as a party defendant, and no action shall be taken that would terminate any occupancy or tenancy without the prior written consent of Holder; (iii) Rents, if collected by or for the holder of the Subordinate Lien, shall be applied first to the payment of the Secured Indebtedness then due and expenses incurred in the ownership, operation and maintenance of the Property in such order as Holder may determine, prior to being applied to any indebtedness secured by the Subordinate Lien; (iv) written notice of default under the Subordinate Lien and written notice of the commencement of any action (whether judicial or pursuant to a power of sale) to foreclose or otherwise enforce the Subordinate Lien or to seek the appointment of a receiver for all or any part of the Property shall be given to Holder with or immediately after the occurrence of any such default or commencement; and (v) neither the holder of the Subordinate Lien, nor any purchaser at foreclosure thereunder, nor anyone claiming by, through or under any of them shall succeed to any of Grantor’s rights hereunder without the prior written consent of Holder.

(m)Operation of Property.  Grantor will operate the Property in a good and workmanlike manner and in accordance with all Legal Requirements and will pay all fees or charges of any kind in connection therewith.  Grantor will keep the Property occupied so as not to impair the insurance carried thereon.  Grantor will not use or occupy or conduct any activity on, or allow the use or occupancy of or the conduct of any activity on, the Property in any manner which violates any Legal Requirement or which constitutes a public or private nuisance or which makes void, voidable or cancelable, or increases the premium of, any insurance then in force with respect thereto.  Grantor will not initiate or permit any zoning reclassification of the Property or seek any variance under existing zoning ordinances applicable to the Property or use or permit the use of the Property in such a manner which would result in such use becoming a nonconforming use under applicable zoning ordinances or other Legal Requirement.  Grantor will not impose any easement, restrictive covenant or encumbrance upon the Property, execute or file any subdivision plat or condominium declaration affecting the Property or consent to the annexation of the Property to any municipality, without the prior written consent of Holder.  Grantor will not do or suffer to be done any act whereby the value of any part of the Property may be lessened.  Grantor will preserve, protect, renew, extend and retain all material rights and privileges granted for or applicable to the Property.  Without the prior written consent of Holder, there shall be no drilling or exploration for or extraction, removal or production of any mineral,

15

hydrocarbon, gas, natural element, compound or substance (including sand and gravel) from the surface or subsurface of the Land regardless of the depth thereof or the method of mining or extraction thereof.  Grantor will cause all debts and liabilities of any character (including all debts and liabilities for labor, material and equipment (including software embedded therein) and all debts and charges for utilities servicing the Property) incurred in the construction, maintenance, operation and development of the Property to be promptly paid.

(n)Further Assurances.  Grantor will, promptly on request of Holder, (i) correct any defect, error or omission which may be discovered in the contents, execution or acknowledgment of this Deed of Trust or any other Loan Document; (ii) execute, acknowledge, deliver, procure and record and/or file such further documents (including further deeds of trust, security agreements, and assignments of rents or leases) and do such further acts as may be necessary, desirable or proper to carry out more effectively the purposes of this Deed of Trust and the other Loan Documents, to more fully identify and subject to the liens and security interests hereof any property intended to be covered hereby (including specifically, but without limitation, any renewals, additions, substitutions, replacements, or appurtenances to the Property) or as deemed advisable by Holder to protect the lien or the security interest hereunder against the rights or interests of third persons; and (iii) provide such certificates, documents, reports, information, affidavits and other instruments and do such further acts as may be necessary, desirable or proper in the reasonable determination of Holder to enable Holder and Lenders to comply with the requirements or requests of any agency having jurisdiction over Holder or any Lender or any examiners of such agencies with respect to the indebtedness secured hereby, Grantor or the Property.  Grantor shall pay all costs connected with any of the foregoing, which shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(o)Fees and Expenses.  Without limitation of any other provision of this Deed of Trust or of any other Loan Document and to the extent not prohibited by applicable law, Borrowers will pay, and will reimburse to Holder (for its own account or the account of Lenders, as applicable) and/or Trustee on demand to the extent paid by Holder, Lenders and/or Trustee:  (i) costs of appraisals obtained in connection with the origination of the Loan and after the occurrence of a Default; (ii) all filing, registration and recording fees, recordation, transfer and other taxes, brokerage fees and commissions, abstract fees, title search or examination fees, title policy and endorsement premiums and fees, Uniform Commercial Code search fees, judgment and tax lien search fees, escrow fees, attorneys’ fees, architect’s fees, engineering fees, construction consultant fees, environmental inspection fees, survey fees, and all other costs and expenses of every character incurred by Borrowers or Holder, Lenders and/or Trustee in connection with the preparation of the Loan Documents, the evaluation, closing and funding of the Loan, and any and all amendments and supplements to this Deed of Trust or any other Loan Documents or any approval, consent, waiver, release or other matter requested or required hereunder or thereunder, or otherwise attributable or chargeable to Grantor as owner of the Property; and (iii) all costs and expenses, including attorneys’ fees and expenses (including the market value of services provided by in-house counsel), incurred or expended in connection with the exercise of any right or remedy, or the defense of any right or remedy or the enforcement of any obligation of Borrowers or Grantor, hereunder or under any other Loan Document.

16

(p)Indemnification.  Grantor will indemnify and hold harmless each and every Indemnified Party from and against, and reimburse them on demand for, any and all Indemnified Matters.  Without limitation, the foregoing indemnity shall apply to each Indemnified Party with respect to matters which in whole or in part are caused by or arise out of the negligence of such (and/or any other) Indemnified Party.  However, such indemnity shall not apply to a particular Indemnified Party to the extent that the subject of the indemnification is caused by or arises out of the gross negligence or willful misconduct of that Indemnified Party.  Any amount to be paid under this clause (p) by Grantor to any Indemnified Party shall be a demand obligation owing by Grantor (which Grantor hereby promises to pay) to such Indemnified Party pursuant to this Deed of Trust.  The indemnity in this clause (p) shall not terminate upon the release, foreclosure or other termination of this Deed of Trust but will survive the enforcement of any remedy provided in any Loan Document including the foreclosure of this Deed of Trust or conveyance in lieu of foreclosure, the repayment of the Secured Indebtedness, the discharge and release of this Deed of Trust and the other Loan Documents, any bankruptcy or other proceeding under any Debtor Relief Law, and any other event whatsoever.  The rights of Indemnified Parties under this clause (p) shall be in addition to all other rights that Indemnified Parties or any of them may have under this Deed of Trust or any other Loan Document.  Nothing in this clause (p) or elsewhere in this Deed of Trust shall limit or impair any rights or remedies that any Indemnified Party may have (including any rights of contribution or indemnification) against Grantor or any other person under any other provision of this Deed of Trust, any other Loan Document, any other agreement or any applicable Legal Requirement.

(q)Taxes on Deed of Trust.  Grantor will promptly pay all income, franchise and other taxes owing by Grantor and any stamp, documentary, recordation and transfer taxes or other taxes (unless such payment by Grantor is prohibited by law) which may be required to be paid with respect to any Note, this Deed of Trust or any other instrument evidencing or securing any of the Secured Indebtedness.  In the event of the enactment after this date of any law of any governmental entity applicable to Holder, any Lender, the Property or this Deed of Trust deducting from the value of property for the purpose of taxation any lien or security interest thereon, or imposing upon Holder or any Lender the payment of the whole or any part of the taxes or assessments or charges or liens herein required to be paid by Grantor, or changing in any way the laws relating to the taxation of deeds of trust or mortgages or security agreements or debts secured by deeds of trust or mortgages or security agreements or the interest of the mortgagee or secured party in the property covered thereby, or the manner of collection of such taxes, so as to affect this Deed of Trust or the Secured Indebtedness or Holder or any Lender, then, and in any such event, Grantor, upon demand by Holder, shall pay such taxes, assessments, charges or liens, or reimburse Holder therefor (for its own account or the account of the affected Lender(s), as applicable); provided, however, that if in the opinion of counsel for Holder (i) it might be unlawful to require Grantor to make such payment or (ii) the making of such payment might result in the imposition of interest beyond the maximum amount permitted by law, then and in such event, Holder may elect, by notice in writing given to Grantor, to declare all of the Secured Indebtedness to be and become due and payable sixty (60) days from the giving of such notice.

(r)Statement Concerning the Loan or Deed of Trust.  Grantor shall at any time and from time to time furnish within seven (7) days of request by Holder a written statement in such form as may be required by Holder stating (i) that this Deed of Trust and the other Loan

17

Documents are valid and binding obligations, and enforceable against Grantor in accordance with their terms; (ii) the aggregate unpaid principal balance of the Loan; (iii) the date to which interest on the Loan is paid; (iv) that this Deed of Trust and the other Loan Documents have not been released, subordinated or modified; and (v) that there are no offsets or defenses against the enforcement of this Deed of Trust or any other Loan Document.  Alternatively, if any of the foregoing statements in clauses (i), (iv) and (v) are untrue, Grantor shall specify the reasons therefor.

(s)Letter-of-Credit Rights.  If Grantor is at any time a beneficiary under a letter of credit (whether or not the letter of credit is evidenced by a writing) relating to the properties, rights, titles and interests referred to in Section 1.3 of this Deed of Trust now or hereafter issued in favor of Grantor, Grantor shall promptly notify Holder thereof and, at the request and option of Holder, Grantor shall, pursuant to an agreement in form and substance satisfactory to Holder, either (i) arrange for the issuer and any confirmer of such letter of credit to consent to an assignment to Holder of the proceeds of any drawings under the letter of credit, or (ii) arrange for Holder to become the transferee beneficiary of the letter of credit, with Holder agreeing, in each case, that the proceeds of any drawing under the letter of credit are to be applied as provided in Section 5.2 of this Deed of Trust.

(t)Status of Grantor.  Grantor is and will continue to be (i) duly organized, validly existing and in good standing under the laws of its state of organization, (ii) authorized to do business and in good standing in each state in which the Property is located, and (iii) possessed of all requisite power and authority to carry on its business and to own and operate the Property.  Grantor’s exact legal name is correctly set forth at the end of this Deed of Trust.  Grantor is an organization of the type specified in the introductory paragraph of this Deed of Trust.  If Grantor is a registered entity, Grantor is incorporated in or organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  If Grantor is an unregistered entity (including a general partnership), it is organized under the laws of the state specified in the introductory paragraph of this Deed of Trust.  Grantor will not cause or permit any change to be made in its name, identity (including its trade name or names), or corporate or partnership structure unless Grantor shall have notified Holder in writing of such change at least 30 days prior to the effective date of such change, and shall have first taken all action required by Holder for the purpose of further perfecting or protecting the lien and security interest of Holder in the Property.  In addition, Grantor shall not change its corporate or partnership structure without first obtaining the prior written consent of Holder.  Grantor’s principal place of business and chief executive office, and the place where Grantor keeps its books and records, including recorded data of any kind or nature, regardless of the medium of recording, including software, writings, plans, specifications and schematics concerning the Property, has been for the preceding four months (or, if less, the entire period of the existence of Grantor) and will continue to be the address of Grantor set forth at the end of this Deed of Trust (unless Grantor notifies Holder of any change in writing at least 30 days prior to the date of such change).  Grantor’s organizational identification number, if any, assigned by the state of incorporation or organization is correctly set forth on the first page of this Deed of Trust.  Grantor shall promptly notify Holder of any change in its organizational identification number.  If Grantor does not now have an organizational identification number and later obtains one, Grantor shall promptly notify Holder of such organizational identification number.

18

Section 2.2Performance by Holder on Grantor’s Behalf.  Grantor agrees that if Grantor fails to perform any act or to take any action which under any Loan Document Grantor is required to perform or take, or to pay any money which under any Loan Document Grantor is required to pay, and whether or not the failure then constitutes a Default, and whether or not there has occurred any Default or the Secured Indebtedness has been accelerated, Holder, in Grantor’s name or its own name on behalf of itself and Lenders, may, but shall not be obligated to, perform or cause to be performed such act or take such action or pay such money, and any expenses so incurred by Holder or Lenders and any money so paid by Holder or Lenders shall be a demand obligation owing by Grantor to Holder for its own account or the account of Lenders, as applicable (which obligation Grantor hereby promises to pay), shall be a part of the Secured Indebtedness, and Holder and/or Lenders, upon making such payment, shall be subrogated to all of the rights of the person, entity or body politic receiving such payment.  Holder and its designees shall have the right to enter upon the Property at any time and from time to time for any such purposes.  No such payment or performance by Holder or Lenders shall waive or cure any Default or waive any right, remedy or recourse of Holder or Lenders.  Any such payment may be made by Holder or Lenders in reliance on any statement, invoice or claim without inquiry into the validity or accuracy thereof.  Each amount due and owing by Grantor to Holder or Lenders pursuant to this Deed of Trust shall bear interest, from the date such amount becomes due until paid, at the rate per annum provided in the Credit Agreement for interest on past-due principal owed on the Loan but never in excess of the maximum nonusurious amount permitted by applicable law, which interest shall be payable to Holder on demand for its own account or the account of Lenders, as applicable; and all such amounts, together with such interest thereon, shall automatically and without notice be a part of the Secured Indebtedness.  The amount and nature of any expense by Holder or Lenders hereunder and the time when paid shall be fully established by the certificate of Holder or any of Holder’s officers or agents.

Section 2.3Absence of Obligations of Holder and Lenders with Respect to Property.  Notwithstanding anything in this Deed of Trust to the contrary, including the definition of “Property” and/or the provisions of Article 3 hereof, (i) to the extent permitted by applicable law, the Property is composed of Grantor’s rights, title and interests therein but not Grantor’s obligations, duties or liabilities pertaining thereto, (ii) Holder and Lenders neither assume nor shall have any obligations, duties or liabilities in connection with any portion of the items described in the definition of “Property” herein, either prior to or after obtaining title to such Property, whether by foreclosure sale, the granting of a deed in lieu of foreclosure or otherwise, and (iii) Holder may, at any time prior to or after the acquisition of title to any portion of the Property as above described, advise any party in writing as to the extent of Holder’s and Lenders’ interest therein and/or expressly disaffirm in writing any rights, interests, obligations, duties and/or liabilities with respect to such Property or matters related thereto.  Without limiting the generality of the foregoing, it is understood and agreed that neither Holder nor Lenders shall have any obligations, duties or liabilities prior to or after acquisition of title to any portion of the Property, as lessee under any lease or purchaser or seller under any contract or option unless Holder elects otherwise by written notification.

Section 2.4Authorization to File Financing Statements; Power of Attorney.  Grantor hereby authorizes Holder at any time and from time to time to file any initial financing statements, amendments thereto and continuation statements as authorized by applicable law, required by Holder to establish or maintain the validity, perfection and priority of the security

19

interests granted by this Deed of Trust.  For purposes of such filings, Grantor agrees to furnish any information requested by Holder promptly upon request by Holder.  Grantor also ratifies its authorization for Holder to have filed any like initial financing statements, amendments thereto or continuation statements if filed prior to the date of this Deed of Trust.  Grantor hereby irrevocably constitutes and appoints Holder and any officer or agent of Holder, with full power of substitution, as its true and lawful attorneys-in-fact with full irrevocable power and authority in the place and stead of Grantor or in Grantor’s own name to execute in Grantor’s name any such documents and to otherwise carry out the purposes of this Section 2.4, to the extent that Grantor’s authorization above is not sufficient.  To the extent permitted by law, Grantor hereby ratifies all acts said attorneys-in-fact have lawfully done in the past or shall lawfully do or cause to be done in the future by virtue hereof.  This power of attorney is a power coupled with an interest and shall be irrevocable.

ARTICLE 3
Assignment of Rents and Leases

Section 3.1Assignment.  To secure the obligations of Borrowers under the Loan Documents and all matters and indebtedness constituting the Secured Indebtedness, Grantor hereby assigns to Administrative Agent for the ratable benefit of itself and Lenders all Rents and all of Grantor’s rights in and under all Leases.  Upon the occurrence and during the continuation of any Default, Administrative Agent and any other Holder shall have the right, power and authority to collect any and all Rents on behalf of itself and Lenders.  While any Default is continuing, all Rents shall be paid directly to Holder and not through Grantor, all without the necessity of any further action by Holder, including any action to obtain possession of the Land, Improvements or any other portion of the Property or any action for the appointment of a receiver.  Grantor hereby authorizes and directs the tenants under the Leases to pay Rents to Holder upon written demand by Holder, without further consent of Grantor, without any obligation of such tenants to determine whether a Default has in fact occurred and regardless of whether Holder has taken possession of any portion of the Property, and the tenants may rely upon any written statement delivered by Holder to the tenants.  Any such payments to Holder shall constitute payments to Grantor under the Leases, and Grantor hereby irrevocably appoints Holder as its attorney-in-fact, which power of attorney is with full power of substitution and coupled with an interest, to do all things during the continuance of a Default, which Grantor might otherwise do with respect to the Property and the Leases thereon, including:  (a) demanding, receiving and enforcing payment of any and all Rents; (b) giving receipts, releases and satisfactions for any and all Rents; (c) suing either in the name of Grantor or in Holder’s own name on behalf of itself and Lenders for any and all Rents; (d) applying the net proceeds of any and all Rents collected by Holder, after deducting all expenses of collection, including attorneys’ fees and expenses, to the Secured Indebtedness in such order and manner as Holder may elect and/or to the operation and management of the Property, including the payment of management, brokerage and attorneys’ fees and expenses (including reasonable reserves for anticipated expenses), or at the option of Holder, holding the same as security for the payment of the Secured Indebtedness; (e) leasing, in the name of Grantor, the whole or any part of the Property which may become vacant; (f) employing agents for such leasing and paying such agents reasonable compensation for their services; and (g) requiring Grantor to deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto.  Holder may take any or all of the foregoing actions with or without taking possession of any

20

portion of the Property or taking any action with respect to such possession.  The assignment contained in this Section 3.1 shall become null and void upon the reconveyance of this Deed of Trust.

Section 3.2Covenants, Representations and Warranties Concerning Leases and Rents.

Grantor covenants, represents and warrants that:

(a)Grantor has good title to, and is the owner of the entire landlord’s interest in, the Leases and Rents hereby assigned and has authority to assign them;

(b)All Leases are valid and enforceable, and in full force and effect, and are unmodified except as stated therein;

(c)Grantor is not in default under any Lease (and no event has occurred which with the passage of time or notice or both would result in a default under any Lease) and is not the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(d)To Grantor’s knowledge, no tenant in the Property is in default under its Lease (and no event has occurred which with the passage of time or notice or both would result in a default under its Lease) or is the subject of any petition, case, proceeding or other action pursuant to any Debtor Relief Law;

(e)Unless otherwise stated in a Permitted Encumbrance, no Rents or Leases have been or will be assigned, mortgaged, pledged or otherwise encumbered and no other person has acquired or will acquire any right, title or interest in such Rents or Leases;

(f)No Rents have been waived, released, discounted, set off or compromised;

(g)Except as stated in the Leases, Grantor has not received any funds or deposits from any tenant for which credit has not already been made on account of accrued Rents;

(h)Grantor shall perform all of its obligations under the Leases and enforce the tenants’ obligations under the Leases to the extent enforcement is prudent under the circumstances;

(i)Grantor will not, without the prior written consent of Holder, waive, release, discount, set off, compromise, reduce or defer any Rent, receive or collect Rents more than one (1) month in advance, grant any rent-free period to any tenant, reduce any Lease term or waive, release or otherwise modify any other material obligation under any Lease, renew or extend any Lease except in accordance with a right of the tenant thereto in such Lease, approve or consent to an assignment of a Lease or a subletting of any part of the premises covered by a Lease, or settle or compromise any claim against a tenant under a Lease in bankruptcy, in any other proceeding pursuant to any Debtor Relief Law or otherwise;

(j)Grantor will not, without the prior written consent of Holder, terminate or consent to the cancellation or surrender of any Lease having an unexpired term of one (1) year or more;

21

(k)Grantor will not execute any Lease except in accordance with the Loan Documents and for actual occupancy by the tenant thereunder;

(l)Grantor shall give prompt notice to Holder, as soon as Grantor first obtains notice, of any claim, or the commencement of any action, by any tenant or subtenant under or with respect to a Lease regarding any claimed damage, default, diminution of or offset against Rent, cancellation of the Lease, or constructive eviction, and Grantor shall defend, at Grantor’s expense, any proceeding pertaining to any Lease, including, if Holder so requests, any such proceeding if Holder and/or Lenders are parties thereto;

(m)Promptly upon request by Holder and upon the occurrence of a Default, Grantor shall deliver to Holder all security deposits and executed originals of all Leases and copies of all records relating thereto;

(n)There shall be no merger of the leasehold estates created by the Leases, with the fee estate of the Land without the prior written consent of Holder; and

(o)Holder, on behalf of itself and Lenders, may at any time and from time to time by specific written instrument intended for the purpose, unilaterally subordinate the lien of this Deed of Trust to any Lease, without joinder or consent of or notice to Grantor, any tenant or any other person, and notice is hereby given to each tenant under a Lease of such right to subordinate.  No such subordination shall constitute a subordination to any lien or other encumbrance, whenever arising, or improve the right of any junior lienholder, and nothing herein shall be construed as subordinating this Deed of Trust to any Lease.

Section 3.3No Liability of Holder or Lenders.  Holder and Lenders neither have nor assume any obligations as lessor or landlord with respect to any Lease.  Administrative Agent’s acceptance of this assignment on behalf of itself and Lenders shall not be deemed to constitute any Holder or any Lender a “mortgagee in possession,” nor shall such acceptance obligate Holder or any Lender to appear in or defend any proceeding relating to any Lease or to the Property, or to take any action hereunder, expend any money, incur any expenses, perform any obligation or liability under any Lease, or assume any obligation for any deposit delivered to Grantor by any tenant and not as such delivered to and accepted by Holder.  Neither Holder nor Lenders shall be liable for any injury or damage to person or property in or about the Property, or for Holder’s failure to collect or to exercise diligence in collecting Rents, but Holder and Lenders shall be accountable only for Rents that they shall actually receive.  Neither the assignment of Leases and Rents, nor enforcement of the rights of Holder and Lenders regarding Leases and Rents (including collection of Rents), nor possession of the Property by Holder or Lenders, nor Holder’s consent to or approval of any Lease (nor all of the same), shall render Holder or any Lender liable on any obligation under or with respect to any Lease or constitute affirmation of, or any subordination to, any Lease, occupancy, use or option.

Section 3.4Rights Cumulative.  The powers and rights of Holder and Lenders under this Article 3 shall be cumulative of all other powers and rights of Holder and Lenders under the Loan Documents or otherwise.  Such powers and rights granted in this Article 3 shall be in addition to the other remedies provided for in this Deed of Trust upon the occurrence of a Default and may be exercised independently of or concurrently with any of said remedies.  If

22

Holder or Lenders seek or obtain any judicial relief regarding Rents or Leases, the same shall in no way prevent the concurrent or subsequent employment of any other appropriate rights or remedies nor shall the same constitute an election of judicial relief for any foreclosure or any other purpose.

ARTICLE 4
Default

Section 4.1Events of Default.  The occurrence of any one of the following shall be a default under this Deed of Trust (“Default”):

(a)Nonperformance of Covenants.  Any covenant, agreement or condition of this Deed of Trust (other than covenants otherwise addressed in another clause of this Section 4.1) is not fully and timely performed, observed or kept, and such failure is not cured within the applicable notice and cure period (if any) provided for herein.

(b)Default under other Loan Documents / Cross-Default.  A Default occurs under any other Loan Document, specifically including any default pursuant to any of the following deeds of trust granted to Trustee, in favor of the Administrative Agent, for its own benefit and for the benefit of any other Lender(s):

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Hollywood Hospitals, Inc., as grantor thereunder, encumbering properties located at 6245 De Longpre Avenue and 6228 Leland Way;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 13222 Bloomfield Avenue;

·That certain Second Lien Deed of Trust, Assignment of Rents and Leases, Security Agreement and Fixture Filing dated of even date herewith and granted by Alta Los Angeles Hospitals, Inc., as grantor thereunder, encumbering properties located at 4081, 4059 and 4125 East Olympic Boulevard;

(c)Transfer of the Property.  Any Transfer occurs with respect to all or any part of the Property or any interest therein, except for:  (i) sales or transfers of items of the Accessories which have become obsolete or worn beyond practical use and which have been replaced by adequate substitutes owned by Grantor, having a value equal to or greater than the replaced items when new; and (ii) the grant, in the ordinary course of business, of a leasehold interest in a part of the Improvements to a tenant for occupancy, not containing a right or option to purchase and not in contravention of any provision of this Deed of Trust or of any other Loan Document.  Holder may, in its sole discretion, waive a Default under this clause (c), but it shall have no obligation to do so.  Any waiver will be conditioned upon the grantee’s integrity, reputation, character, creditworthiness and management ability being satisfactory to Holder in its sole judgment, and may also be conditioned upon such one or more of the following, if any, that

23

Holder may require:  the execution by the grantee of a written assumption agreement prior to such Transfer containing such terms as Holder may require; the receipt by Holder and Lenders of a principal paydown on the Loan; the receipt by Holder and Lenders of an assumption fee; the reimbursement of all of the expenses incurred by Holder and Lenders in connection with such Transfer, including attorneys’ fees; and any modification of the Loan Documents as Holder may require, including an increase in the rate of interest payable under the Loan and/or a modification of the terms of the Loan.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (c).

(d)Transfer of Interests in Grantor.  (i) If Grantor is a corporation, a Transfer occurs with respect to shares possessing, in the aggregate, more than fifty percent (50%) of the voting power without the prior written consent of Holder; (ii) if Grantor is a partnership or joint venture, a Transfer occurs with respect to more than fifty percent (50%) of the partnership or joint venture interests in the aggregate, or any general partner or joint venturer withdraws or is removed or admitted without the prior written consent of Holder; or (iii) if Grantor is a limited liability company, a Transfer occurs with respect to more than fifty percent (50%) of the voting power or ownership interests, in either case in the aggregate, or any managing member withdraws or is removed or admitted without the prior written consent of Holder.  NOTICE - THE SECURED INDEBTEDNESS IS SUBJECT TO ACCELERATION IN THE EVENT OF A TRANSFER WHICH IS PROHIBITED UNDER THIS CLAUSE (d).

(e)Grant of Easement, Etc.  Without the prior written consent of Holder, Grantor grants any easement or dedication, or files any plat, condominium declaration or restriction, or otherwise encumbers the Property, or seeks or permits any zoning reclassification or variance, unless such action is expressly permitted by the Loan Documents or does not affect the Property.

(f)Abandonment.  The owner of the Property abandons any of the Property.

(g)Default Under Other Lien.  A default or event of default occurs under any lien, security interest or assignment covering the Property or any part thereof (whether or not Holder and Lenders have consented, and without hereby implying any consent by Holder or Lenders, to any such lien, security interest or assignment not created hereunder), or the holder of any such lien, security interest or assignment declares a default or institutes foreclosure or other proceedings for the enforcement of its remedies thereunder.

(h)Destruction.  The Property is so demolished, destroyed or damaged that in the reasonable opinion of Holder, it cannot be restored or rebuilt with available funds to a profitable condition within a reasonable period of time and in any event prior to the final maturity date of the Loan.

(i)Condemnation.  (i) Any governmental authority requires or commences any proceeding for the demolition of any building or structure comprising a part of the Premises, or (ii) there is commenced any proceeding to condemn or otherwise take pursuant to the power of eminent domain, or a contract for sale or a conveyance in lieu of such a taking is executed which provides for the transfer of, a material portion of the Premises, including the taking (or transfer in lieu thereof) of any portion which would result in the blockage or substantial impairment of

24

access or utility service to the Improvements or which would cause the Premises to fail to comply with any Legal Requirement.

Section 4.2Notice and Cure.  If any provision of this Deed of Trust or any other Loan Document provides for Holder to give to Grantor any notice regarding a default or incipient default, then if Holder shall fail to give such notice to Grantor as provided, the sole and exclusive remedy of Grantor for such failure shall be to seek appropriate equitable relief to enforce the agreement to give such notice and to have any acceleration of the maturity of the Loan and the Secured Indebtedness postponed or revoked and foreclosure proceedings in connection therewith delayed or terminated pending or upon the curing of such default in the manner and during the period of time permitted by such agreement, if any, and Grantor shall have no right to damages or any other type of relief not herein specifically set out against Holder or Lenders, all of which damages or other relief are hereby waived by Grantor.  Nothing herein or in any other Loan Document shall operate or be construed to add on or make cumulative any cure or grace periods specified in any of the Loan Documents.

ARTICLE 5
Remedies

Section 5.1Certain Remedies.  If a Default shall occur, Holder may (but shall have no obligation to) exercise any one or more of the following remedies, without notice (unless notice is required by applicable statute):

(a)Acceleration.  Holder may at any time and from time to time declare any or all of the Secured Indebtedness immediately due and payable and such Secured Indebtedness shall thereupon be immediately due and payable, without presentment, demand, protest, notice of protest, notice of acceleration or of intention to accelerate or any other notice or declaration of any kind, all of which are hereby expressly waived by Borrowers, which waiver is hereby acknowledged by Grantor.

(b)Enforcement of Assignment of Rents.  Holder may take any of the actions described in Article 3 with or without taking possession of any portion of the Property or taking any action with respect to such possession.

(c)Trustee’s Sale.

(i)Holder may execute and deliver to Trustee written declaration of default and demand for sale and written notice of default and of election to cause all or any part of the Property to be sold, which notice Trustee shall cause to be filed for record; and after the lapse of such time as may then be required by law following the recordation of such notice of default, and notice of sale having been given as then required by law, Trustee, without demand on Borrowers or Grantor, shall sell such Property at the time and place fixed by Trustee in such notice of sale, either as a whole or in separate parcels and in such order as Holder may direct (Borrowers and Grantor each waiving any right to direct the order of sale), at public auction to the highest bidder for cash in lawful money of the United States (or cash equivalents acceptable to Trustee to the extent permitted by applicable law), payable at the time of sale.  Trustee may postpone the sale of all or any part of the Property by public announcement at the time fixed by the preceding

25

postponement.  Trustee shall deliver to the purchaser at such sale its deed conveying the property so sold, but without any covenant or warranty, express or implied, and the recitals in such deed of any matters or facts shall be conclusive proof of the truthfulness thereof.  Any person, including Trustee, Holder or any Lender, may purchase at such sale, and any bid by Holder or any Lender may be, in whole or in part, in the form of cancellation of all or any part of the Secured Indebtedness.

(ii)The sale by Trustee of less than the whole of the Property shall not exhaust the power of sale herein granted, and Trustee is specifically empowered to make successive sales under such power until the whole of the Property shall be sold.  In the event any sale hereunder is not completed or is defective in the opinion of Holder, such sale shall not exhaust the power of sale hereunder and Holder shall have the right to cause a subsequent sale or sales to be made hereunder.  If the proceeds of any sale of less than the whole of the Property shall be less than the aggregate of the Secured Indebtedness and the expense of executing this trust as provided herein, this Deed of Trust and the lien hereof shall remain in full force and effect as to the unsold portion of the Property just as though no sale had been made; provided, however, that neither Borrowers nor Grantor shall have any right to require the sale of less than the whole of the Property but Holder shall have the right, at its sole election, to request Trustee to sell less than the whole of the Property.

(iii)Trustee may, after any request or direction by Holder, sell not only the real property but also the Collateral and other interests which are a part of the Property, or any part thereof, as a unit and as a part of a single sale, or may sell any part of the Property separately from the remainder of the Property.  It shall not be necessary for Trustee to have taken possession of any part of the Property or to have present or to exhibit at any sale any of the Collateral.

(iv)After each sale, Trustee shall receive the proceeds of said sale and apply the same as herein provided.  Payment of the purchase price to Trustee shall satisfy the obligation of purchaser at such sale therefor, and such purchaser shall not be responsible for the application thereof.

(v)Trustee or its successor or substitute may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Trustee, including the posting of notices and the conduct of sale, but in the name and on behalf of Trustee, its successor or substitute.  If Trustee or its successor or substitute shall have given notice of sale hereunder, any successor or substitute Trustee thereafter appointed may complete the sale and the conveyance of the property pursuant thereto as if such notice had been given by the successor or substitute Trustee conducting the sale.

(d)Uniform Commercial Code.  Without limitation of any rights of enforcement of Holder and Lenders with respect to the Collateral or any part thereof in accordance with the procedures for foreclosure of real estate, Holder may exercise its rights of enforcement with respect to the Collateral or any part thereof under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code in force, from time to time, in any other state to the extent the same is applicable law) and in conjunction with, in addition to or in substitution for those rights and remedies:  (i) Holder may enter upon Grantor’s premises to

26

take possession of, assemble and collect the Collateral or, to the extent and for those items of the Collateral permitted under applicable law, to render it unusable; (ii) Holder may require Grantor to assemble the Collateral and make it available at a place Holder designates which is mutually convenient to allow Holder to take possession or dispose of the Collateral; (iii) written notice mailed to Grantor as provided herein at least five (5) days prior to the date of public sale of the Collateral or prior to the date on which private sale of the Collateral will be made shall constitute reasonable notice; provided that, if Holder fails to comply with this clause (iii) in any respect, the liability of Holder and Lenders for such failure shall be limited to the liability (if any) imposed on them as a matter of law under the California Uniform Commercial Code, as in effect from time to time (or under the Uniform Commercial Code, in force from time to time, in any other state to the extent the same is applicable law); (iv) any sale made pursuant to the provisions of this clause (d) shall be deemed to have been a public sale conducted in a commercially reasonable manner if held contemporaneously with and upon the same notice as required for the sale of the Property under power of sale as provided in clause (c) above in this Section 5.1; (v) in the event of a foreclosure sale, whether made by Trustee under the terms hereof, or under judgment of a court, the Collateral and the other Property may, at the option of Holder, be sold as a whole; (vi) it shall not be necessary for Holder to take possession of the Collateral or any part thereof prior to the time that any sale pursuant to the provisions of this clause (d) is conducted and it shall not be necessary for the Collateral or any part thereof to be present at the location of such sale; (vii) with respect to application of proceeds from disposition of the Collateral under Section 5.2 hereof, the costs and expenses incident to disposition shall include the reasonable expenses of retaking, holding, preparing for sale or lease, selling, leasing and the like and the reasonable attorneys’ fees and legal expenses incurred by Holder and Lenders (including the market value of services provided by in-house counsel); (viii) any and all statements of fact or other recitals made in any bill of sale or assignment or other instrument evidencing any foreclosure sale hereunder as to nonpayment of the Secured Indebtedness or as to the occurrence of any Default, or as to Holder having declared all of such indebtedness to be due and payable, or as to notice of time, place and terms of sale and of the properties to be sold having been duly given, or as to any other act or thing having been duly done by Holder or Lenders, shall be taken as prima facie evidence of the truth of the facts so stated and recited; (ix) Holder may appoint or delegate any one or more persons as agent to perform any act or acts necessary or incident to any sale held by Holder, including the sending of notices and the conduct of the sale, but in the name of Holder on behalf of itself and Lenders; (x) Holder may comply with any applicable state or federal law or regulatory requirements in connection with a disposition of the Collateral, and such compliance will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xi) Holder may sell the Collateral without giving any warranties as to the Collateral, and may specifically disclaim all disposition warranties, including warranties relating to title, possession, quiet enjoyment and the like, and all warranties of quality, merchantability and fitness for a specific purpose, and this procedure will not be considered to affect adversely the commercial reasonableness of any sale of the Collateral; (xii) Grantor acknowledges that a private sale of the Collateral may result in less proceeds than a public sale; and (xiii) Grantor acknowledges that the Collateral may be sold at a loss to Grantor, and that in such event neither Holder nor Lenders shall have any liability or responsibility to Grantor for such loss.

(e)Judicial Action.  Subject to any provision of the Credit Agreement regarding reference and arbitration, Holder may bring an action on behalf of itself and Lenders in any court

27

of competent jurisdiction to foreclose this instrument or to obtain specific performance of any of the covenants or agreements of this Deed of Trust.

(f)Entry on Property.  Holder is authorized on behalf of itself and Lenders, prior or subsequent to the institution of any foreclosure proceedings, to the fullest extent permitted by applicable law, to enter upon the Property or any part thereof, and to take possession of the Property and all books and records, and all recorded data of any kind or nature, regardless of the medium of recording, including all software, writings, plans, specifications and schematics relating thereto, and to exercise without interference from Grantor any and all rights which Grantor has with respect to the management, possession, operation, protection or preservation of the Property.  Holder shall not be deemed to have taken possession of the Property or any part thereof except upon the exercise of its right to do so, and then only to the extent evidenced by its demand and overt act specifically for such purpose.  All costs, expenses and liabilities of every character incurred by Holder and Lenders in managing, operating, maintaining, protecting or preserving the Property shall constitute a demand obligation of Grantor (which obligation Grantor hereby promises to pay) to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.  If necessary to obtain the possession provided for above, Holder may invoke any and all legal remedies to dispossess Grantor.  In connection with any action taken by Holder pursuant to this clause (f), neither Holder nor Lenders shall be liable for any loss sustained by Grantor resulting from any failure to let the Property or any part thereof, or from any act or omission of Holder in managing the Property unless such loss is caused by the willful misconduct and bad faith of Holder, nor shall Holder or Lenders be obligated to perform or discharge any obligation, duty or liability of Grantor arising under any lease or other agreement relating to the Property or arising under any Permitted Encumbrance or otherwise arising.  Grantor hereby assents to, ratifies and confirms any and all actions of Holder with respect to the Property taken under this clause (f).

(g)Receiver.  Holder, on behalf of itself and Lenders, shall as a matter of right be entitled to the appointment of a receiver or receivers for all or any part of the Property, whether such receivership is incident to a proposed sale (or sales) of such property or otherwise, and without regard to the value of the Property or the solvency of any person or persons liable for the payment of the Secured Indebtedness, and Grantor does hereby irrevocably consent to the appointment of such receiver or receivers, waives notice of such appointment, of any request therefor or hearing in connection therewith, and any and all defenses to such appointment, agrees not to oppose any application therefor by Holder, and agrees that such appointment shall in no manner impair, prejudice or otherwise affect the rights of Holder and Lenders to application of Rents as provided in this Deed of Trust.  Nothing herein is to be construed to deprive Holder or Lenders of any other right, remedy or privilege they may have under the law to have a receiver appointed.  Any money advanced by Holder or Lenders in connection with any such receivership shall be a demand obligation (which obligation Grantor hereby promises to pay) owing by Grantor to Holder (for its own account or the account of Lenders, as applicable) pursuant to this Deed of Trust.

(h)Powers of Holder.  Holder may, on behalf of itself and Lenders, either directly or through an agent or court-appointed receiver, and without regard to the adequacy of any security for the Secured Indebtedness:

28

(i)enter, take possession of, manage, operate, protect, preserve and maintain, and exercise any other rights of an owner of, the Property, and use any other properties or facilities of Grantor relating to the Property, all without payment of rent or other compensation to Grantor;

(ii)enter into such contracts and take such other action as Holder deems appropriate to complete all or any part of the Improvements or any other construction on the Land, subject to such modifications and other changes in the Improvements or the plan of development as Holder may deem appropriate;

(iii)make, cancel, enforce or modify leases, obtain and evict tenants, fix or modify rents and, in its own name or in the name of Grantor, otherwise conduct any business of Grantor in relation to the Property and deal with Grantor’s creditors, debtors, tenants, agents and employees and any other persons having any relationship with Grantor in relation to the Property, and amend any contracts between them, in any manner Holder may determine;

(iv)either with or without taking possession of the Property, notify obligors on any contracts that all payments and other performance are to be made and rendered directly and exclusively to Holder, and in its own name on behalf of itself and Lenders supplement, modify, amend, renew, extend, accelerate, accept partial payments or performance on, make allowances and adjustments and issue credits with respect to, give approvals, waivers and consents under, release, settle, compromise, compound, sue for, collect or otherwise liquidate, enforce or deal with any contracts or other rights, including collection of amounts past due and unpaid (Grantor agreeing not to take any such action after the occurrence of a Default without prior written authorization from Holder);

(v)endorse, in the name of Grantor, all checks, drafts and other evidences of payment relating to the Property, and receive, open and dispose of all mail addressed to Grantor and notify the postal authorities to change the address for delivery of such mail to such address as Holder may designate; and

(vi)take such other action as Holder deems appropriate to protect the security of this Deed of Trust.

(i)Other Rights and Remedies.  Holder and Lenders may exercise any and all other rights and remedies which Holder and Lenders may have under the Loan Documents, or at law or in equity or otherwise.

Section 5.2Proceeds of Foreclosure.  The proceeds of any sale held by Trustee or Holder or any receiver or public officer in foreclosure of the liens and security interests evidenced hereby shall be applied in accordance with the requirements of applicable laws and to the extent consistent therewith, FIRST, to the payment of all necessary costs and expenses incident to such foreclosure sale, including all attorneys’ fees and legal expenses (including the market value of services provided by in-house counsel), advertising costs, auctioneer’s fees, costs of title rundowns, lien searches, trustee’s sale guaranties, foreclosure sale guaranties, litigation guaranties and/or other title policies and endorsements, inspection fees, appraisal costs, fees for professional services, environmental assessment and remediation fees, all court costs and

29

charges of every character, and the maximum fee legally permitted, or a reasonable fee when the law provides no maximum limit, to Trustee acting under the provisions of clause (c) of Section 5.1 hereof if foreclosed by power of sale as provided in said clause (c), and to the payment of the other Secured Indebtedness, including specifically without limitation the principal, accrued interest and attorneys’ fees due and unpaid on the Loan and the amounts due and unpaid and owed to Holder and Lenders under this Deed of Trust, the order and manner of application to the items in this clause FIRST to be in Holder’s sole discretion; and SECOND, the remainder, if any, shall be paid to Grantor, or to Grantor’s representatives, successors or assigns, or such other persons (including the holder or beneficiary of any inferior lien) as may be entitled thereto by law; provided, however, that if Holder is uncertain which person or persons are so entitled, Holder, on behalf of itself and Lenders, may interplead such remainder in any court of competent jurisdiction, and the amount of any attorneys’ fees, court costs and expenses incurred in such action shall be a part of the Secured Indebtedness and shall be reimbursable (without limitation) from such remainder.

Section 5.3Holder or Lender as Purchaser.  Holder and any Lender shall have the right to become the purchaser at any sale held by Trustee or its substitute or successor or by any receiver or public officer or at any public sale.  Holder shall have the right to credit upon the amount of Holder’s successful bid, to the extent necessary to satisfy such bid, all or any part of the Secured Indebtedness in such manner and order as Holder may elect.  Any Lender shall have the right to credit upon the amount of the Lender’s successful bid, all or any part of the Secured Indebtedness payable to the Lender in such manner and order as the Lender may elect.

Section 5.4Remedies Cumulative.  All rights and remedies provided for herein and in any other Loan Document are cumulative of each other and of any and all other rights and remedies existing at law or in equity, and Trustee, Holder and Lenders shall, in addition to the rights and remedies provided herein or in any other Loan Document, be entitled to avail themselves of all such other rights and remedies as may now or hereafter exist at law or in equity for the collection of the Secured Indebtedness and the enforcement of the covenants herein and the foreclosure of the liens and security interests evidenced hereby, and the resort to any right or remedy provided for hereunder or under any such other Loan Document or provided for by law or in equity shall not prevent the concurrent or subsequent employment of any other appropriate right or rights or remedy or remedies.

Section 5.5Discretion as to Security.  Holder, on behalf of itself and Lenders, may resort to any security given by this Deed of Trust or to any other security now existing or hereafter given to secure the payment of the Secured Indebtedness, in whole or in part, and in such portions and in such order as may seem best to Holder in its sole and uncontrolled discretion, and any such action shall not in anywise be considered as a waiver of any of the rights, benefits, liens or security interests evidenced by this Deed of Trust.

Section 5.6Grantor’s Waiver of Certain Rights.  To the full extent Grantor may do so, Grantor agrees that Grantor will not at any time insist upon, plead, claim or take the benefit or advantage of any law now or hereafter in force providing for any appraisement, valuation, stay, extension or redemption, homestead, moratorium, reinstatement, marshaling or forbearance, and Grantor, for Grantor, Grantor’s representatives, successors and assigns, and for any and all persons ever claiming any interest in the Property, to the extent permitted by applicable law,

30

hereby waives and releases all rights of redemption, valuation, appraisement, stay of execution and all rights to a marshaling of assets of Grantor, including the Property, or to a sale in inverse order of alienation in the event of foreclosure of the liens and/or security interests hereby created.  Grantor shall not have or assert any right under any statute or rule of law pertaining to the marshaling of assets, sale in inverse order of alienation, the exemption of homestead, the administration of estates of decedents, or other matters whatsoever to defeat, reduce or affect the right of Holder and Lenders under the terms of this Deed of Trust to a sale of the Property for the collection of the Secured Indebtedness without any prior or different resort for collection, or the right of Holder and Lenders under the terms of this Deed of Trust to the payment of the Secured Indebtedness out of the proceeds of sale of the Property in preference to every other claimant whatsoever.

Section 5.7Delivery of Possession After Foreclosure.  In the event there is a foreclosure sale hereunder and at the time of such sale, Grantor or Grantor’s representatives, or successors as owners of the Property are occupying or using the Property, or any part thereof, each and all shall immediately become the tenant of the purchaser at such sale, which tenancy shall be a tenancy from day to day, terminable at the will of purchaser, at a reasonable rental per day based upon the value of the property occupied, such rental to be due daily to the purchaser; and to the extent permitted by applicable law, the purchaser at such sale shall, notwithstanding any language herein apparently to the contrary, have the sole option to demand immediate possession following the sale or to permit the occupants to remain as tenants at will.

ARTICLE 6
Miscellaneous

Section 6.1Scope of Deed of Trust.  This Deed of Trust is a deed of trust with respect to that portion of the Property which is real property, a security agreement with respect to that portion of the Property which is personal property (it being agreed that, whenever possible, components of the Property shall be deemed to be real property rather than personal property), an assignment of rents and leases, a financing statement and fixture filing and a collateral assignment.  In addition to the foregoing, this Deed of Trust covers all proceeds.

Section 6.2Effective as a Financing Statement and Fixture Filing.  This Deed of Trust shall be effective as a financing statement filed as a fixture filing with respect to all fixtures included within the Property and is to be filed for record in the real estate records of each county where any part of the Property (including said fixtures) is situated.  This Deed of Trust shall also be effective as a financing statement covering as-extracted collateral (including oil and gas), accounts and general intangibles under the California Uniform Commercial Code, as in effect from time to time, and the Uniform Commercial Code, as in effect from time to time, in any other state where the Property is situated which will be financed at the wellhead or minehead of the wells or mines located on the Property and is to be filed for record in the real estate records of each county where any part of the Property is situated.  This Deed of Trust shall also be effective as a financing statement covering any other Property and may be filed in any other appropriate filing or recording office.  The respective mailing addresses of Grantor and Administrative Agent are set forth at the end of this Deed of Trust.  A carbon, photographic or other reproduction of this Deed of Trust or of any financing statement relating to this Deed of

31

Trust shall be sufficient as a financing statement for any of the purposes referred to in this Section 6.2.

Section 6.3Notice to Account Debtors.  In addition to the rights granted elsewhere in this Deed of Trust, Holder may at any time notify the account debtors or obligors of any accounts, chattel paper, general intangibles, negotiable instruments or other evidences of indebtedness included in the Collateral to pay Holder directly.

Section 6.4Waiver by Holder.  Holder may at any time and from time to time by a specific writing intended for the purpose:  (a) waive any Default without waiving any other prior or subsequent Default; (b) waive compliance by Borrowers or Grantor with any covenant herein made by Borrowers or Grantor to the extent and in the manner specified in such writing; (c) consent to Borrowers or Grantor doing any act which hereunder Borrowers or Grantor are prohibited from doing, or to Borrowers or Grantor failing to do any act which hereunder Borrowers or Grantor are required to do, to the extent and in the manner specified in such writing; (d) release any part of the Property or any interest therein from the lien and security interest of this Deed of Trust, without the joinder of Trustee; or (e) release any party liable, either directly or indirectly, for the Secured Indebtedness or for any covenant herein or in any other Loan Document without impairing or releasing the liability of any other party.  In addition to the foregoing, Holder may remedy any Default without waiving the Default remedied.  No such act shall in any way affect the rights or powers of Holder, Lenders or Trustee hereunder except to the extent specifically agreed to by Holder in such writing.  Neither failure by Holder or Lenders to exercise, nor delay by Holder or Lenders in exercising, nor discontinuance of the exercise of any right, power or remedy (including the right to accelerate the maturity of the Secured Indebtedness or any part thereof) upon or after any Default shall be construed as a waiver of such Default or as a waiver of the right to exercise any such right, power or remedy at a later date.  No single or partial exercise by Holder or Lenders of any right, power or remedy hereunder shall exhaust the same or shall preclude any other or further exercise thereof, and every such right, power or remedy hereunder may be exercised at any time and from time to time.  No waiver of any provision hereof or consent to any departure by Borrowers or Grantor therefrom shall in any event be effective unless the same shall be in writing and signed by Holder and then such waiver or consent shall be effective only in the specific instance, for the purpose for which given and to the extent therein specified.  No notice to or demand on Grantor in any case shall of itself entitle Grantor to any other or further notice or demand in similar or other circumstances.

Section 6.5No Impairment of Security.  The lien, security interest and other security rights of Holder and Lenders hereunder or under any other Loan Document shall not be impaired by any indulgence, moratorium or release granted by Holder including any renewal, extension or modification which Holder may grant with respect to any Secured Indebtedness, or any surrender, compromise, release, renewal, extension, exchange or substitution which Holder may grant in respect of the Property, or any part thereof or any interest therein, or any release or indulgence granted to any endorser, guarantor or surety of any Secured Indebtedness.  The taking of additional security by Holder and Lenders shall not release or impair the lien, security interest or other security rights of Holder and Lenders hereunder or affect the liability of Borrowers or the Grantor or of any endorser, guarantor or surety, or improve the right of any junior lienholder in the Property (without implying hereby any consent to any junior lien by Holder or Lenders).

32

Section 6.6Grantor’s Successors.  If the ownership of the Property or any part thereof becomes vested in a person other than Grantor, Holder may, on behalf of itself and Lenders, without notice to Grantor, deal with such successor or successors in interest with reference to this Deed of Trust and to the Secured Indebtedness in the same manner as with Grantor, without in any way vitiating or discharging Grantor’s liability hereunder or its liability for the payment of the Secured Indebtedness or performance of the obligations secured hereby.  No transfer of the Property, no forbearance on the part of Holder, and no extension of the time for the payment of the Secured Indebtedness given by Holder shall operate to release, discharge, modify, change or affect, in whole or in part, the liability of Grantor hereunder for the payment of the Secured Indebtedness or performance of the obligations secured hereby or the liability of any other person hereunder for the payment of the Secured Indebtedness.  Grantor agrees that it shall be bound by any modification of this Deed of Trust or any of the other Loan Documents made by Holder on behalf of itself and Lenders and any subsequent owner of the Property, with or without notice to such Grantor, and no such modifications shall impair the obligations of such Grantor under this Deed of Trust or any other Loan Document.  Nothing in this Section or elsewhere in this Deed of Trust shall be construed to imply any consent by Holder or Lenders to any transfer of the Property.

Section 6.7Place of Payment; Forum.  All Secured Indebtedness which may be owing hereunder at any time by Borrowers or Grantor shall be payable at the place designated in the Credit Agreement (or if no such designation is made, at the address of Holder indicated at the end of this Deed of Trust).  Grantor hereby irrevocably submits generally and unconditionally for itself and in respect of its property to the non-exclusive jurisdiction of any California state court or any United States federal court sitting in the county in which the Secured Indebtedness is payable, and to the non-exclusive jurisdiction of any state or United States federal court sitting in the state in which any of the Property is located, over any suit, action or proceeding arising out of or relating to this Deed of Trust or the Secured Indebtedness.  Grantor hereby irrevocably waives, to the fullest extent permitted by law, any objection that Grantor may now or hereafter have to the laying of venue in any such court and to any claim that any such court is an inconvenient forum.  Grantor hereby agrees and consents that, in addition to any methods of service of process provided for under applicable law, all service of process in any such suit, action or proceeding in any California state court or any United States federal court sitting in the state in which the Secured Indebtedness is payable may be made by certified or registered mail, return receipt requested, directed to Grantor at its address stated at the end of this Deed of Trust or at a subsequent address of Grantor of which Holder received actual notice from Grantor in accordance with this Deed of Trust, and service so made shall be complete five (5) days after the same shall have been so mailed.  Nothing herein shall affect the right of Holder to serve process in any manner permitted by law or limit the right of Holder to bring proceedings against Grantor in any other court or jurisdiction; provided, however, that in the event of any inconsistency between the terms and conditions of this Section 6.7 and those of any provision in the Credit Agreement regarding reference and arbitration, the terms and conditions of the reference and arbitration provision of the Credit Agreement shall prevail.

Section 6.8WAIVER OF JURY TRIAL.  WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO SUBMIT TO JUDICIAL REFERENCE OR ARBITRATION ANY “DISPUTE” (AS DEFINED IN SECTION 1.2(a)) AS SET FORTH IN THE CREDIT AGREEMENT, GRANTOR, HOLDER AND

33

LENDERS WAIVE TRIAL BY JURY IN RESPECT OF ANY AND ALL “DISPUTES” AND ANY ACTION ON ANY “DISPUTE.”  THIS WAIVER SHALL APPLY TO THE EXTENT ANY “DISPUTE” IS NOT SUBMITTED TO JUDICIAL REFERENCE OR ARBITRATION, OR IS DEEMED BY THE ARBITRATOR, REFEREE OR ANY COURT WITH JURISDICTION TO BE NOT REQUIRED TO BE DETERMINED BY JUDICIAL REFERENCE OR ARBITRATION, OR NOT SUSCEPTIBLE OF BEING SO DETERMINED.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY GRANTOR, HOLDER AND LENDERS, AND GRANTOR, HOLDER AND LENDERS HEREBY REPRESENT THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY PERSON OR ENTITY TO INDUCE THIS WAIVER OF TRIAL BY JURY OR TO IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.  THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THE LOAN DOCUMENTS.  GRANTOR, HOLDER AND LENDERS ARE EACH HEREBY AUTHORIZED TO FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER OF JURY TRIAL.  GRANTOR FURTHER REPRESENTS AND WARRANTS THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS DEED OF TRUST AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL, OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED BY INDEPENDENT LEGAL COUNSEL SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

Section 6.9Subrogation to Existing Liens; Vendor’s Lien.  To the extent that proceeds of the Loan are used to pay indebtedness secured by any outstanding lien, security interest, charge or prior encumbrance against the Property, such proceeds have been advanced by Holder and Lenders at Borrowers’ request, and Holder and Lenders shall be subrogated to any and all rights, security interests and liens owned by any owner or holder of such outstanding liens, security interests, charges or encumbrances, however remote, regardless of whether said liens, security interests, charges or encumbrances are released, and all of the same are recognized as valid and subsisting and are renewed and continued and merged herein to secure the Secured Indebtedness, but the terms and provisions of this Deed of Trust shall govern and control the manner and terms of enforcement of the liens, security interests, charges and encumbrances to which Holder and Lenders are subrogated hereunder.  It is expressly understood that, in consideration of the payment of such indebtedness by Holder and Lenders, Grantor hereby waives and releases all demands and causes of action for offsets and payments in connection with said indebtedness.  If all or any portion of the proceeds of the Loan or of any other Secured Indebtedness has been advanced for the purpose of paying the purchase price for all or a part of the Property, no vendor’s lien is waived; and Holder shall have, and is hereby granted, for the ratable benefit of itself and Lenders, a vendor’s lien on the Property as cumulative additional security for the Secured Indebtedness.  Holder, on behalf of itself and Lenders, may foreclose under this Deed of Trust or under the vendor’s lien without waiving the other or may foreclose under both.

Section 6.10Application of Payments to Certain Indebtedness.  If any part of the Secured Indebtedness cannot be lawfully secured by this Deed of Trust or if any part of the Property cannot be lawfully subject to the lien and security interest hereof to the full extent of

34

such indebtedness, then all payments made shall be applied on said indebtedness first in discharge of that portion thereof which is not secured by this Deed of Trust.

Section 6.11Nature of Loan; Compliance with Usury Laws.  The Loan is being made solely for the purpose of carrying on or acquiring a business or commercial enterprise.  It is the intent of Grantor, Holder and Lenders and all other parties to the Loan Documents to conform to and contract in strict compliance with applicable usury law from time to time in effect.  All agreements among Holder, Lenders and Grantor (or any other party liable with respect to any indebtedness under the Loan Documents) are hereby limited by the provisions of this Section 6.11, which shall override and control all such agreements, whether now existing or hereafter arising.  In no event or contingency (including prepayment, default, demand for payment or acceleration of the maturity of any obligation), shall the interest taken, reserved, contracted for, charged, chargeable or received under this Deed of Trust or any other Loan Document or otherwise, exceed the maximum nonusurious amount permitted by applicable law (the “Maximum Amount”).  If from any possible construction of any document, interest would otherwise be payable in excess of the Maximum Amount, any such construction shall be subject to the provisions of this Section 6.11 and such document shall ipso facto be automatically reformed and the interest payable shall be automatically reduced to the Maximum Amount, without the necessity of execution of any amendment or new document.  If Holder and Lenders shall ever receive anything of value which is characterized as interest under applicable law and which would apart from this provision be in excess of the Maximum Amount, an amount equal to the amount which would have been excessive interest shall, without penalty, be applied to the reduction of the principal amount owing on the Secured Indebtedness in the inverse order of its maturity and not to the payment of interest, or refunded to Grantor or the other payor thereof if and to the extent such amount which would have been excessive exceeds such unpaid principal.  The right to accelerate the maturity of the Loan or any other Secured Indebtedness does not include the right to accelerate any interest which has not otherwise accrued on the date of such acceleration, and Holder and Lenders do not intend to charge or receive any unearned interest in the event of acceleration.  All interest paid or agreed to be paid to Holder and Lenders shall, to the extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full stated term (including any renewal or extension) of the Secured Indebtedness so that the amount of interest on account of such indebtedness does not exceed the Maximum Amount.  As used in this Section, the term “applicable law” shall mean the laws of the State of California or the federal laws of the United States applicable to this transaction, whichever laws allow the greater interest, as such laws now exist or may be changed or amended or come into effect in the future.

Section 6.12Substitute Trustee.  Trustee may resign by an instrument in writing addressed to Holder or Trustee may be removed at any time with or without cause by an instrument in writing executed by Holder.  In case of the resignation, removal or disqualification of Trustee, or if for any reason Holder shall deem it desirable to appoint a substitute or successor trustee to act instead of the herein-named trustee or any substitute or successor trustee, then Holder shall have the right and is hereby authorized and empowered to appoint a successor trustee(s) or a substitute trustee(s) without any formality other than appointment and designation in writing executed by Holder and the authority hereby conferred shall extend to the appointment of other successor and substitute trustees successively until the Secured Indebtedness has been paid in full or until the Property is fully and finally sold hereunder.  If Holder is a corporation or

35

association and such appointment is executed on its behalf by an officer of such corporation or association, such appointment shall be conclusively presumed to be executed with authority and shall be valid and sufficient without proof of any action by the board of directors or any superior officer of the corporation or association.  Upon the making of any such appointment and designation, all of the estate and title of Trustee in the Property shall vest in the named successor or substitute Trustee(s) and it shall thereupon succeed to, and shall hold, possess and execute, all of the rights, powers, privileges, immunities and duties herein conferred upon Trustee.

Section 6.13No Liability of Trustee.  Trustee shall not be liable for any error of judgment or act done by Trustee in good faith, or be otherwise responsible or accountable under any circumstances whatsoever (including Trustee’s negligence), except for Trustee’s gross negligence or willful misconduct.  Trustee shall have the right to rely on any instrument, document or signature authorizing or supporting any action taken or proposed to be taken by it hereunder, believed by it in good faith to be genuine.  All moneys received by Trustee shall, until used or applied as herein provided, be held in trust for the purposes for which they were received, but need not be segregated in any manner from any other moneys (except to the extent required by law), and Trustee shall be under no liability for interest on any moneys received by it hereunder.  Grantor hereby ratifies and confirms any and all acts which the herein-named Trustee or its successor or successors, substitute or substitutes, in this trust, shall do lawfully by virtue hereof.  Grantor will reimburse Trustee for, and save Trustee harmless against, any and all liability and expenses which may be incurred by Trustee in the performance of its duties.  The foregoing indemnity shall not terminate upon discharge of the Secured Indebtedness or foreclosure, release or other termination of this Deed of Trust.

Section 6.14Reconveyances.

(a)Reconveyance from Deed of Trust.  If all of the Secured Indebtedness shall have been paid in full, and all of the covenants, warranties, undertakings and agreements made in this Deed of Trust shall have been kept and performed, and all obligations, if any, of Holder and Lenders for further advances shall have been terminated, then, and in that event only, all rights under this Deed of Trust shall terminate (except to the extent expressly provided herein with respect to indemnifications, representations and warranties and other rights which are to continue following the reconveyance hereof) and the Property shall become wholly clear of the liens, security interests, conveyances and assignments evidenced hereby, and the Property shall be reconveyed by Holder in due form at Grantor’s cost.  Without limitation, all provisions herein for indemnity of Holder, Lenders and/or Trustee shall survive discharge of the Secured Indebtedness and any foreclosure, reconveyance or termination of this Deed of Trust.

(b)Partial Reconveyance; No Reconveyance in Default.  Holder may, regardless of consideration, cause the reconveyance of any part of the Property from the lien of this Deed of Trust without in any manner affecting or impairing the lien or priority of this Deed of Trust as to the remainder of the Property.  No partial reconveyance shall be sought, requested or required if any Default has occurred which has not been cured.

(c)Reconveyance Fee.  Grantor agrees to pay fees in the maximum amounts legally permitted, or reasonable fees when the law provides no maximum limit, for Trustee’s rendering

36

of services in connection with each partial or complete reconveyance of the Property from the lien of this Deed of Trust.

Section 6.15Notices.  All notices, requests, consents, demands and other communications required or which any party desires to give hereunder or under any other Loan Document shall be in writing and, unless otherwise specifically provided in such other Loan Document, shall be deemed sufficiently given or furnished if delivered by personal delivery, by nationally recognized overnight courier service, or by registered or certified United States mail, postage prepaid, addressed to the party to whom directed at the addresses specified at the end of this Deed of Trust (unless changed by similar notice in writing given by the particular party whose address is to be changed) or by facsimile.  Any such notice or communication shall be deemed to have been given either at the time of personal delivery or, in the case of courier or mail, as of the date of first attempted delivery at the address and in the manner provided herein, or, in the case of facsimile, upon receipt; provided, that service of a notice required by the California Civil Code shall be considered complete when the requirements of that statute are met.  Notwithstanding the foregoing, no notice of change of address shall be effective except upon receipt.  Any party whose address is set forth at the end of this Deed of Trust hereby requests that a copy of notice of default and notice of sale be mailed to it at that address.  If any Grantor fails to insert an address, that failure shall constitute a designation of such Grantor’s last known address as the address for such notice.  This Section shall not be construed in any way to affect or impair any waiver of notice or demand provided in any Loan Document or to require giving of notice or demand to or upon any person in any situation or for any reason.

Section 6.16Invalidity of Certain Provisions.  A determination that any provision of this Deed of Trust is unenforceable or invalid shall not affect the enforceability or validity of any other provisions, and the determination that the application of any provision of this Deed of Trust to any person or circumstance is illegal or unenforceable shall not affect the enforceability or validity of such provision as it may apply to other persons or circumstances.

Section 6.17Interpretation.  References to Articles, Sections and Exhibit(s) are, unless specified otherwise, references to articles, sections and exhibit(s) of this Deed of Trust.  Words of any gender shall include each other gender.  Words in the singular shall include the plural and words in the plural shall include the singular.  The words “herein,” “hereof,” “hereunder” and other similar compounds of the word “here” shall refer to this entire Deed of Trust and not to any particular Article, Section, paragraph or provision.  The words “include” and “including” shall be interpreted as if followed by the words “without limitation.”  Captions and headings in this Deed of Trust are for convenience only and shall not affect the construction of this Deed of Trust.  The term “person” and words importing persons as used in this Deed of Trust shall include firms, associations, partnerships (including limited partnerships and limited liability partnerships), joint ventures, trusts, corporations, limited liability companies and other legal entities, including public or governmental bodies, agencies or instrumentalities, as well as natural persons.

Section 6.18Binding Effect; Grantor.  The terms, provisions, covenants and conditions hereof shall be binding upon Borrowers and Grantor and the representatives, successors and assigns of Borrowers and Grantor; provided, however, that Grantor may not assign this Deed of Trust, or assign or delegate any of its rights or obligations under this Deed of Trust, without the prior written consent of each Lender in each instance (and any attempted assignment or

37

delegation by Grantor without such consent shall be null and void).  If any Grantor or any signatory who signs on behalf of any Grantor is a corporation, partnership or other legal entity, Grantor and any such signatory, and the person or persons signing for it, represent and warrant to Holder and Lenders that this instrument is executed, acknowledged and delivered by Grantor’s duly authorized representatives.

Section 6.19Trustee, Holder and Lender Assigns; Covenants Running with the Land.  The terms, provisions, covenants and conditions hereof shall inure to the benefit of Trustee, Holder, any Lender and any of their successors and assigns and shall constitute covenants running with the Land.  Holder and any Lender may, from time to time, sell, transfer or assign all or a portion of its respective interest in the Secured Indebtedness and the Loan Documents, on and subject to the terms and conditions of the Credit Agreement.  In the event of any such sale, transfer or assignment, the corresponding whole or part of the rights and benefits under this Deed of Trust and the corresponding interest herein may be transferred with such Secured Indebtedness.  Except as provided in the Credit Agreement, Borrowers and Grantor waive notice of any sale, transfer or assignment of the Secured Indebtedness or any part thereof or any interest therein.  Borrowers and Grantor agree that failure by Holder, Lenders or any other party to give notice of any such sale, transfer or assignment will not affect the liability of Borrowers and Grantor hereunder.

Section 6.20Execution; Recording.  This Deed of Trust may be executed in several counterparts, all of which counterparts together shall constitute one and the same instrument.  The date or dates reflected in the acknowledgments hereto indicate the date or dates of actual execution of this Deed of Trust, but such execution is as of the date shown on the first page hereof, and for purposes of identification and reference the date of this Deed of Trust shall be deemed to be the date reflected on the first page hereof.  Grantor will cause this Deed of Trust and all amendments and supplements thereto and substitutions therefor and all financing statements and continuation statements relating thereto to be recorded, filed, re-recorded and refiled in such manner and in such places as Trustee or Holder shall reasonably request and will pay all such recording, filing, re-recording and refiling taxes, fees and other charges.

Section 6.21Modification or Termination.  The Loan Documents may be modified or terminated only by a written instrument or instruments intended for that purpose and executed by the party against which enforcement of the modification or termination is asserted.  Any alleged modification or termination which is not so documented shall not be effective as to any party.

Section 6.22No Partnership, Etc.  The relationship between Grantor on the one hand and Holder and Lenders on the other is solely that of grantor and lender.  Holder and Lenders have no fiduciary or other special relationship with Grantor.  Nothing contained in the Loan Documents is intended to create any partnership, joint venture, association or special relationship between Grantor and Holder and Lenders or in any way to make Holder or any Lender a co-principal with Grantor with reference to the Property. All agreed contractual duties between or among Holder, Lenders, Grantor and Trustee are set forth herein and in the other Loan Documents, and any additional implied covenants or duties are hereby disclaimed.  Any inferences to the contrary of any of the foregoing are hereby expressly negated.

38

Section 6.23Applicable Law.  THIS DEED OF TRUST, AND ITS VALIDITY, ENFORCEMENT AND INTERPRETATION SHALL BE GOVERNED BY AND CONSTRUED, INTERPRETED AND ENFORCED IN ACCORDANCE WITH AND PURSUANT TO THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES) AND APPLICABLE UNITED STATES FEDERAL LAW, EXCEPT AS OTHERWISE REQUIRED BY MANDATORY PROVISIONS OF LAW AND EXCEPT TO THE EXTENT THAT REMEDIES PROVIDED BY THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK ARE GOVERNED BY THE LAWS OF SUCH OTHER JURISDICTION; PROVIDED, HOWEVER, THAT WITH RESPECT TO THE CREATION, PERFECTION, PRIORITY AND ENFORCEMENT OF THE LIEN OR INTEREST OF THIS DEED OF TRUST, THE LAWS OF CALIFORNIA SHALL APPLY.

Section 6.24Entire Agreement.  The Loan Documents constitute the entire understanding and agreement among Borrowers, Grantor, Holder and Lenders with respect to the transactions arising hereunder in connection with the Secured Indebtedness and supersede all prior written or oral understandings and agreements among Grantor, Holder and Lenders with respect to the matters addressed in the Loan Documents.  Borrowers and Grantor hereby acknowledge that, except as incorporated in writing in the Loan Documents, there are not and were not, and no persons are or were authorized by Holder or Lenders to make, any representations, understandings, stipulations, agreements or promises, oral or written, with respect to the matters addressed in the Loan Documents.

39

IN WITNESS WHEREOF, Borrowers and Grantor have executed this instrument as of the date first written on page 1 hereof.

The address of Grantor is:	GRANTOR:
400 Corporate Point, Suite 525 Culver City, California 90230	ALTA HOLLYWOOD HOSPITALS, INC.
	By:
	Name:
	Title:

The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525 Culver City, California 90230	PROSPECT MEDICAL HOLDINGS, INC.
	By:
	Name:
	Title:

The address of Borrower is:	BORROWER:
400 Corporate Point, Suite 525 Culver City, California 90230	PROSPECT MEDICAL GROUP, INC.
	By:
	Name:
	Title:

The address of Administrative Agent/Holder is:

Bank of America, N.A.

800 Fifth Avenue, 32nd Floor

Mail Code WA1-501-32-37

Seattle, Washington 98104

The address of Trustee is:

PRLAP, Inc.

P.O. Box 2240

Brea, California  92822

[Van Nuys Psychistric Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Van Nuys Psychiatric Hospital – Second Lien]

STATE OF CALIFORNIA

COUNTY OF

On                                               , before me,                                                 , a notary public, personally appeared                                               , personally known to me (or proved to me on the basis of satisfactory evidence) to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed the same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument.

WITNESS my hand and official seal.

Notary Public

[Notarial Seal]

My commission expires:

[Van Nuys Psychiatric Hospital – Second Lien]

EXHIBIT A

LAND

All that parcel or parcels of real property located in the City of Los Angeles, County of Los Angeles, State of California, and more particularly described as follows:

Lots 21 to 24 inclusive, and Lots 53 to 60 inclusive, of Tract No. 7909, in the City of Los Angeles, County of Los Angeles, State of California, as per map recorded in Book 96 Page 81 of Maps, in the Office of the County Recorder of said county.

A-1

EX-10.53

Exhibit 10.53

MANAGEMENT SERVICES AGREEMENT

BETWEEN

PRO MED HEALTH CARE ADMINISTRATORS

AND

POMONA VALLEY MEDICAL GROUP, INC.,
D.B.A. PRO MED HEALTH NETWORK

EFFECTIVE:  OCTOBER 1, 1998

MANAGEMENT SERVICES AGREEMENT

TABLE OF CONTENTS

			PAGE
1.	Services to be Performed and Manner of Performance		1
2.	Facilities and Personnel		1
3.	Fees		1
4.	Payor		2
5.	IPA’s Plan Account and Payment of Revenues		2
6.	Term		2
7.	Termination		2
8.	Liabilities and Obligations		3
9.	Indemnification		4
10.	Accounting Records		4
11.	Professional Services		4
12.	Additional Services		4
13.	Books and Records		4
14.	Independent Contractor		5
15.	Assignments		5
16.	Entire Agreement: Amendments		5
17.	Compliance with State and Federal Law		5
18.	Force Majeure		5
19.	Enforcement Overpayment		5
20.	Expenses		5
21.	Arbitration		6
22.	Confidentiality		6
23.	Notices		6
SIGNATURES			6
FEES AND SERVICES EXHIBITS
	EXHIBIT I	Fees	8
	EXHIBIT II	Services	9
	EXHIBITIII	Compensation	11

MANAGEMENT SERVICES AGREEMENT

THIS MANAGEMENT SERVICES AGREEMENT (hereinafter referred to as “Agreement”) is made and entered into as of the FIRST day of October, 1998, by and between PRO MED HEALTH CARE ADMINISTRATORS, INC. a California corporation (hereinafter referred to as “ProMed HCA”) and POMONA VALLEY MEDICAL GROUP, INC., D.B.A. PRO MED HEALTH NETWORK, a California professional corporation (hereinafter referred to as “IPA”).

RECITALS

WHEREAS, ProMed HCA is a company that provides management services to Independent Practice Associations (IPAs) and other medical organizations, and

WHEREAS, IPA is a physician organization organized as a California professional medical corporation, which has entered into written service agreements with managed care or health maintenance organizations (HMOs), licensed pursuant to the California Knox-Keene Act of 1975, and has as its primary objective to deliver or arrange for the delivery of health care services to the HMO’s Enrollees, through the IPA’s arrangements or contracts with health professionals, all of whom are licensed, certified, or otherwise lawfully qualified to practice their professions in the State of California, and

WHEREAS, IPA desires to have ProMed HCA provide management services and ProMed HCA is willing to provide such services, under the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth and in exchange for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.             Services to be Performed and Manner of Performance.  ProMed HCA shall perform the services set forth in the “Fees and Services Exhibits,” Exhibit II, which is an essential part of this Agreement.  The services required to be performed by ProMed HCA shall be limited to the services set forth in the “Fees and Services Exhibits”, Exhibit II.  ProMed HCA shall perform said services consistently with the terms and conditions of the contracts between IPA and its contracting Payors and within the framework of the policies, interpretations, rules, practices and procedures made or established by IPA, provided that such terms and conditions are made known to ProMed HCA and are consistent and compatible with the description of services set forth in the “Fees and Services Exhibits”, Exhibit II, and with all applicable state and federal laws and regulations.

2.             Facilities and Personnel.  ProMed HCA shall maintain the facilities and personnel necessary to provide the services to be performed by it under this Agreement.

3.             Fees.  IPA agrees to pay to ProMed HCA for the services provided under this Agreement the fees set forth on the “Fees and Services Exhibits”, Exhibit I, which is an essential part of this Agreement.

1

4.             Payor.  Payor shall be defined as the managed care or health maintenance organization (HMO), government agency, employer or other organization which has entered into an agreement with IPA under which IPA provides medical services to employees, members or Enrollees (“Enrollees”) based on payments made by the Payor, subject to the benefits, copayments, limitations and exclusions set forth in the agreement between the Payor and Enrollees.  Payor may also mean any other payment source including but not limited to, Enrollees, coordination of benefits carriers, reinsurance and stop loss carriers, institutional providers, ancillary providers and third party liability payors.

5.             IPA’s Plan Account and Payment of Revenues.  The contract between IPA and its contracting Payor shall establish a set of benefits and other provisions which, for the purposes of this Agreement will be referred to as a “Plan”.  ProMed HCA shall establish a Plan Account to be used to pay all Expenses arising under the Plan as defined in Exhibit III, attached hereto.  Payments made from Plan Account will be in the amount of Cost of Services and Other Liabilities as defined in Section 20, currently paid by ProMed HCA, any Additional Services provided per Section 12, plus fees agreed upon in the “Fees and Services Exhibits”, Exhibit I.  To assure the adequacy of funds to pay all Expenses under such accounts, IPA agrees to pay to ProMed HCA all of IPA’s revenues under all Payor agreements and all revenue paid to IPA by any other Payor as defined in Section 4 above.  Such payment of revenue is intended to comply fully with relevant state and federal law.  ProMed HCA shall accept perpetual and unilateral control over the assets of IPA and will assume risk for IPA revenue control.  ProMed HCA will administer all revenues paid by IPA according to the provisions of Section 20.  Expenses and Exhibit III, Compensation, an essential part of this Agreement.

6.             Term.  The term of this Agreement shall be for a period of twenty (20) years, commencing October I, 1998 and ending September 30, 2018, and shall be automatically renewed for successive five (5) year periods, unless terminated as hereinafter provided.

7.             Termination.

A.          Without Cause:  After the first anniversary date of this Agreement, either party shall have the right to terminate this Agreement without cause, effective on any subsequent anniversary date, by giving the other party advance written notice at least one hundred twenty (120) days prior to the anniversary date.

B.           With Cause:  ProMed HCA may terminate this Agreement immediately upon delivery of written notice if:

1.            IPA is unable to lawfully operate under its articles of incorporation and bylaws, or

2.            IPA or a substantial number of its member physicians are unable to secure and maintain the required professional liability insurance, or

3.            In the event of a commission of a material fraudulent act by IPA.

2

C.          Either patty may terminate this Agreement for cause by providing thirty (30) days written notice to the other party specifying material breach of the provisions of this Agreement.  The remedy of such breach will result in the uninterrupted continuance of the Agreement within the remaining term, provided that such remedy occurs within twenty (20) days of the receipt of such notice, or if the breach is failure by IPA to make payments required under this Agreement, then within ten (10) days of the receipt of such notice.  Circumstances beyond the control of either party, such as acts of God, shall not be construed as constituting material breach of this Agreement.

D.          The Parties agree that significant time and effort has been spent by ProMed HCA in the development of managed care agreements and in the maintenance of said managed care agreements.  IPA also understands and agrees this is an on-going, time consuming process, and that in the event of termination of this Agreement:

1.            By IPA without cause, IPA shall pay to ProMed HCA, or;

2.            By ProMed HCA for cause, IPA agrees to pay to ProMed HCA:

An amount equal to one hundred (100%) percent of the IPA’s Total Gross Revenue collected in the twelve (12) months prior to the termination date

“Total Gross Revenue” is defined as the total amounts actually received from all Payors on a capitated per member per month basis prior to any deductions, plus the total amounts actually received from all other payment sources for any payments, reimbursements, compensation and incentive payments due IPA.  For the purposes of this Agreement, risk sharing funds are included in the definition of Total Gross Revenue.

E.           If IPA terminates this Agreement without cause or if ProMed HCA terminates this Agreement with cause, IPA shall be responsible to continue payment of ProMed HCA Management Fee in effect at the time of termination, for a period of one (1) year following termination of Agreement.  The above-referenced payments in case of termination of this Agreement, stated in section D above, shall not apply if IPA terminates this Agreement due to the sale of all or substantially all of the stock or assets of IPA to another entity which also holds a Management Services Agreement with ProMed HCA.

F.           Upon termination of this Agreement, ProMed HCA shall not be responsible for claims adjudication or issuing of claims payments for any claims received on and/or after the date of termination.  In the event the parties desire to have ProMed HCA continue processing claims, such services will be engaged in and rendered only pursuant to a separate written agreement.

8.             Liabilities and Obligations.  ProMed HCA shall have no responsibility, risk, liability or obligation for the funding of the Plan or for any extended liabilities for the Plan whether resulting from the termination of the Plan or from a change to fully or partially insured funding methods.  Such responsibility, risk, liability or obligation shall reside solely with IPA, IPA’s contracting Payor and such other entities as are designated in the Plan.

3

9.            Indemnification.  ProMed HCA shall indemnify and hold harmless IPA against any loss, claim or judgment, including reasonable attorneys’ fees, resulting from the negligent acts or omissions or willful misconduct of ProMed HCA.

IPA agrees to indemnify and hold harmless ProMed HCA against any expenses, loss, claim or judgment, including reasonable attorneys’ fees, arising out of or resulting from negligent acts or omissions or willful misconduct of IPA.

In addition, IPA shall indemnify and hold harmless ProMed HCA for losses, claims or judgments arising out of ProMed HCA’s performance of its services hereunder where ProMed HCA has substantially adhered to the framework of policies and procedures made or established by IPA and made known to ProMed HCA and has otherwise performed its services without gross negligence or willful misconduct and in accordance with industry practices.

10.          Accounting Records.  If requested by IPA, ProMed HCA shall prepare and maintain records of the accounting of the Plan funds based upon information provided to ProMed HCA for this purpose by IPA.  ProMed HCA shall make such records available within forty-five (45) days of the end of the calendar month in question.  Said records are defined in the “Fees and Services Exhibit”, Exhibit II, Sections 2 and 5.

11.          Professional Services.  Except as otherwise specifically provided in any services exhibit attached hereto, ProMed HCA shall not be required to provide any legal or other professional services to IPA nor shall ProMed HCA be responsible for providing the services of an independent accountant, actuary or auditor.

12.          Additional Services.  Without the prior written approval from ProMed I-ICA, IPA shall make changes in the Plan effective only on the anniversary dates of the documents governing the Plan, unless otherwise required by applicable law or regulation.  In the event such changes require additional services to be performed by ProMed HCA, the cost of such services shall be borne by IPA and upon approval by IPA, such costs will be deducted by ProMed HCA from Plan Account.

13.          Books and Records.  ProMed HCA shall maintain all records pertaining to the services to be performed by it hereunder.  ProMed HCA shall disclose the information of such records only to IPA or as designated in writing by IPA to IPA’s designee or to a person who has obtained an order of a court of competent jurisdiction requiring such disclosure.

Upon termination of this Agreement, ProMed HCA shall deliver to IPA, upon written request within a time period mutually agreeable, but in no event greater than six (6) months from the date of termination, information on all claim histories for the two (2) years immediately preceding the termination of this Agreement if ProMed HCA has provided administrative services under this Agreement and/or all files and documents pertaining to consulting services if ProMed HCA has provided consulting services under this Agreement.

If such information or claim histories is so requested, the IPA agrees to pay all costs incurred by ProMed HCA in providing such information and records, including but not limited to, the costs of programming computer changes and mailing.  If additional

4

information is requested by IPA subsequent to the termination of this Agreement, ProMed HCA shall take reasonable steps to provide such information and IPA agrees to pay all costs incurred by ProMed H CA in providing such information, including but not limited to, the costs of programming computer changes and mailing.  ProMed HCA shall be entitled to retain copies of all such records at its own expense.

14.          Independent Contractor.  It is understood and agreed by the parties hereto that ProMed HCA is engaged to perform under this Agreement as an independent contractor and there is no employee-employer relationship between the parties, nor is there any intent to form any attachment or affiliation between the parties as a result of this Agreement not specified in this Agreement.

15.          Assignments.  Neither party shall assign nor delegate to any other person or entity the duties, obligations or responsibilities imposed upon it by this Agreement without the prior written approval of the other party, except that ProMed HCA may assign such duties, obligations and responsibilities to a parent or subsidiary or successor of ProMed HCA upon thirty (30) days written notice to IPA.

16.          Entire Agreement:  Amendments.  This Agreement including the exhibits hereto and any amendment hereto, contains the entire agreement between the parties, and all prior proposals, discussions and writings by and between the parties and related to the subject matter hereof are superseded hereby.  This Agreement may be modified or amended only  pursuant to a written instrument executed by both parties hereto, except that the parties agree to be bound by applicable provisions mandated by state and federal law that are proposed in good faith by either party as amendments to this Agreement.

17.          Compliance with State and Federal Law.  If any provision of this Agreement or any portion thereof is declared invalid or unenforceable, the remaining provisions shall nevertheless remain in full force and effect.  This Agreement shall be interpreted under the laws of the State of California.  IPA shall cooperate in all audits, applications, licensure, and compliance matters necessary for ProMed HCA to comply with State and federal law, and with the requirements of industry accreditation bodies.

18.          Force Majeure.  Notwithstanding any provision of this Agreement to the contrary, neither ProMed HCA nor IPA shall have any liability to the other for a failure of performance resulting from any cause beyond its control.

19.          Enforcement Overpayment.  ProMed HCA shall have neither the responsibility nor the obligation to take any action, legal or otherwise, against IPA or any participant in the Plan or other person to enforce the provisions of the Plan.  In the event that IPA desires to engage the services of ProMed HCA for such purposes, such services may be engaged in and rendered only pursuant to a separate written agreement between the patties.

20.          Expenses.  Following the calculation of the “Management Fees” in accordance with the Fees and Services Exhibits for any month, but prior to the payment thereof, ProMed HCA shall be entitled to pay all other costs, expenses and liabilities of IPA (including, without limitation, all other costs, expenses and liabilities incurred in defending

5

or settling any actions or procedures, indemnification obligations to any party including ProMed HCA, and all other liabilities under contracts or otherwise) but excluding all costs, expenses and liabilities that are the responsibility of ProMed HCA under this Agreement (collectively, “Other Liabilities”) by reducing the amount actually paid by ProMed HCA for costs of provider services or health care services (“Cost of Health Care Services”); provided however that in no event shall any such reduction in the actual amount of Cost of Health Care Services paid by ProMed RCA in any month because of the payment of any Other Liabilities result in a recalculation of the Management Fee for that month.

21.          Arbitration.  Any dispute arising under this Agreement that cannot be settled by the parties may be referred by either party for binding Arbitration under the commercial rules of the American Arbitration Association, in Los Angeles County, California, and the judgment of such arbitration may be entered in any court of competent jurisdiction.

22.          Confidentiality.  The parties agree that the information processes and the work performed under this Agreement is of a confidential nature.  ProMed RCA shall provide and IPA shall acknowledge receipt and acceptance of ProMed HCA’s policies and procedures regarding maintenance of Confidentiality of information.  ProMed RCA shall receive ninety (90) days notice from IPA prior to implementation of any request by IPA for the revision or addition of systems and/or procedures under this paragraph.

23.          Notices.  Any notice required to be given pursuant to the terms of this Agreement shall be in writing and shall be hand delivered or sent, postage prepaid, by certified or registered mail, return receipt requested, to ProMed HCA or IPA at the addresses set forth below in the signature section.  The notice shall be effective on the date delivered by hand or the date of delivery indicated on the return receipt.

IN WITNESS WHEREOF, the parties have signed this Agreement effective the date first written above.

FOR:	PRO MED HCA	FOR:	IPA
By:		By:
	Yvonne K. Sonnenberg, M.H.A. Executive Director		Jeereddi A. Prasad, M.D. President
Dated:		Dated:
	ProMed Health Care Administrators 160 E. Artesia St., Suite 350 Pomona, CA 91767 909.620.5252		Pomona Valley Medical Group, Inc., d.b.a. ProMed Health Network 160 E. Artesia St., Suite 350 Pomona, CA 91767 909.620.5252 Tax ID# 95-4142044

6

THIS AGREEMENT IS SUBJECT TO THE FEES AND SERVICES EXHIBITS
ATTACHED HERETO AND MADE A PART HEREOF.

7

FEES AND SERVICES EXHIBITS

EXHIBIT I - FEES

Fees

1.	Management Fees: ProMed HCA shall calculate IPA Management Fees on a monthly basis, for services provided under this Agreement Management Fees shall be an amount equal to the actual cost of administrative and management services, plus five (5%) percent of Total Gross Revenue, as defined in Section 7.D.2., and shall be calculated prior to the payment of Other Liabilities and Cost of Services of IPA. ProMed HCA’s costs shall be defined as the amount of all actual costs incurred by ProMed HCA for administration and management services provided to IPA during the specific period of this Agreement, Plus;
2.	Consulting Fees: When performed by an employee or affiliate of ProMed HCA, IPA shall pay ProMed HCA for consultation services (including travel expenses) not included in the services described in Exhibit II, on a “Per Project” or hourly rate of $150.00 per hour. Charges will be due and payable by IPA upon receipt of an itemized statement from ProMed HCA, Plus;
3.	Other Fees: Additional fees for provision of hardware and software, not included in initial installation, will be quoted on a “Per Project” bases and agreed upon in writing between the parties prior to provision of said services. Charges will be due and payable by IPA upon receipt of an itemized statement from ProMed HCA.
4.	Timing and Manner of Payment: ProMed HCA shall deduct the Fees from IPA’s Plan Account on or before the twentieth (20th) day of each month with respect to services provided in the prior month.

8

FEES AND SERVICES EXHIBITS

EXHIBIT II - SERVICES

Services to be performed by ProMed HCA

1.	Claims
	a.	Adjudication of claims for IPA’s services.
	b.	Upon written request by IPA, nonclinical assistance to reconcile problems between provider and patients,
	c.	Match claims to authorizations.
	d.	Print, sign and transmit medical service payment checks to Participating Providers.
	e.	Microfilm original claims.
2.	Claims Reports
	a.	Prepare encounter data reports.
	b.	Prepare accounts receivable reports,
	c.	Prepare accounts payable reports (if applicable).
	d.	Prepare month-end claims financial report as appropriate (i.e., lags and IBNR).
	e.	Provide claims utilization/encounter data reports to meet Payor requirements.
3.	Claims Support Activities
	a.	Maintain vendor file (provider contract terms and IRS Form 1099 tax information).
	b.	Coordinate claims payment policy with IPA.
	e.	Manage cash balances for claims demand deposit account.
	d.	Order and implement customized software applications requested by IPA, at IPA’s expense.
4.	Eligibility
	a.	Maintain and update eligibility records on a monthly basis.
	b.	Provide physician assignment and eligibility and retroactive detail reports, which coincide with payments to IPA physicians, on a monthly basis.
	c.	Prepare capitation payments per IPA guidelines to correspond with Payor eligibility and physician assignment.
	d.	Provide necessary eligibility verification consistent with that received from Payor.
5.	Accounting
	a.	Provide information necessary for IPA’s accountant, to close medical expense journals and ledgers each month.
	b.	Bind and store computerized accounting reports, or microfiche reports.
	c.	Provide incentive distribution payments to IPA Physicians, at IPA’s direction.

9

6.	Authorizations
	a.	Provide on-line authorization services.
	b.	Provide authorization tracking and verification per IPA policy.
	c.	Assist in development of guidelines for authorization (i.e. second opinion, ancillary services, etc.).
	d.	Provide trending comparison based on utilization of Primary and Specialty Physicians.
	e.	Generation and distribution of authorization logs to provide notification to providers of authorization status, including Initial Determination for Medicare line of business.
	f.	Provide telephone authorization services during working hours and nurses by telephone for authorization services after working hours.
7.	Quality Assurance and Utilization Review
	a.	Provide supplemental nursing support services and triage services relative to Utilization Review and Quality Assurance.
	b.	Provide Monthly/Quarterly/Annual Quality Management reports.
	c.	Provide Daily/Weekly/Monthly Utilization Review reports for IPA’s Director/Board.
	d.	Assist Physicians and make Quality Assurance recommendations in Quality Assurance Review.
	e.	Administer grievance procedures, per Plan requirements.
8.	Credentials/Contracts
	a.	Assist IPA in development and implementation of credential guidelines.
	b.	Maintain credential and contract files for IPA Physicians.
	c.	Provide appropriate credential information to contract entities.
	d.	Assist in marketing IPA to Payors, negotiate and manage contracts.
	e.	Assist IPA in arranging and negotiating IPA contracts which include, but are not limited to: hospitals, home care, radiology, laboratory and other ancillary services.
9.	Administer all revenues paid by IPA to ProMed HCA according to the provisions of Section 20, Expenses and Exhibit and Exhibit III, Compensation

10

COMPENSATION

EXHIBIT III

ProMed HCA shall receive one hundred (100%) percent of all IPA Collections(1)’ for and on behalf of IPA.  ProMed HCA shall thereafter remit to IPA or its designee(s), a) the full cost of reimbursing IPA and IPA participating health care providers for those health care services provided to Payor’s Enrollees by IPA and IPA participating health care providers using compensation guidelines developed by IPA in consultation with and approved by ProMed HCA, and b) the full cost of any other goods, services or benefits provided by IPA to Payor’s Enrollees or participating health care providers (e.g., malpractice insurance) using compensation guidelines developed by IPA in consultation with and approved by ProMed I-ICA.

ProMed HCA’s payment hereunder shall be commensurate with the percentage of IPA Collections which reflects the fair market value of those administrative services provided by ProMed HCA hereunder.  The percentage as set forth in the “Fees and Services Exhibits”, Exhibit I may be adjusted by ProMed HCA in response to fluctuations in market value.  Notwithstanding anything to the contrary in this Agreement, IPA shall be under no obligation to pay ProMed HCA any monies in the event those remittances made to IPA as set forth above are in excess of IPA Collections.

(1) IPA Collections shall mean, for purposes of this Agreement, any and all revenue paid to ProMed HCA, for and on behalf of IPA, by Payors, Enrollees, coordination of benefit carriers, reinsurance carriers, institutional providers, ancillary providers and any other payment source.

11

EX-10.54

Exhibit 10.54

MANAGEMENT SERVICES AGREEMENT

BETWEEN

PRO MED HEALTH CARE ADMINISTRATORS

AND

UPLAND MEDICAL GROUP, A PROFESSIONAL MEDICAL CORPORATION

EFFECTIVE: OCTOBER 1, 2002

1154 N. Mountain Avenue, Upland, California 91786-3633            Phone: 909.932.1045   800.28l-8886   Fax: 909.932-1065

MANAGEMENT SERVICES AGREEMENT

TABLE OF CONTENTS		PAGE
RECITALS		1
1.	Services to be Performed and Manner of Performance	1
2.	Facilities and Personnel	1
3.	Fees	1
4.	Payer	1
5.	IPA’s Plan Account	2
6.	Term	2
7.	Termination	2
8.	Liabilities and Obligations	3
9.	Indemnification	3
10.	Accounting Records	3
11.	Professional Services	3
12.	Additional Services	3
13.	Books and Records	3
14.	Independent Contractor	4
15	Assignments	4
16.	Entire Agreement; Amendments	4
17.	Compliance with State and Federal Laws	4
18.	Force Majeure	4
19.	Enforcement Overpayment	4
20.	Expenses	4
21.	Arbitration	5
22.	Confidentiality	5
23.	Notices	5
SIGNATURES		5
FEES AND SERVICES EXHIBITS
	EXHIBIT I - Fees	6
	EXHIBIT II - Services	7

MANAGEMENT SERVICES AGREEMENT

THIS MANAGEMENT SERVICES AGREEMENT (hereinafter referred to as “Agreement”) is made and entered into as of the FIRST day of October, 2002, by and between PRO MED HEALTH CARE ADMINISTRATORS, INC., a California corporation (hereinafter referred to as “ProMed HCA”) and UPLAND MEDICAL GROUP, A PROFESSIONAL MEDICAL CORPORATION (hereinafter referred to as “IPA”).

RECITALS

WHEREAS, ProMed HCA is a company that provides management services to Independent Practice Associations (“IPAs”) and other medical organizations, and

WHEREAS, IPA is a physician organization organized as a California professional medical corporation which has entered into written service agreements with managed care or health maintenance organizations (“HMOs”), licensed pursuant to the California Knox-Keene Act of 1975, and has as its primary objective to deliver or arrange for the delivery of health care services to the HMO’s Enrollees, through the IPA’s arrangements or contracts with health professionals, all of whom are licensed, certified, or otherwise lawfully qualified to practice their professions in the State of California, and

WHEREAS, IPA desires to have ProMed HCA provide management services and ProMed HCA is willing to provide such services, under the terms and conditions set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual covenants and conditions hereinafter set forth and in exchange for good and valuable consideration, the-receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Services to be Performed and Manner of Performance. ProMed HCA shall perform the services set forth in the “Fees and Services Exhibits”, Exhibit II which is an essential part of this Agreement.   The services required to be performed by ProMed HCA shall be limited to the services set forth in the “Fees and Services Exhibits”, Exhibit II. ProMed HCA shall perform said services consistently with the terms and conditions of the contracts between IPA and its contracting Payers and within the framework of the policies, interpretations, rules, practices and procedures made or established by IPA, provided that such terms and conditions are made known to ProMed HCA and are consistent and compatible with the description of services set forth in the “Fees and Services Exhibits”, Exhibit II, and with all applicable state and federal laws and regulations,

2.Facilities and Personnel.  ProMed HCA shall maintain the facilities and personnel necessary to provide the services to be performed by it under this Agreement

3.Fees.  IPA agrees to pay to ProMed HCA for the services provided under this Agreement the fees set forth on the “Fees and Services Exhibits”, Exhibit I, which is an essential part of this Agreement.

4.Payer. Payer shall be defined as the managed care or health maintenance organization (“HMO”), government agency, employer or other organization which has entered into an agreement with IPA under which IPA provides medical services to employees, members or Enrollees (“Enrollees”) based on payments made by the Payer, subject to the benefits, co-payments, limitations and exclusions set forth in the agreement between the Payer and Enrollees.  Payer may also be any other payment source including but not limited to, Enrollees, coordination of benefits curriers, reinsurance and stop loss carriers, institutional providers; ancillary providers and third party liability payers.

1

5.IPA’s Plan Account. The contract between IPA and its contracting Payer shall establish a set of benefits and other provisions which, for the purposes of this Agreement will be referred to as a “Plan”. ProMed HCA shall establish a Plan Account to he used to pay claims arising under the Plan. Payments made from Plan Account will be in the amount of covered claims’ charges currently paid by ProMed HCA, plus fees agreed upon in the attached Exhibits. It will be the IPA’s responsibility to maintain funds in this special account sufficient to cover such reimbursements.

6.Term.  The term of this Agreement shall be for a period of seven (7) years, commencing October 1,2002 and ending September 30, 2009 and shall be automatically renewed for successive one (1) year periods, unless terminated as hereinafter provided.

7.Termination.

A.Without Cause: After the first anniversary date of this Agreement, either party shall have ,the right to terminate this Agreement without cause, effective on any subsequent anniversary date, by giving the other party advance written notice at least one hundred twenty (120) days prior to the anniversary date.  Upon termination of this Agreement, for such time that ProMed HCA may continue processing claims, IPA shall pay to ProMed HCA for such services the fees specified in the attached “Fees and Services Exhibits”, Exhibit I, and in the body of this Agreement.

B.With Cause.  ProMed HCA may terminate this Agreement immediately upon delivery of written notice if:

1.IPA is unable to lawfully operate under its articles of incorporation and bylaws, or

2.IPA or a substantial number of its member physicians are unable to secure and maintain the required professional liability insurance, or

3.In the event of a commission of a material fraudulent act by IPA.

C.Either party may terminate this Agreement for cause by providing thirty (30) days written notice to the other party specifying material breach of the provisions of this Agreement. The remedy of such breach will result in the uninterrupted continuance of the Agreement within the remaining term, provided that such remedy occurs within twenty (20) days of the receipt of such notice, or if the breach is failure by IPA to make payments required under this Agreement, then within ten (10) days of the receipt of such notice. Circumstances beyond the control of either party, such as acts of God, shall not be construed as constituting material breach of this Agreement.

D.The Parties agree that significant time and effort has been spent by ProMed HCA in the development of managed care agreements and in the maintenance of said managed care agreements.  IPA also understands and agrees this is an on-going, time consuming process, and that in the event of termination of this Agreement.

1.By IPA without cause, IPA shall pay to ProMed HCA, or;

2.By ProMed HCA for cause, IPA agrees to pay to ProMed HCA:

An amount equal to one hundred (100%) percent of the IPA’s total Gross Revenue collected in the twelve (12) months prior to the termination date.

2

E.If IPA terminates this Agreement without cause or if ProMed HCA terminates this Agreement with cause) IPA shall be responsible to continue payment of ProMed HCA Management Fee in effect at the time of termination, for a period of one (1) year following termination of Agreement.

The above-referenced payments in case of termination of this Agreement, stated in Section D above, shall not apply if IPA terminates this Agreement due to the sale of all or substantially all of the stock or assets of IPA to another entity which also holds a Management Services Agreement with ProMed HCA.

8.Liabilities and Obligations.  ProMed HCA shall have no responsibility, risk, liability or obligation for the funding of the Plan or for any extended liabilities for the Plan whether resulting from the termination of the Plan or from a change to fully or partially insured funding methods. Such responsibility, risk, liability or obligation shall reside solely with IPA, IPA’s contracting Payer and such other entities as are designated in the Plan.

9.Indemnification. ProMed HCA shall indemnify and hold harmless IPA against any loss, claim or judgment, including reasonable attorneys’ fees, resulting from the negligent acts or omissions or willful misconduct of ProMed HCA.

IPA agrees to indemnify and hold harmless ProMed HCA against any expenses, loss, claim or judgment, including reasonable attorneys’ fees, arising out of or resulting from negligent acts or omissions or willful misconduct of IPA.

In addition, IPA shall indemnify and hold harmless ProMed HCA for losses, claims or judgments arising out of ProMed HCA’s performance of its services hereunder where ProMed HCA has substantially adhered to the framework of policies and procedures made or established by IPA and made known to ProMed HCA and has otherwise performed its services without gross negligence or willful misconduct and in accordance with industry practices.

10.Accounting Records. If requested by IPA, ProMed HCA shall prepare and maintain records of the accounting of the Plan funds based upon information provided to ProMed HCA for this purpose by IPA.  ProMed HCA shall make such records available within forty-five (45) days of the end of the calendar month in question. Said records are defined in the “Fees and Services Exhibit”, Exhibit II, Sections 2 and 5.

11.Professional Services. Except as otherwise specifically provided in any services exhibit attached hereto, ProMed HCA shall not be required to provide any legal or other professional services to IPA nor shall ProMed HCA be responsible for providing the services of an independent accountant, actuary or auditor.

12.Additional Services. Without the prior written approval from ProMed HCA, IPA shall make changes in the Plan effective only on the anniversary dates of the documents governing the Plan, unless otherwise required by applicable law or regulation. In the event such changes require additional services to be performed by ProMed HCA, the cost of such services shall be home by IPA and upon approval by IPA, such costs will be deducted by ProMed HCA from Plan Account.

13.Books and Records.  ProMed HCA shall maintain all records pertaining to the services to be performed by it hereunder.  ProMed HCA shall disclose the information of such records only to IPA or as designated in writing by IPA to IPA’s designee or to a person who has obtained an order of a court of competent jurisdiction requiring such disclosure.

Upon termination of this Agreement, ProMed HCA shall deliver to IPA, upon written request within a time period mutually agreeable, but in no event greater than six (6) months from the date of termination, information on all claim histories for the two (2) years immediately preceding the termination of this Agreement

3

if ProMed HCA has provided administrative services under this Agreement and/or all files and documents pertaining to consulting services if ProMed HCA has provided consulting services under this Agreement.

If such information or claim histories is so requested, the IPA agrees to pay all costs incurred by ProMed HCA in providing such information and records, including but not limited to, the costs of programming computer changes and mailing. If additional information is requested by IPA subsequent to the termination of this Agreement, ProMed HCA shall take reasonable steps to provide such information and IPA agrees to pay all costs incurred by ProMed HCA in providing such information, including but not limited to, the costs of programming computer changes and mailing. ProMed HCA shall be entitled to retain copies of all such records at its own expense,

14.Independent Contractor.  It is understood and agreed by the parties hereto that ProMed HCA is engaged to perform under this Agreement as an independent contractor and there is no employee-employer relationship between the parties, nor is there any intent to form any attachment or affiliation between the parties as a result of this Agreement not specified in this Agreement.

15.Assignments. Neither party shall assign nor delegate to any other person or entity the duties, obligations Or responsibilities imposed upon it by this Agreement without the prior written approval of the other party, except that ProMed HCA may assign such duties, obligations and responsibilities to a parent or subsidiary or successor of ProMed HCA upon thirty (30) days written notice to IPA.

16.Entire Agreement: Amendments. This Agreement including the exhibits hereto and any amendment hereto, contains the entire agreement between the parties, and all prior proposals, discussions and writings by and between the parties and related to the subject matter hereof are superseded hereby. This Agreement may be modified or amended only pursuant to a written instrument executed by both parties hereto, except that the parties agree to be bound by applicable provisions mandated by state and federal law that are proposed in good faith by either party as amendments to this Agreement.

17.Compliance with State and Federal Laws. If any provision of this Agreement or any portion thereof is declared invalid or unenforceable, the remaining provisions shall nevertheless remain in full force and effect, This Agreement shall be interpreted under the laws of the State of California.

IPA shall cooperate in all audits, applications, licensure, and compliance matters necessary for ProMed HCA to comply with state and Federal law, and with the requirements of industry accreditation bodies.

18.Force Majeure. Notwithstanding any provision of this Agreement to the contrary, neither ProMed HCA nor IPA shall have any liability to the other for a failure of performance resulting from any cause beyond its control.

19.Enforcement Overpayment. ProMed HCA shall have neither the responsibility nor the obligation to take any action, legal or otherwise, against IPA or any participant in the Plan or other person to. enforce the provisions of the Plan. In the event that IPA desires to engage the services of ProMed HCA for such purposes, such services may be engaged in and rendered only pursuant to a separate written agreement between the parties.

20.Expenses. Except as specifically otherwise provided in this Agreement, IPA shall be solely responsible for the normal and usual costs and expenses incurred in providing the services contemplated. ProMed HCA shall be responsible for paying the costs and expenses incurred in connection with the maintenance and operation of its facilities. IPA shall be responsible for the payment of all costs attributable to professional services contracted for or in connection with the administration of IPA or by ProMed HCA at the direction of IPA.

4

21.Arbitration. Any dispute arising under this Agreement that cannot be settled by the parties may be referred by either party for binding Arbitration under the commercial rules of the American Arbitration Association, in Los Angeles County, California, and the judgment of such arbitration may be entered in any court of competent jurisdiction.

22.Confidentiality. The parties agree that the information processed and the work performed under this Agreement is of a confidential nature.  ProMed HCA shall provide and IPA shall acknowledge receipt and acceptance of ProMed HCA’s policies and procedures regarding maintenance of Confidentiality of information.  ProMed HCA shall receive ninety (90) days notice from IPA prior to implementation of any request by IPA for the revision or addition of systems and/or procedures under this paragraph.

23.Notices. Any notice required to be given pursuant to the terms of this Agreement shall be in writing and shall be hand delivered or sent, postage prepaid, by certified or registered mail, return receipt requested, to ProMed HCA or IPA at the addresses set forth below in the signature section. The notice shall be effective on the date delivered by hand or the date of delivery indicated on the return receipt.

IN WITNESS WHEREOF, the parties hereto have signed this Agreement effective the date first written above.

	PRO MED HEALTH CARE ADMINISTRATORS	UPLAND MEDICAL GROUP, A PROFESSIONAL MEDICAL CORPORATION
By:		By:
	Kishan Thapar, M.D.		Jeereddi A. Prasad, M.D.
	Executive Director		President
		Dated:
Dated:			Upland Medical Group, A Professional
	ProMed Health Care Administrators		Medical Corporation
	1154 N. Mountain Ave.		1154 N.Mountain Avenue
	Upland, CA 91786		Upland, CA 91786
			Tax ID# 46-0503153

THIS AGREEMENT IS SUBJECT TO THE SERVICES AND FEES EXHIBITS

ATTACHED HERETO AND MADE A PART HEREOF

5

FEES AND SERVICES EXHIBITS

EXHIBIT I - FEES

FEES

1.	Management Fees: ProMed HCA shall calculate IPA Management Fees on a monthly basis, for services provided under this Agreement. Management Fees shall be a percentage of Gross Revenue as defined below and shall be calculated prior to the payment of Other Liabilities and Costs of Health Care Services of IPA.
	ProMed HCA shall retain from IPA Gross Revenue the following amounts after calculation of all IPA expenses and liabilities:

LINE OF BUSINESS	PERCENTAGE
Commercial	12%
Point Of Service	12%
Medicare Risk	12%
Medi-Cal	12%
Healthy Families	12%

	“Gross Revenue is defined as the total amounts actually received from all Payers on a capitated per member per month basis prior to any deductions, plus the total amounts actually received from all other payment sources. Payment sources shall include but are not limited to; capitation payments, risk sharing fund payments, any other incentive funds, third party liability recoveries, any other recoveries, and stop loss recoveries in excess of the stop loss premium.”
	Plus:
2.	Affiliation Agreement: IPA may choose to sign an “Affiliation Agreement” with Pomona Valley Medical Group, Inc., dba. ProMed Health Network (“PMPV”). The purpose of this agreement will be to pass through HMO Enrollees from ProMed Health Network to the IPA, upon HMO acceptance and approval of Affiliation Agreement. By execution of an Affiliation Agreement, the IPA will become an affiliated IPA to PMPV (“Affiliated IPA”). The Affiliated IPA win be charged a fee (“Affiliation Fee”) of fifty ($0.50) cents PMPM (per Member Per Month) for each Enrollee, until such time as IPA executes their own HMO agreements and the Enrollees are formally transferred to IPA.
	All Enrollees assigned to Affiliated IPA under the PMPV HMO agreements shall be managed and administered as separate and distinct Enrollees to the IPA. All revenue and costs incurred by this membership shall be the responsibility of the Affiliated IPA, as defined in the Affiliation Agreement, Plus;
3.	Consulting Fees: When performed by an employee or affiliate of ProMed HCA, IPA shall pay ProMed HCA for consultation services (including travel expenses) not included in the services described in Exhibit II, on a “Per Project” or hourly rate of $150,00 per hour. Charges for Consulting Fees are due and payable by IPA upon receipt of an itemized statement from ProMed HCA, Plus;
4.	Other Fees: Additional fees for provision of hardware and software, not included in initial installation, will be quoted on a “Per Project” basis and agreed upon in writing between the parties prior to provision of said services. Charges for Other Fees are due and payable by IPA upon receipt of an itemized statement from ProMed HCA or shall upon approval by IPA, be deducted from lPA’s Plan Account.
5.	Timing and Manner of Payment: ProMed HCA shall deduct the Management Fees from IPA’s Plan Account on or before the twentieth (20th) day of each month.

6

FEES AND SERVICES EXHIBITS

EXHIBIT II - FEES

SERVICES TO BE PERFORMED BY PRO MED HCA

1.	Claims
	a.	Adjudication of claims for IPA’s services
	b.	Upon written request by IPA, non-clinical assistance to reconcile problems between provider and patients
	c.	Match claims to authorizations
	d.	Print, sign and transmit medical service payment checks to Participating Providers
	e.	Microfilm original claims
2.	Claims Reports
	a.	Prepare encounter data reports
	b.	Prepare accounts receivable reports
	c.	Prepare accounts payable reports (if applicable)
	d.	Prepare month-end claims financial report as appropriate (i.e. lags and IBNR
	e.	Provide claims utilization/encounter data reports to meet Payer requirements
3.	Claims Support Activities
	a.	Maintain vendor file (provider contract terms and IRS Form 1099 tax information)
	b.	Coordinate claims payment policy with IPA
	c.	Manage cash balances for claims demand deposit account
	d.	Order and implement customized software applications requested by IPA, at IPA’s expense
4.	Eligibility
	a.	Maintain and update eligibility records on a monthly basis
	b.	Provide physician assignment and eligibility and retroactive detail reports, which coincide with payments to IPA physicians, on a monthly basis
	c.	Prepare capitation payments per IPA guidelines to correspond with Payer eligibility and physician assignment
	d.	Provide necessary eligibility verification consistent with that received from Payer
5.	Accounting
	a.	Provide information necessary for IPA’s accountant, to close medical expense journals and ledgers each month
	b.	Bind and store computerized accounting reports, or microfiche reports
	c.	Provide incentive distribution payments to IPA Physicians, at IPA’s direction

7

6.	Authorizations
	a.	Provide on-line authorization services
	b.	Provide authorization tracking and verification per IPA policy
	c.	Assist in development of guidelines for authorization (i.e. second opinion, ancillary services, etc.)
	d.	Provide trending comparison based on utilization of primary and specialty physicians
	e.	Generation and distribution of authorization logs to provide notification to providers of authorization status, including Initial Determination for Medicare line of business
	f.	Provide telephone authorization services during working hours and nurses by telephone for authorization services after working hours
7.	Quality Assurance and Utilization Review
	a.	Provide supplemental nursing support services and triage services relative to Utilization Review and Quality Assurance
	b.	Provide Monthly/Quarterly/Annual Quality Management reports
	c.	Provide Daily/Weekly/Monthly Utilization Review reports for IPA’s Director/Board
	d.	Assist Physicians and make Quality Assurance recommendations in Quality Assurance Review
	e.	Administer grievance procedures, per Plan requirements
8.	Credentials/Contracts
	a.	Assist IPA in development and implementation of credential guidelines
	b.	Maintain credential and contract files for IPA Physicians
	c.	Provide appropriate credential information to contract entities
	d.	Assist in marketing IPA to Payers, negotiate and manage contracts
	e.	Assist IPA in arranging and negotiating IPA contracts which include, but are not limited to: hospitals, home care, radiology, laboratory and other ancillary services

8

EX-10.55

Exhibit 10.55

***  Confidential Information Omitted and filed separately with the Securities and Exchange Commission.

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023
	AND
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
Address:	13222 Bloomfield Avenue
	Norwalk, CA 90650
Provider No.:	HHC 30663F – Los Angeles Community Hospital
	HHC 30663F – Los Angeles Community Hospital of Norwalk

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

TABLE OF CONTENTS

ARTICLE 1 FORMATION
1.1	Identification Of Parties
1.2	Specification Of State’s Authority and Instrumentalities
1.3	Declaration That Beneficiaries Under the Medi-Cal Program Are Not Third Party Beneficiaries Under This Contract
1.4	Declaration Of Present Contractual Intent
ARTICLE 2 DEFINITIONS
2.1	General Meaning Of Words and Terms
2.2	Acute Administrative Day
2.3	Beneficiary
2.4	Department
2.5	Fiscal Intermediary
2.6	Inpatient Services
2.7	May
2.8	Shall
ARTICLE 3 PERFORMANCE PROVISIONS
3.1	General Agreement
3.2	Licensure and Certification As Conditions Precedent To State’s Payment Obligation
3.3	Utilization Controls: Compliance By Provider As Condition Precedent To Maturing State’s Payment Obligation
3.4	Appointment Of Liaisons and Agency Status Of Provider’s Liaison
3.5	Service Location
3.6	Quality Of Care
3.7	Open Staff
3.8	Assumption Of Risk By Provider
3.9	Delegation Of Provider’s Duties, When Permitted
3.10	Patient Rights
3.11	Beneficiary Evaluation Of Provider’s Services
3.12	Grievance Procedure
ARTICLE 4 PAYMENT PROVISIONS
4.1	Rate Structure; Contingent Liability Of State
4.2	Rate Inclusive Of Physician, Transportation and Certain Prior Patient Services
4.3	Billing Procedures As Express Conditions Precedent To State’s Payment Obligation
4.4	Cost Reports
4.5	Recovery Overpayments To Provider; Liability For Interest
4.6	Customary Charges Limitation
4.7	Assumption of Debts, Liabilities, and respective other Obligations Deriving from Contracts No. 83-82927 and No. 82-80258
ARTICLE 5 RECORDS AND AUDIT PROVISIONS
5.1	Onsite Reviews
5.2	Records to be Kept; Audit or Review; Availability Period of Retention

ARTICLE 6 GENERAL PROVISIONS
6.1	Integration Clause
6.2	Performance Obligations; Effective Date and Term of this Contract; Waiver of Provider’s Right to Administrative Hearing
6.3	Headings
6.4	Governing Authorities
6.5	Conformance with Federal Regulations
6.6	Application for Termination in the Face of a Declaration or Finding of Partial Invalidity
6.7	Restriction on Provider’s Freedom to Assign Benefits Only under this Contract or to Engage in Organic Change
6.8	Contract Officer – Delegation of Authority
6.9	Notice
6.10	Status as Independent Contractors
6.11	Informal Amendments Ineffective; Toleration of Deviation from Terms of Contract Not to be Construed as Waiver
6.12	Beneficiary Eligibility
6.13	Indemnification
6.14	Limitation of State Liability
6.15	Termination Without Cause
6.16	Termination for Default
6.17	Disputes
6.18	Conflict of Interest
6.19	Confidentiality of Information
6.20	Confidentiality of Contractual Provisions
6.21	Additional Provisions
APPENDIX A
APPENDIX B

ARTICLE 1
FORMATION

1.1Identification Of Parties

This Contract is between the State of California, hereinafter designated “the State,” and ALTA LOS ANGELES HOSPITALS, INC. doing business as LOS ANGELES COMMUNITY HOSPITAL and LOS ANGELES COMMUNITY HOSPITAL OF NORWALK, hereinafter designated “the Provider.”

1.2Specification Of State’s Authority and Instrumentalities

The Provider hereby recognizes that this Contract is formed under the authority of Sections 14081, et seq., of the Welfare and Institutions Code and the regulations adopted pursuant thereto which authorize the Department of Health Services to contract for provision of inpatient hospital services to beneficiaries eligible for such services under the Medi-Cal program in accordance with the rates, terms and conditions negotiated by the California Medical Assistance Commission.

1.3Declaration That Beneficiaries Under the Medi-Cal Program Are Not Third Party Beneficiaries Under This Contract

Notwithstanding mutual recognition that services under this agreement will be rendered by the Provider to beneficiaries under the Medi-Cal program, as more fully defined in Paragraph 2.3, it is not the intention of either the State or Provider that such individuals occupy the position of intended third party beneficiaries of the obligations assumed by either party to this Contract.

1.4Declaration Of Present Contractual Intent

The State and the Provider, in consideration of the covenants, conditions, stipulations, terms and warranties hereinafter expressed, presently contract as follows.

1

ARTICLE 2
DEFINITIONS

2.1General Meaning Of Words and Terms

The words and terms used in this Contract are intended to have their usual meanings unless a particular or more limited meaning is associated with their usage in Sections 1400, et seq. of the Welfare and Institutions Code, or Title 22 of the California Code of Regulations pertaining to the rendition of health care or unless specifically defined in this Article or otherwise in this Contract.

2.2Acute Administrative Day

“Acute Administrative Day” means those days approved in an acute inpatient facility which provides a higher level of care than that currently needed by the patient (22 California Code of Regulations, Section 51173).

2.3Beneficiary

“Beneficiary” means a person certified, pursuant to Sections 14016 and 14018 of the Welfare and Institutions Code, as eligible for Medi-Cal, except that beneficiary shall not include Medi-Cal beneficiaries enrolled in Prepaid Health Plans or other organized health systems which contract with the Department under the provisions of Sections 14000, et seq. of the Welfare and Institutions Code, and the regulations and definitions adopted under Title 22 of the California Code of Regulations.  A beneficiary also includes that person whose eligibility was not determined until after the rendition of inpatient services.  Medi-Cal beneficiaries who are also eligible for Medicare hospital benefits under the provisions of Title XVIII of the Social Security Act, and who have not exhausted those benefits, are not considered beneficiaries within the meaning of this Contract.  Beneficiary does not include those individuals receiving skilled nursing facility or long-term care services or acute administrative day care.

2

2.4Department

“Department” means the State Department of Health Services.

2.5Fiscal Intermediary

“Fiscal Intermediary” means that person or entity who has contracted, as specified in Section 14104.3 of the Welfare and Institutions Code, with the Department to perform fiscal intermediary services related to this Contract.

2.6Inpatient Services

“Inpatient Services” includes, but is not limited to, the following services when rendered in accordance with Sections 14133 and 14133.1 of the Welfare and Institutions Code, and Section 51327 of Title 22 of the California Code of Regulations to a Medi-Cal beneficiary.

(a)Bed and board;

(b)Medical, nursing, surgical, pharmacy and dietary services;

(c)All diagnostic and therapeutic services required by the beneficiary, including physicians’ services, except as noted in Appendix A which is incorporated herein by reference;

(d)Use of hospital facilities, medical social services furnished by the hospital, and such drugs, including take home drugs, biologicals, supplies, appliances and equipment as are required by the beneficiary;

(e)Transportation services subsequent to admission required in providing inpatient services under this Contract.

(f)All other services provided to hospital inpatients except as noted in Appendix A;

(g)Services rendered by the Provider within 24 hours prior to the beneficiary’s admission as an inpatient, such as outpatient or emergency services which are related to the condition for which the beneficiary is admitted as an inpatient;

3

(h)Administrative services required in providing inpatient services under this Contract.

2.7May

“May” is used to indicate a permissive or discretionary term of function.

2.8Shall

“Shall” is used to introduce a covenant of either the State or the Provider, and is mandatory.

4

ARTICLE 3
PERFORMANCE PROVISIONS

3.1General Agreement

(a)Provider agrees to render inpatient services (Paragraph 2.7) to any eligible beneficiary (Paragraph 2.3) in need of such services and assumes full responsibility for provision of all inpatient services, either directly, or as otherwise provided in this Contract.  Provider agrees to accept as payment in full for these inpatient services payment from the Department as provided in Article 4 of this Contract.  The Department agrees to pay the Provider for such services rendered in accordance with the terms and under the express conditions of this Contract.

(b)Provider shall, at its own expense, provide and maintain facilities and professional, allied and supportive paramedic personnel to provide all necessary and appropriate inpatient services.

(c)Provider shall, at its own expense, provide and maintain the organizational and administrative capabilities to carry out its duties and responsibilities under the Contract and all applicable statutes and regulations pertaining to Medi-Cal providers.

(d)For the purpose of (a) of this Paragraph, “any eligible beneficiary” means any individual who meets the criteria established in Paragraph 2.3 of this Contract without reference to residence, domicile or any geographic factor.

(e)For the purpose of (a) of this Paragraph, “all inpatient services” means those services defined in Paragraph 2.7 of this Contract unless expressly excluded in Appendix A of this Contract.

3.2Licensure and Certification As Conditions Precedent To State’s Payment Obligation

(a)Provider hereby represents and warrants that it is currently, and for the duration of this Contract shall remain,

5

licensed as a general acute care hospital in accordance with Sections 1250 et seq. of the Health and Safety Code and the licensing regulations contained in Title 22 and Title 17 of the California Code of Regulations.

(b)Provider hereby represents and warrants that it is currently, and for the duration of this Contact shall remain, certified under Title XVIII of the Federal Social Security Act.

(c)Provider agrees that compliance with its obligations to remain licensed as a general acute care hospital as provided in (a) this Paragraph, and certified under the Federal Social Security Act as provided in (b) of this Paragraph shall be express conditions precedent to maturing the State’s payment obligations under Paragraph 2.1(a) and Article 4 of this Contract.

3.3Utilization Controls:  Compliance By Provider As Condition Precedent To Maturing State’s Payment Obligation

As express conditions precedent to maturing the State’s payment obligations under the terms of this Contract the Provider shall adhere to all utilization controls and obtain prior authorization for services in accordance with the statutes and, except for those provisions waived by the Director of the Department of Health Services, regulations and Provider Bulletins governing the Medi-Cal program (Paragraph 6.4[a][1]).

3.4Appointment Of Liaisons and Agency Status Of Provider’s Liaison

(a)Provider shall designate in writing a person to act as liaison to the Department.  Such person shall coordinate all communication between the parties.  The written designation of such person shall constitute the conferral of full agency powers to bind the Provider as principal in all dealings with the Department.

(b)The Department shall designate a liaison in conformity with the procedures and with such authority as specified in Paragraph

6

6.8 of this Contract.  Communications to the Department shall be submitted to its liaison at the following address:

Contract Officer
Medi-Cal Operations Division
Post Office Box 942732
Sacramento, California 94234-7320

3.5Service Location

Inpatient services rendered pursuant to this Contract shall be rendered at the following facilities:

LOS ANGELES COMMUNITY HOSPITAL
4081 East Olympic Boulevard
Los Angeles, California 90023

–and–

LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
13222 Bloomfield Avenue
Norwalk, California 90650

3.6Quality Of Care

As express conditions precedent to maturing the State’s payment obligation under the terms of this Contract, the Provider shall:

(1)Assure that any and all beneficiaries receive care as required by Sections 51207(a)(4) and 70703(a) of Title 22 of the California Code of Regulations;

(2)Take such actions as required by Provider’s Medical Staff Bylaws against medical staff members who violate those bylaws, as the same may be from time-to-time amended;

(3)Provide inpatient services in the same manner to beneficiaries as it provides to all patients to whom it renders inpatient services; and

(4)Not discriminate against Medi-Cal beneficiaries in any manner, including admission practices, placement in special or

7

separate wings or rooms, provision of special or separate, meals or waiting time for surgical procedures.

3.7Open Staff

Provider shall not deny medical staff membership or clinical privileges for reasons other than a physician’s individual qualifications as determined by professional and ethical criteria, uniformly applied to all medical staff applicants and members.  Determination of medical staff membership or clinical privileges shall not be made upon the basis of:

(1)The existence of a contract with the Provider or with others;

(2)Membership in or affiliation with any society, medical group or teaching facility or upon the basis of any criteria lacking professional justification, such as sex, race, creed or national origin.

3.8Assumption Of Risk By Provider

The Provider shall bear total risk for the cost of all inpatient services rendered to each beneficiary covered by this Contract.  As used in this Paragraph, “risk” means that the Provider covenants to accept as payment in full for any and all inpatient services (Paragraph 2.6) payments made by the State pursuant to Article 4 of this Contract.  Such acceptance shall be made irrespective of whether the cost of such services, transportation and related administrative expenses shall have exceeded the payment obligation of the State matured under the conditions set forth in this Contract.  The term “risk” also includes, but is not limited to, the cost of all inpatient services for illness or injury which results from or is contributed to by catastrophe or disaster which occurs subsequent to the effective date of this Contract, including, but not limited to, acts of God, war or the public enemy.

3.9Delegation Of Provider’s Duties, When Permitted

8

The Provider and State recognize that the inpatient hospital services covered by this Contract are personal and non-delegable.  Any attempt by the Provider to delegate or otherwise vest responsibility for performance of its duties in any manner shall constitute a present material breach of this Contract.

3.10Patient Rights

The Provider shall adopt and post in a conspicuous place a written policy on patient’s rights in accordance with Section 70707 of Title 22 of the California Code of Regulations.  Procedures for resolving a beneficiary’s complaint involving patients’ rights may be combined with the grievance procedure in Paragraph 3.12.  Complaints by beneficiaries with regard to substandard conditions may be investigated by the Department’s Licensing and Certification Division or by the Joint Commission on Accreditation of Healthcare Organization, or such other agency, as required by law or regulation.

3.11Beneficiary Evaluation Of Provider’s Services

The Provider shall provide a written questionnaire to the beneficiary at the time of the beneficiary’s admission.  The questionnaire shall be approved by the Department and offer the beneficiary the opportunity to evaluate the care given.  It shall be collected at the time of discharge and maintained in the Provider’s file for four years and shall be made available to agents of the Department.

3.12Grievance Procedure

The Provider shall establish and maintain a procedure for resolving beneficiary grievances.  Such procedure shall be approved by the Department prior to implementation.  The grievance procedure shall include:

(1)Immediate recording of all grievances received, including information sufficient to identify the grievant, date of receipt, nature of the problem, date and resolution or disposition of

9

the grievance.  Such records and related documents shall be open to inspection by the Department and the Federal Department Of Health and Human Services for a period of four years.

(b)A finding of fact and resolution within 30 days of receipt of grievance.

(c)In those cases where the grievant is not identifiable, or when the problem cannot be resolved, entry of notations to that effect in the record, including the reasons why the grievance could not be resolved and the individual responsible for that decision.

(d)If the grievant is identifiable, transmittal of a copy of the finding of fact, and an explanation of the resolution or disposition of the grievance to the grievant and the Department within five days of the decision.

(e)If the grievant is identifiable, notification to the grievant regarding a right to appeal the disposition of the grievance in the form of a complaint with the Department’s liaison designated under Paragraph 6.8.

(f)A grievance coordinator.

10

ARTICLE 4
PAYMENT PROVISIONS

4.1Rate Structure; Contingent Liability Of State

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid at the all-inclusive rate per patient per day of for inpatient services provided to beneficiaries.

4.2Rate Inclusive Of Physician, Transportation and Certain Prior Patient Services

The rate structure under Paragraph 4.1 of this Contract is intended by both the State and Provider to be inclusive of all inpatient services rendered by the Provider and to constitute the State’s only financial obligation under this Contract.  As nonlimiting examples:

(a)There shall be no separate billing by either the Provider or physicians for inpatient services rendered by physicians to beneficiaries covered by this Contract, except for those inpatient services set forth in Appendix A previously incorporated by reference as part of this Contract.

(b)There shall be no separate billing for any transportation services required in providing inpatient services under this Contract.

(c)There shall be no separate billing for any services rendered by the Provider within a 24-hour period prior to the beneficiary’s admission as an inpatient, such as outpatient or emergency services which are related to the condition for which the beneficiary is admitted as an inpatient.  Such prior services shall be deemed inpatient services and included in the rates set under Paragraph 4.1.

4.3Billing Procedures As Express Conditions Precedent To State’s Payment Obligation

11

(a)As an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider shall determine that inpatient services rendered directly are not covered, in whole or in part, under any other state or federal medical care program or under any other contractual or legal entitlement, including, but not limited to, a private group indemnification or insurance program or worker’s compensation.  To the extent that such coverage is available, the State’s payment obligation pursuant to Paragraph 4.1 shall be reduced.

(b)As a further express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider shall submit claims to the fiscal intermediary for all services rendered under the terms of this Contract, in accordance with the applicable billing requirements contained in Title 22 of the California Code of Regulations.

(c)A day of service shall be billed for each beneficiary who occupies an inpatient bed as 12:00 midnight in the facilities of the Provider.  However, a day of service may be billed if the beneficiary is admitted and discharged during the same day provided that such admission and discharge is not within 24 hours of a prior discharge.  Only one patient day of service may be billed for mother and newborn child (children) when both mother and newborn child (children) are inpatients of the hospital.

4.4Cost Reports

Although they shall not be used for payment purposes under this Contract, as an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract the Provider shall complete and file Medi-Cal cost reports in accordance with the requirements in effect during the terms of this Contract.

4.5Recovery Overpayments To Provider; Liability For Interest

12

(a)When an audit performed by the Department, the State Controller’s Office, or any other State agency discloses that the Provider has been overpaid under this Contract, or where the total payments exceed the total liability under this Contract, the Provider covenants that any such overpayment or excess payments over liability may be recouped by the Department withholding the amount due from future payments, seeking recovery by payment from the Provider, or a combination of these two methods.

(b)Overpayments determined as a result of audits of periods prior to the effective date of this Contract may be recouped by the Department withholding the amount due from what would otherwise be the State’s liability under this Contract, seeking recovery by payment from the Provider, or a combination of those two methods.

(c)When the Department seeks recoupment or recovery under (a) of this Paragraph the Provider may appeal according to applicable procedural requirements of Sections 51016 – 51047 of Title 22 of the California Code of Regulations, with the following exceptions:

(1)There shall be no informal hearing.

(2)The recovery or recoupment shall commence sixty (60) days after issuance of account status or demand resulting from an audit or review and shall not be deferred b the filing of a request for hearing pursuant to Section 51022 of Title 22 of the California Code of Regulations.

(3)The Provider’s liability to the State for any amount recovered under this Paragraph shall be as provided in Sections 14171 and 14171.5 of the Welfare and Institutions Code and regulations adopted pursuant thereto.

4.6Customary Charges Limitation

(a)No provision in this Contract withstanding, the State’s total liability to the Provider shall not exceed the Provider’s total customary charges for like services during each hospital fiscal year

13

or part thereof, in which this Contract is in effect.  The Department may recoup any excess of total payments above such total customary charges under Paragraph 4.5.

(b)As used in (a) of this Paragraph “customary charges” is defined in conformity with 42 USC Section 1395(f) and the regulations promulgated pursuant thereto.

4.7Assumption of Debts, Liabilities, and respective other Obligations Deriving from Contracts No. 83-82927 and No. 82-80258

The parties hereby agree to assume all their respective debts, liabilities, and other obligations related to or deriving from Contracts No. 83-82927 and No. 82-80258 between LOS ANGELES COMMUNITY HOSPITAL and the Department of Health Services.

14

ARTICLE 5
RECORDS AND AUDIT PROVISIONS

5.1Onsite Reviews

(a)Agents of the Department shall conduct periodic audits or reviews, including onsite audits or reviews, of performance under this Contract.  These audits or reviews may evaluate the following:

(1)Level and quality of care, and the necessity and appropriateness of the services provided.

(2)Internal procedures for assuring efficiency, economy and quality of care.

(3)Grievances relating to medical care and their disposition.

(4)Financial records when determined necessary the Department to protect public funds.

(b)The Provider shall make adequate office space available for the review team or auditors to meet and confer.  Such space must be capable of being locked and secured to protect the work of the review team or auditors during the period of their investigation.

(c)Onsite reviews and audits shall occur during normal working hours with at least 72-hour notice, except that unannounced onsite reviews and requests for information may be made in those exceptional situations where arrangement of an appointment beforehand is clearly not possible or clearly inappropriate to the nature of the intended visit.

5.2Records to be Kept; Audit or Review; Availability Period of Retention

The Provider covenants that:

(1)It shall maintain books, records, documents, and other evidence, accounting procedures, and practices sufficient to reflect

15

properly all direct and indirect costs of whatever nature claimed to have been incurred in the performance of this Contract.

(2)The above information shall be maintained in accordance with Medicare principles of reimbursement and generally accepted accounting principles, and shall be consistent with the requirements of the Office of Statewide Health Planning and Development.

(3)The Provider shall also maintain medical records required by Sections 70747 – 70751 of the California Code of Regulations, and other records related to a beneficiary’s eligibility for services, the service rendered the beneficiary to whom the service was rendered, the date of the service, the medical necessity of the service and the quality of the care provided.  Records shall be maintained in accordance with Section 51475 of Title 22 of the California Code of Regulations.  The foregoing constitute “records” for the purposes of this Paragraph.

(4)The facility or office, or such part thereof as may be engaged in the performance of this Contract, and the information specified in this Paragraph shall be subject at all reasonable times to inspection, audits and reproduction b any duly authorized agents of the Department, the Federal Department of Health and Human Services and Comptroller General of the United States are intended third party beneficiaries of this covenant.

(5)Preserve and make available its records relating to payments made under this Contract for a period of four years from the close of the Provider’s fiscal year, or for such longer period, required by subparagraphs (A) and (B) below.

(A)If this Contract is terminated, the records relating to the work terminated shall be preserved and made available

16

for a period of four years from the date of the last payment made under the Contract.

(B)If any litigation, claim, negotiation, audit or other action involving the records has been started before the expiration of the four year period, the related records shall be retained until completion and resolution of all issues arising therefrom or until the end of the four year period whichever is later.

17

ARTICLE 6
GENERAL PROVISIONS

6.1Integration Clause

The State and Provider declare that this instrument, including Appendix A and Appendix B, contains a total integration of all rights and obligations of both parties.  There are no extrinsic conditions or collateral agreements or undertakings of any kind.  In regarding this instrument as the full and final expression of their Contract it is the express intention of both the State and the Provider that any and all prior or contemporaneous agreements, promises, negotiations, or representations, either oral or written, relating to the subject matter and period of time governed by this instrument which are not expressly set forth herein are to have no force, effect, or legal consequence of any kind.

6.2Performance Obligations; Effective Date and Term of this Contract; Waiver of Provider’s Right to Administrative Hearing

Performance obligations assumed under this Contract shall commence on the 14^th day of September, 2000, and shall apply to all inpatient admissions on or after this date.  This Contract shall continue indefinitely subject to the provisions of Paragraph 6.14 and the rights o termination reserved under Paragraphs 6.14, 6.16 and 6.18.  However, the terms of this Contract shall continue to apply to any beneficiary receiving inpatient services at the date of termination.  There shall be no entitlement to an administrative hearing pursuant to these sections.  The Provider waives any claim it may have to such a hearing in consideration of the covenants, conditions and provisions of this Contract.

6.3Headings

The headings of articles and paragraphs contained in this

18

Contract are for reference purposes only and shall not affect in any way its meaning or interpretation.

6.4Governing Authorities

(a)This Contract shall be governed and construed in accordance with:

(1)Part 3, Division 9 of the Welfare and Institutions Code; Divisions 3 and 5 of Title 22 of the California Code of Regulations; and all other applicable state laws and regulations according to their content on the effective date stipulated in Paragraph 6.2; and

(2)Titles 42 and 45 (Part 74) of the Code of Federal Regulations and all other applicable federal laws and regulations according to their content on and after the effective date stipulated in Paragraph 6.2, except those provisions or applications of those provisions waived by the Secretary of the Department of Health and Human Services.

(b)Any provision of this Contract in conflict with the laws or regulations stipulated in (a) of this Paragraph is hereby amended to conform to the provision of those laws and regulations.  Such amendment of the Contract shall be effective on the effective date of the statute of the statute or regulation necessitating it, and shall be binding on the parties even though such amendment may not have been reduced to writing and formally agreed upon and executed by the parties as provided in Paragraph 6.11.

6.5Conformance with Federal Regulations

The Provider stipulates that this Contract, in part, implements Title XIX of the Federal Social Security Act and, accordingly, covenants that it will conform to such requirements and regulations as the United States Department of Health and Human

19

Services may issue from time to time, except for those provisions waived by the Secretary of Health and Human Services.

6.6Application for Termination in the Face of a Declaration or Finding of Partial Invalidity

In the event any provision of this Contract is declared null and void by any court of law, either party may apply to that court for permission to immediately rescind the remainder of the Contract.  In ruling upon this request the court shall consider the impact upon the affected Medi-Cal population as well as the relative degree of hardship which would be imposed upon either or both of the parties if the request is denied.

6.7Restriction on Provider’s Freedom to Assign Benefits Only under this Contract or to Engage in Organic Change

The State and Provider hereby declare their mutual recognition that the subject matter of this Contract is personal, being founded upon the State’s confidence in the reputation, type and location of facilities, and other personal attributes of the Provider.  For this reason:

(1)Unless given prior written approval by the Department any attempt by the Provider to make an assignment of the right to receive the contingent payment obligations of the State under this Contract shall operate as an express condition subsequent to those obligations discharging the State form what may otherwise have been a matured obligation of performance.

(2)If the Provider desires to make an assignment of rights only under this Contract it shall submit a written application for approval to the Department.  Such an application shall identify the proposed assignee and include a detailed explanation of the reason and basis for the proposed assignment.  If the Department is satisfied

20

that the proposed assignment is consistent with the continued receipt of satisfactory performance on the part of the Provider it shall be approved in writing.  The effective date of the assignment shall be the date upon which the Department issues written approval.

(3)Unless given prior written approval by the Department any attempt by the Provider to participate as a constituent entity in any merger, consolidation or sale or assets other than in the regular course of business shall operate as an express condition subsequent discharging the State form what may otherwise have been a matured obligation of performance under this Contract.

(4)If the Provider desires to participate as a constituent entity in any merger, consolidation or sale of assets other than in the regular course of business it shall submit a written application for approval to the Department.  The Department shall act upon such requests within 30 days of the receipt of such requests.

(A)If approval is sought for participation in a merger or consolidation the application shall identify all proposed constituent entities and disclose the rights and preferences of all classes of stock in the resulting or surviving entity.  In addition, the application shall inform the Department of the licensure and certification status of the proposed resulting or surviving entity (Paragraph 3.2), and such other information as the Department may require.

(B)If application is sought for approval of a sale of assets other than in the regular course of business it shall identify the purchaser; inform the Department of licensure and certification status of the purchaser (Paragraph 3.2; and, such other information as the Department may require.

21

(5)If the Department is satisfied that the proposed merger, consolidation or sale of assts other than in the regular course of business is consistent with the continued satisfactory performance of the Provider’s obligations under this Contract it shall be approved in writing.  The effective date of the merger, consolidation of sale of assets other than in the regular course of business shall be no earlier than the date upon which the Department issues written approval.

6.8Contract Officer – Delegation of Authority

The Department will administer this Contract through a single administrator, the Contract Officer.  Until such time as the Director gives the Provider written notice of successor appointment, the person designated above shall make all determinations and take all actions necessary to administer this Contract, subject to the limitations of California laws and state administrative regulations.  No person other than the Contract Officer or the Director shall have the power to bind the Department relative to the rights and duties of the Contractor and the Department under this Contract, nor shall nay other person be considered to have the delegated authority of the Contract Officer or to be acting on his behalf unless the Contract Officer has expressly stated in writing that the person is acting as his authorized agent.

6.9Notice

Any notice required to be given pursuant to the terms and provisions of the Contract shall be in writing and shall be sent by certified mail, return receipt requested.  Notice to the Department shall be sent to the following address:

22

Contract Officer
Medi-Cal Operations Division
P.O. Box 942732
Sacramento, CA  94234-7320

Notice to the Provider shall be sent to the Chief Executive Officer at the following address:

LOS ANGELES COMMUNITY HOSPITAL
4081 East Olympic Boulevard
Los Angeles, CA  90023

6.10Status as Independent Contractors

The State and Provider hereby acknowledge that they are independent contractors to one another and neither is an officer, agent, or employee of the other for any purpose.

6.11Informal Amendments Ineffective; Toleration of Deviation from Terms of Contract Not to be Construed as Waiver

(a)It is the express intention of both the State and Provider that the terms of this totally integrated writing shall comprise their entire Contract and are not subject to rescission, modification or waiver except as defined in a subsequent written instrument executed in the same manner and with the same authority.  In furtherance of this agreement the State and Provider mutually covenant and request of any reviewing tribunal that any claim of rescission, modification, or waiver predicated upon any evidence other than a subsequent written instrument executed in the same manner and with the same authority as this writing be regarded as void.

(b)The informal toleration by either party of defective performance of any independent covenant in this Contract shall not be construed as a waiver of either the right to performance or the express conditions which have been created in this Contract.

23

6.12Beneficiary Eligibility

This Contract is not intended to change the determination of Medi-Cal eligibility for beneficiaries in any way.  However, in the event the California State Legislature or Congress of the United States enacts a statute which redefines Medi-Cal eligibility so as to affect the provision of inpatient services under this Contract, this new definition shall apply to the terms of this Contract.

6.13Indemnification

The Provider covenants to indemnify, defend and hold harmless the State, its officers, agents and employees from any and claims and losses accruing or resulting to any and all contractors, subcontractors, materialmen, laborers or any other person, firm or corporation furnishing or supplying work, services, materials or supplies in connection with the performance of this Contract, and from any and all claims and losses accruing or resulting to any person, firm or corporation who may be injured or damaged by the Provider in the performance of this Contract.

6.14Limitation of State Liability

No provision of this Contract withstanding, the liability of the State shall not exceed the amount of funds appropriated in the support of this Contract by the California Legislature.  Any requirement of performance by the Department and Provider is dependent upon the availability of appropriations by the Legislature for the purpose of this Contract.

6.15Termination Without Cause

The Provider or the State may terminate this Contract without cause n accordance with this Paragraph.  Termination without

24

cause shall be effected by giving written notice of the termination to the other party at least 120 days prior to the effective date of the termination and stating the effective date of the termination.

6.16Termination for Default

(a)The State may terminate this Contract for default upon thirty (30) days written notice to the Provider, except in cases where the Department determines that the health and welfare of Medi-Cal beneficiaries is jeopardized b continuation of the Contract, in which case the Contract may be immediately terminated.  Notification shall state the effective date of and grounds for termination.

(b)The State may terminate this agreement upon thirty (30) days written notice to the Provider in the event that:  (1) The Secretary of the Department of Health and Human Services determines that the Provider does not meet the requirements for participation in the Medicaid program, Title XIX of the Social Security Act; (2) The Provider has violated the conflict of interest provisions contained in Paragraph 6.18 of this Contract; or (3) The Department determines that the Provider is abusing or defrauding the Medi-Cal program or its beneficiaries.

6.17Disputes

(a)As an alternative t the judicial remedy available to the Provider under Section 14087.27(a) of the Welfare and Institutions Code the Provider may appeal disputes relating to performance under this Contract to an independent hearing examiner appointed by the Director of the Department.  The proceedings for review of such disputes shall be conducted by the hearing examiner and a decision rendered pursuant to the applicable procedural requirements of Sections 51016-51047 of Title 22 of the California Code of Regulations regarding provider audit appeals with the following exceptions.

25

(1)There shall be no informal hearing.

(2)All references to a hearing officer shall apply to the independent hearing examiner appointed by the Director of the Department.

(b)The State and Provider stipulate recognition that the Provider Audit Appeals provisions referenced in (a) of this Paragraph were enacted as an administrative mechanism for disputing audit or examination findings regarding the Provider’s cost report.  The obligations of the parties to this Contract are not predicated upon a reimbursement of cost basis and, for that reason, many of the provisions of Section 51016-51047 of Title 22 of the California Code of Regulations, such as cost reports, amended cost reports, audit reports, amended audit reports, home office-chain organization related entities, and informal hearing will not be applicable in the resolution of disputes arising under this Contract.  “Applicable procedural requirements” is employed in (a) of this Paragraph to render irrelevant such inapplicable provisions.

6.18Conflict of Interest

(a)The Provider is subject to the terms and conditions of Section 51466 of Title 22 of the California Code of Regulations as promulgated pursuant to Sections 14022, 14124.5, 14030 and 14031 of the Welfare and Institutions Code, and must submit a Medi-Cal Personal Disclosure Statement of Significant Beneficial Interest form as provided by the Department.

(b)This Contract shall be terminated immediately if it is determined that a state officer or state employee responsible for development, negotiation, contract management, or supervision of this Contract has a financial interest in the Contract as that term is defined in Section 97103 of the Government Code and the regulations

26

adopted pursuant thereto.

6.19Confidentiality of Information

(a)No provision of this Contract withstanding, names of persons receiving public social services are confidential and are to be protected from unauthorized disclosure in accordance with Title 45, Code of Federal Regulations Section 205.50; Sections 10850 and 14100.2 of the Welfare and Institutions Code; and, regulations adopted pursuant thereto.  For the purpose of this Contract, all information, records, and data elements pertaining to beneficiaries shall be protected by the Provider from unauthorized disclosure.

(b)With respect to any identifiable information concerning beneficiaries under this Contract that is obtained by the Provider, the Provider:

(1)Shall not use any such information for any purpose other than carrying out the express terms of this Contract;

(2)Shall promptly transmit to the Department all requests for disclosure of such information;

(3)Shall not disclose, except as otherwise specifically permitted by this Contract, any such information to any party other than the Department without the Department’s prior written authorization specifying that the information may be released under Title 45, Code of Federal Regulations Section 205.50; Sections 10850 and 14100.2 of the Welfare and Institutions Code; and, regulations adopted pursuant thereto; and

(4)Shall, at the termination of this Contract, return all such information to the Department or maintain such information according to written procedures sent to the Provider by the Department for this purpose.

6.20Confidentiality of Contractual Provisions

27

This Contract and its terms shall remain confidential and the terms of the Contract may be disclosed by the parties only in accordance with the disclosure time limits set out in Government Code Section 6254(q).

6.21Additional Provisions

Provider shall comply with Paragraphs 1.0 through 6.0 as set forth in “Appendix B”, attached hereto and incorporated herein by this reference, but only to the extent that it is mandated by law that the State incorporate and enforce such provisions in this Contract, and the Provider reserves any and all rights it may have to seek administrative and/or judicial review with respect to such provisions.

28

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on

                                                       , at

(City, State, Zip)

	Alta Healthcare System, Inc.
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

29

APPENDIX A

I. SERVICES NOT PROVIDED BY HOSPITAL OR ITS DELEGATE UNDER THIS CONTRACT AND NOT REIMBURSABLE

	UNIVERSAL BILLING CODES
INTENSIVE CARE, TRAUMA	208
INTENSIVE CARE, POST ICU	206
INTENSIVE CARE, PEDIATRIC	203
INTENSIVE CARE, LUNG TRANSPLANT	083
INTENSIVE CARE, HEART-LUNG TRANSPLANT	084
INTENSIVE CARE, HEART TRANSPLANT	086
INTENSIVE CARE, LIVER TRANSPLANT	087
INTENSIVE CARE, BONE MARROW TRANSPLANT	088
INTENSIVE CARE, KIDNEY TRANSPLANT	089
INTENSIVE CARE, BURN CARE IN LICENSED BURN CENTER BEDS	207
CORONARY CARE, GENERAL	210
CORONARY CARE, MYOCARDIAL INFARCTION	211
CORONARY CARE, OTHER	219
CORONARY CARE, PULMONARY CARE	212
CORONARY CARE, POST CCU	214
NURSERY, NEONATAL INTENSIVE CARE	175
LITHOTRIPSY	090
ADMINISTRATIVE DAY	098	*
REHABILITATION - PRIVATE	118
REHABILITATION - SEMI-PRIVATE 2 BEDS	128
REHABILITATION - SEMI-PRIVATE 3 OR 4 BEDS	138
REHABILITATION - WARD (MEDICAL OR GENERAL)	158

	CPT-4 CODES
CARDIAC CATHETERIZATION	93501-93562
CARDIOVASCULAR SURGERY	33010-37799
ABORTIONS	59840-59857
STERILIZATION	55250,55450,56301,56302
STERILIZATION	58600,58605,58611,58615
NEUROSURGERY	61000-64999
CORNEAL TRANSPLANTS	65710,65730,65750,65755
RADIATION THERAPY	77261-77499,77750-77799
THERAPEUTIC NUCLEAR MEDICINE	79000-79999
MAGNETIC RESONANCE IMAGING	70336,70540
MAGNETIC RESONANCE IMAGING	70551-70553,71550
MAGNETIC RESONANCE IMAGING	72141-72142,72146-72149
MAGNETIC RESONANCE IMAGING	72156-72158,72196
MAGNETIC RESONANCE IMAGING	73220-73221,73720-73721
MAGNETIC RESONANCE IMAGING	74181,75552,75554-75556
MAGNETIC RESONANCE IMAGING	76093-76094,76400
HYPERBARIC OXYGEN	99183

*BILLABLE ONLY OUTSIDE THE PROVISIONS OF THE CONTRACT.

30

APPENDIX B

1.0Fair Employment Practices

(a)In the performance of this Contract, the Provider shall not discriminate against any employee or applicant for employment because of race, color, religion, ancestry, sex, age, national origin, physical handicap, mental condition, sexual orientation, or marital status.  The Contractor shall take affirmative action to ensure that applicants are employed and that employees are treated during employment without regard to their race, color, religion, ancestry, sex, age, national origin, mental condition, physical handicap, marital status, or sexual orientation.  Such action shall include, but not be limited to the following:  employment, upgrading, demotion or transfer; recruitment or recruitment advertising, layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship.  The Contractor shall post in conspicuous places, available to employees and applicants for employment, notices to be provided by the State setting forth the provisions of this Fair Employment Practices section.

(b)The Provider shall permit access to his records of employment, employment advertisements, application forms, and other pertinent date and records by the State Fair Employment and Housing Commission, or any other agency of the State of California designated by the State, for the purposes of investigation to ascertain compliance with the Fair Employment Practices section of this Contract

(c)Remedies for Unlawful Employment Practice:

(1)The State may determine an unlawful practice under the Fair Employment Practices section of this Contract to have occurred upon receipt of a final judgment having that effect from a court in an action to which Provider was a party, or upon receipt of a written notice from the Fair Employment and Housing Commission that it has investigated and determined that the Provider has violated the provisions of the Fair Employment and Housing Act and has issued an order, under Government Code Section 12970, which has become final.

(2)For unlawful practices under this Fair Employment Practices section, the State shall have the right to terminate this Contract after a determination pursuant to (c)(1) of this section has been made.

Any loss or damage sustained by the State in securing a replacement provider to render the services contracted for under this Contract shall be borne and paid for by the Provider and the State may deduct from any moneys due to that thereafter may become due to the Provider, the difference between the price named in the contract and the actual cost thereof to the State.

(d)Provider agrees to comply with Title 2, Division 3, Part 2.8 (Government Code Sections 12900 et seq.), any amendments thereto, and any regulation adopted pursuant to that part.

1

2.0Nondiscrimination in Services, Benefits and Facilities

(a)The Provider shall not discriminate in the provision of services because of race, color, religion, national origin, sex, age, mental or physical handicap or sexual orientation as provided by state and federal law.

(b)For the purposes of this Contract, distinctions on the grounds of race, color, religion, national origin, sex, age or mental or physical handicap or sexual orientation include but are not limited to the following:  denying a beneficiary any service or benefit which is different, or is provided in a different manner or at a different time from that provided other beneficiaries under this Contract; subjecting a beneficiary to segregation or separate treatment in any matter related to his receipt of any service; restricting a beneficiary in any way in the enjoyment, advantage or privilege enjoyed by others receiving any service or benefit; treating a beneficiary differently from others in determining whether the beneficiary satisfied any admission, eligibility, other requirement or condition which individuals must meet in order to be provided any benefit; the assignment of times or places for the provision of services on the basis of the race, color, religion, national origin, age, mental or physical handicap or sexual orientation of the beneficiaries to be served.

(c)The Provider shall take affirmative action to ensure that services to intended beneficiaries are provided without regard to race, color, religion, national origin, sex, age, mental or physical handicap or sexual orientation.

3.0Clean Air and Water

(This paragraph 3.0 applicable only if the Contract exceeds $100,000, or the Federal Contracting Officer or State has determined that orders under an indefinite quantity contract in any one year will exceed $100,000, or a facility to be used has been the subject of a conviction under the Clean Air Act (42 USC 1857c-8(c)(1)) or the Federal Water Pollution Control Act (33 USC 1319(c) and is listed by EPA, or the contract is not otherwise exempt.)

(a)The Provider agrees as follows:

(1)To comply with all the requirements of Section 114 of the Clean Air Act, as amended (42 USC 1857, et seq., as amended by Pub.L. 91-604) and Section 308 of the Federal Water Pollution Control Act (33 USC 1351 et seq., as amended by Pub.L., 92-500), respectively relating tot inspection monitoring, entry, reports, and information, as well as other requirements specified in Section 114 and Section 308 of the Air Act and the Water Act, respectively, and all regulations and guidelines issued thereunder before the award of this Contract.

(2)No obligation required by this Contract will be performed in a facility listed on the Environmental Protection Agency List of Violating Facilities on the date when this contract was executed unless and until the EPA eliminates the name of such facility or facilities from such listing.

2

(3)To use its best efforts to comply with clean air standards and clean water standards at the facility in which the services are being performed.

(4)To insert the substance of the provisions of this Paragraph 3.0 into any written delegation.

(b)The terms used in this Paragraph have the following meanings:

(1)The term “Air Act” means the Clean Air Act, as amended (42 USC 1857 et seq., as amended by Pub.L. 91-604).

(2)The terms “Water Act” means Federal Water Pollution Control Act, as amended (33 USC 1251 et seq., as amended by Pub.L. 92-500).

(3)The term “clean air standards” means any enforceable rules, regulations, guidelines, standards, limitations, orders, controls, prohibitions, or other which are contained in, issued under, or otherwise adopted pursuant to the Air Act or Executive Order 11738, an approved implementation procedure or plan under section 110(d) of the Clean Air Act (42 USC 1857c-5(d), an approved implementation procedure or plan under section 111(c) or section 111(d), or an approved implementation procedure under section 112(d) of the Air Act (42 USC 1857c-7(d)).

(4)The terms “clean water standards” means any enforceable limitation, control, condition, prohibition, standard or other requirement which is promulgated pursuant to the Water Act or contained in a permit issued to a discharger by the Environmental Protection Agency or by a state under an approved program, as authorized by Section 402 of the Water Act (33 USC 1317).

(5)The term “compliance” means compliance with clean air or water standards.  Compliance shall also mean compliance with a schedule or plan ordered or approved by a court of competent jurisdiction, the Environmental Protection Agency or an air or water pollution control agency in accordance with the requirements of the Air Act or Water Act and regulations issued pursuant thereto.

(6)The term “facility” means any building, plan, installation, structure, mine, vessel or other floating craft, location, or site of operations, owned, leased, or supervised by a Provider or delegate, to be utilized in the performance of a contract of delegation.  Where a location or site of operations contains or includes more than one building, plant, installation, or structure, the entire location or site shall be deemed to be a facility except where the Director, Office of Federal Activities, Environmental Protection Agency, determines that independent facilities are collected in one geographical area.

3

4.0Utilization of Small Business Concerns

(a)It is the policy of the Federal Government and the State as declared by the Congress and the State Legislature that a fair proportion of the purchases and contracts for supplies and services for the State be placed with small business concerns.

(b)The Provider shall accomplish the maximum amount of delegation to and purchases of goods or services from small business concerns that the Contractor finds to be consistent with the efficient performance of this Contract.

5.0Utilization of Minority Business Enterprises

(a)It is the policy of the Federal Government and the State that minority business enterprises shall have the maximum practicable opportunity to participate in the performance of State contracts.

(b)The Provider agrees to use its best efforts to carry out this policy in its delegations and purchases of goods to the fullest extent consistent with the efficient performance of this Contract.  As used in this Contract, the terms “minority business enterprise” means a business, at least 50 percent of which is owned by minority group members or, in the case of public owned business, at least 51 percent of the stock of which is owned by minority group members.  For the purpose of this definition, minority group members are Black, Asian, Spanish-speaking/Surnamed, Filipino, Polynesian, American Indian, or Alaskan Native.  Non-minority women-owned firms may be included when business is 50 percent owned and operated by a woman and the co-owner is not her husband, or 51 percent (or greater) which owned and operated by a woman and the co-owner is her husband, and/or is publicly owned.  Providers may rely on written representations from businesses regarding their status as minority business regarding their status as minority business enterprises in lieu of an independent investigation.

6.0Provision of Bilingual Services

(a)When the community potentially served by the Provider consists of non-English or limited-English speaking persons, the Provider shall take all steps necessary to develop and maintain an appropriate capability for communicating in any necessary second language, including, but not limited to the employment of, or contracting for, in public contact positions of persons qualified in the necessary second languages in a number sufficient to ensure full and effective communication between the non-English and limited-English speaking applicants for, and beneficiaries of, the facility’s services and the facility’s employees.

Provider may comply with this paragraph 6.0 by providing sufficient qualified translators to provide translation

4

in any necessary second language for any patient, caller or applicant for service, within ten minutes of need for translation.  Provider shall maintain immediate translation capability in the emergency room when five percent of the emergency room patients or applicants for emergency room services are non-English or limited-English speaking persons.

Provider shall provide immediate translation to non-English or limited-English speaking patients whose condition is such that failure to immediately translate would risk serious impairment.  Provider shall post notices in prominent places in the facility of the availability of translation in the necessary second languages.

(b)As used in this Paragraph:

(1)“Non-English or limited English speaking persons” refers to persons whose primary language is a language other than English;

(2)“Necessary second language” refers to a language, other than English, which is the primary language of at least five percent (5%) of either the community potentially served by the contracting facility or of the facility’s patient population; and

(3)“Community potentially served by the contracting facility” refers to the geographic area from which the facility derives eighty percent (80%) of its patient population.

(4)“Qualified translator” is a person fluent in English and in the necessary second language, familiar with medical terminology, and who can accurately speak, read, write and readily interpret in the necessary second language.

5

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 1

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023
	AND
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
Address:	13222 Bloomfield Avenue
	Norwalk, CA  90650

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 1 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS. INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL AND LOS ANGELES COMMUNITY HOSPITAL OF NORWALK.

WHEREAS, the State of California, hereinafter designated “the State,” and ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL AND LOS ANGELES COMMUNITY HOSPITAL OF NORWALK, hereinafter designated “the Provider,” entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000.

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of 6.1 - Integration Clause

6.1 – Integration Clause is hereby amended to read:

The State and Provider declare that this instrument, including Appendix A, Appendix B and Appendix D, contains a total integration of all rights and obligations of both parties.  There are no extrinsic conditions or collateral agreements or

1

undertakings of any kind. In regarding this instrument as the full and final expression of their Contract it is the express intention of both the State and the Provider that any and all prior or contemporaneous agreements, promises, negotiations, or representations, either oral or written, relating to the subject matter and period of time governed by this instrument which are not expressly set forth herein are to have no force, effect, or legal consequence of any kind.

Paragraph Two – Addition of Appendix D

Appendix D is hereby added as follows:

2

APPENDIX D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

This Appendix D is added to the Contract between the parties for the provision of hospital inpatient services.

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund, the parties hereby additionally agree as follows:

A.            Services

In addition to any other promises and services agreed to be provided pursuant to this Contract, Provider agrees:

(1)           To remain a Contract provider within the Selective Provider Contracting Program and not to issue a notice of termination of this Contract pursuant to Section 6.15 until on or after March 1, 2001.

(2)           To maintain its current emergency room licensure status until June 30, 2001.

3

B.            Payments

In addition to any other payments made to Provider pursuant to this Contract, and in consideration of the agreements set out in Section A above, the State hereby agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from July 1, 2000 through June 30, 2001.  Payments shall be made in the following amounts on the following dates, or as soon thereafter as practicable:

(1)           on October 1, 2000, the amount of ***;

(2)           on December 1, 2000, the amount of ***;

(3)           on February 1, 2001, the amount of ***.

C.            Hold Harmless and Right Of Set-Off

(1)           It is understood that payments made to the Provider pursuant to this Appendix D include State and matching federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the federal disallowance or withholding, the State may, in its sole discretion, recover from

4

the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If after federal disallowance or withholding, and State recovery or set-off of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(2)           Any recoupment by the State pursuant to subsection (1) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payments made to the Provider under this Appendix D.

D.            Breach

(1)           If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider breaches any of the service provisions set forth in Section A above, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to Provider under this

5

Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

(2)           The recovery of funds paid pursuant to this Appendix D, however, shall not preclude the State from pursuing additional damages in the event that the Provider breaches Section A(l) above relating to termination.  In the event Provider terminates this Contract in violation of Section A(l) above, the State may, in its sole discretion, pursue all lawful remedies to recover its damages caused by Provider’s breach.

Paragraph Three – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on September 28, 2000.

Paragraph Four – Incorporation of Contract Rights. Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

6

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on

                                                       , at

(City, State, Zip)

	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

7

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 2

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330
	AND
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
Address:	13222 Bloomfield Avenue
	Norwalk, CA  90650

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 2 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL AND LOS ANGELES COMMUNITY HOSPITAL OF NORWALK.

WHEREAS, the State of California, hereinafter designated “the State”, and Alta Los Angeles Hospitals, Inc., doing business as Los Angeles Community Hospital and Los Angeles Community Hospital of Norwalk, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services executed September 14, 2000, and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of 4.1 – Rate Structure; Contingent Liability of State

4.1 – Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid at the all-inclusive rate per patient per day of *** for inpatient services provided to beneficiaries.

1

Paragraph Two – Addition of 6.22 – Prohibition of Use of State Funds to Assist, Promote, or Deter Union Organizing

6.22 – Prohibition of Use of State Funds to Assist, Promote, or Deter Union Organizing is hereby added as follows:

In accordance with Government Code Section 16645, et seq., Contractor shall not use state funds to assist, promote, or deter union organizing during the life of this Contract, including any extensions or renewals of this Contract.

Paragraph Three – Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of January 25, 2001, then the contract changes agreed to in this Amendment shall be effective on January 25, 2001.  If this Amendment is not signed and returned within thirty days, then the contract changes agreed to in this Amendment shall be effective on the date the contract is signed by both parties.

2

Paragraph Four – Incorporation of Contract rights, Duties and Obligations

All other terms and provisions of said contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

3

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on

                                                       , at

(City, State, Zip)

	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

4

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 3

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330
	AND
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
Address:	13222 Bloomfield Avenue
	Norwalk, CA  90650

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 3 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL AND LOS ANGELES COMMUNITY HOSPITAL OF NORWALK.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL and LOS ANGELES COMMUNITY HOSPITAL OF NORWALK, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services executed September 14, 2000, and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of Appendix D

Appendix D is hereby amended as follows:

1

Appendix D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund, the parties hereby additionally agree as follows:

A.Services

In addition to any other promises and services agreed to be provided pursuant to this Contract, Provider agrees:

(1)           To remain a contract provider within the Selective Provider Contracting Program and not to issue a notice of termination of this Contract pursuant to Section 6.15 until on or before March 1, 2002.

(2)           To maintain its current emergency room licensure status until June 30, 2002.

2

B.            Payments

In addition to any other payments made to Provider pursuant to this Contract, and in consideration of the agreements set out in Section A above, the State hereby agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from July 1, 2001 through June 30, 2002.  Payments shall be made in the following amounts on the following dates, or as soon thereafter as practicable:

(1)           on November 15, 2001, the amount of ***;

(2)           on February 1, 2002, the amount of ***.

C.            Hold Harmless and Right of Set-Off

(1)           Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2001-02 state fiscal year if the Department determines that the Provider fails to meet the criteria for disproportionate share hospital (DSH) status for the 2001-02 payment adjustment year.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may off-set the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider.

3

(2)           It is understood that payments made to the Provider pursuant to this Appendix D include State and matching federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the federal disallowance or withholding, the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider or a combination of these two methods.  If after federal disallowance or withholding, and State recovery or set-off of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)           Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payments made to the Provider under this Appendix D.

4

D.            Breach

(1)           If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider breaches any of the service provisions set forth in Section A above, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

(2)           The recovery of funds paid pursuant to this Appendix D, however, shall not preclude the State from pursuing additional damages in the event that the Provider breaches Section A(1) above relating to termination.  In the event Provider terminates this Contract in violation of Section A(1) above, the State may, in its sole discretion, pursue all lawful remedies to recover its damages caused by Provider’s breach.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on September 20, 2001.

5

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

6

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on

                                                       , at

(City, State, Zip)

	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

7

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 4

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 4 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services executed September 14, 2000, and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of 6.1 Integration Clause

6.1 – Integration Clause is hereby amended to read:

The State and Provider declare that this instrument, including Appendix A, Appendix B and Appendix D, contains a total integration of all rights and obligations of both parties.  There are no extrinsic conditions or collateral agreements or undertakings of any kind.  In regarding this instrument as the full and final

1

expression of their Contract it is the express intention of both the State and the Provider that any and all prior or contemporaneous agreements, promises, negotiations or representations, either oral or written, relating to the subject matter and period of time governed by this instrument which are not expressly set forth herein are to have no force, effect, or legal consequence of any kind.

Paragraph Two – Amendment of Appendix D

Appendix D is hereby amended to read:

2

Appendix D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund, the parties hereby additionally agree as follows:

While it is the intent of the parties that Provider receive the benefit of the additional payments set forth herein for services provided to beneficiaries, it is understood by the parties that the continued approval of the Selective Provider Contracting Program (SPCP) waiver is pending with the Centers for Medicare & Medicaid Services (CMS).

It is also understood that CMS may place restrictions, limitations, or conditions upon the continued operation of the SPCP that may affect the implementation of the Emergency Services and Supplemental Payments Program (ESSPP) and the provisions, terms, or funding intended by this Amendment.

It is further understood and agreed that payments for services agreed to in this Amendment are subject to any future restrictions, limitations or conditions placed upon the Selective Provider Contracting Program by CMS, if any.  Further, the terms of this

3

Amendment may need to be renegotiated to reflect any CMS restrictions, limitations or conditions.

It is recognized that the administration of the ESSPP and the terms of this Amendment involve complex calculations and determinations affecting all ESSPP eligible hospitals.  Further, the amount available to any eligible hospitals.  Further, the amount available to any eligible hospital is dependent upon the total amount of funds that can be expended within the ESSPP and the individual amounts paid to other eligible hospitals.  Therefore, it is agreed that the determination of the effect of CMS action upon the SPCP waiver and the ESSPP and the necessity to renegotiate the terms of this Amendment shall rest solely with the California Medical Assistance Commission.

B.Services

In addition to any other promises and services agreed to be provided pursuant to this Contract, Provider agrees to maintain its current emergency room licensure status until December 31, 2002.

4

B.            Payments

In addition to any other payments made to Provider pursuant to this Contract, and in consideration of the agreements set out in Section A above, the State hereby agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from July 1, 2002 through December 31, 2002.  Payments shall be made in the following amounts on the following dates, or as soon thereafter as practicable:

(1)           on November 21, 2002, the amount of ***;

(2)           on January 15, 2003, the amount of ***.

C.            Hold Harmless and Right of Set-Off

(1)           Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2002-03 state fiscal year if the Department determines that the Provider fails to meet the criteria for disproportionate share hospital (DSH) status for the 2002-03 payment adjustment year.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may off-set the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider.

5

(2)           It is understood that payments made to the Provider pursuant to this Appendix D include State and matching federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the federal disallowance or withholding, the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider or a combination of these two methods.  If after federal disallowance or withholding, and State recovery or set-off of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)           Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payments made to the Provider under this Appendix D.

6

D.            Breach

(1)           If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider breaches any of the service provisions set forth in Section A above, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

(2)           The recovery of funds paid pursuant to this Appendix D, however, shall not preclude the State from pursuing additional damages in the event that the Provider breaches Section A(1) above relating to termination.  In the event Provider terminates this Contract in violation of Section A(1) above, the State may, in its sole discretion, pursue all lawful remedies to recover its damages caused by Provider’s breach.

7

Paragraph Three – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on November 21, 2002.

Paragraph Four – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

8

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on
, at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

9

FOR HOSPITAL INPATIENT SERVICES

Amendment No. 5

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 5 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services executed September 14, 2000, and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of Appendix D

Appendix D is hereby amended to read:

1

Appendix D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund, the parties hereby additionally agree as follows:

C.Services

In addition to any other promises and services agreed to be provided pursuant to this Contract, Provider agrees to maintain its current emergency room licensure status until May 31, 2003.

2

B.            Payments

In addition to any other payments made to Provider pursuant to this Contract, and in consideration of the agreements set out in Section A above, the State hereby agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from January 1, 2003 through May 31, 2003.  Payments shall be made in the following amounts on the following dates, or as soon thereafter as practicable:

(1)           on April 10, 2003, the amount of ***;

(2)           on June 1, 2003, the amount of ***.

C.            Hold Harmless and Right of Set-Off

(1)           Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2002-03 state fiscal year if the Department determines that the Provider fails to meet the criteria for disproportionate share hospital (DSH) status for the 2002-03 payment adjustment year.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may off-set the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider.

3

(2)           It is understood that payments made to the Provider pursuant to this Appendix D include State and matching federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the federal disallowance or withholding, the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider or a combination of these two methods.  If after federal disallowance or withholding, and State recovery or set-off of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)           Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payments made to the Provider under this Appendix D.

4

D.            Breach

(1)           If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider breaches any of the service provisions set forth in Section A above, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding the amount due from what would otherwise be the State’s liability to Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

(2)           The recovery of funds paid pursuant to this Appendix D, however, shall not preclude the State from pursuing additional damages in the event that the Provider breaches Section A(1) above relating to termination.  In the event Provider terminates this Contract in violation of Section A(1) above, the State may, in its sole discretion, pursue all lawful remedies to recover its damages caused by Provider’s breach.

5

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on April 10, 2003.

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

6

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on                                                          , at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on                                                          , at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

7

FOR HOSPITAL INPATIENT SERVICES

Amendment No. 6

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 6 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State,” and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider,” entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One - Amendment of 4.1 - Rate Structure; Contingent Liability of State

4.1 – Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid the all-inclusive rate per patient per day of *** for inpatient services provided to beneficiaries.

1

Paragraph Two – Amendment of Appendix A

Appendix A is hereby amended to read:

2

APPENDIX A
HOSPITAL NAME:	Los Angeles Community
	Hospital, A-6
DATE PREPARED:	April 22, 2003
EFFECTIVE DATE:	May 8, 2003
PREPARED BY:	Karen Thalhammer

I.SERVICES NOT PROVIDED BY HOSPITAL UNDER THIS CONTRACT AND NOT REIMBURSABLE

CODES	UNIVERSAL BILLING
INTENSIVE CARE, TRAUMA	208
INTENSIVE CARE, POST ICU	206
INTENSIVE CARE, PEDIATRIC	203
INTENSIVE CARE, LUNG TRANSPLANT	083
INTENSIVE CARE, HEART-LUNG TRANSPLANT	084
INTENSIVE CARE, HEART TRANSPLANT	086
INTENSIVE CARE, LIVER TRANSPLANT	087
INTENSIVE CARE, BONE MARROW TRANSPLANT	088
INTENSIVE CARE, KIDNEY TRANSPLANT	089
INTENSIVE CARE, BURN CARE IN LICENSED BURN CENTER BEDS	207
CORONARY CARE, POST CCU	214
NURSERY, NEONATAL INTENSIVE CARE	175
LITHOTRIPSY	090
ADMINISTRATIVE DAY	098	*
REHABILITATION – PRIVATE	118
REHABILITATION – SEMI-PRIVATE 2 BEDS	128
REHABILITATION SEMI-PRIVATE 3 OR 4 BEDS	138
REHABILITATION – WARD (MEDICAL OR GENERAL)	158

	CPT CODES
CARDIAC CATHETERIZATION	93501-93562
CARDIOVASCULAR SURGERY	33010-37799
ABORTIONS	59840-59857
NEUROSURGERY	61000-64999
CORNEAL TRANSPLANTS	65710, 65730, 65750, 65755
RADIATION THERAPY	77261-77499,77750-77799
THERAPEUTIC NUCLEAR MEDICINE	79000-79999
MAGNETIC RESONANCE IMAGING	70336, 70540
MAGNETIC RESONANCE IMAGING	70551-70553, 71550
MAGNETIC RESONANCE IMAGING	72141-72142, 72146-72149
MAGNETIC RESONANCE IMAGING	72156-72158,72195-72197
MAGNETIC RESONANCE IMAGING	73218-73225,73718-73725
MAGNETIC RESONANCE IMAGING	74181-74185,75552-75556
MAGNETIC RESONANCE IMAGING	76093-76094,76400
HYPERBARIC OXYGEN	99183

*BILLABLE ONLY OUTSIDE THE PROVISIONS OF THE CONTRACT.

3

II.ONLY THE FOLLOWING PHYSICIAN SERVICES ARE INCLUDED IN THE ALL-INCLUSIVE RATE AND ARE NOT SEPARATELY BILLED:

NONE

III.ONLY THE FOLLOWING OTHER PROVIDER SERVICES MAY BE BILLED FEE-FOR-SERVICE BY SUCH PROVIDER AND ARE NOT INCLUDED IN THE ALL- INCLUSIVE CONTRACT RATE AS SPECIFIED IN SECTION 4.1:

	HCPC CODES
CLINICAL PSYCHOLOGISTS	X9500-X9699

IV.ONLY THE FOLLOWING OTHER DEVICES MAY BE BILLED FEE-FOR-SERVICE AND ARE NOT INCLUDED IN THE ALL-INCLUSIVE CONTRACT RATE AS SPECIFIED IN SECTION 4.1:

	HCPC CODES
PROSTHETIC DEVICES	L5000-L8699
PROSTHETIC DEVICES	X8800-X9299
ORTHOTIC DEVICES	L0100-L4398
ORTHOTIC DEVICES	X8100-X8599

4

Paragraph Three – Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of                     , then the Contract changes agreed to in this Amendment shall be effective on                     .  If this Amendment is not signed and returned within thirty days, then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

Paragraph Four - Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

5

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on                                                          , at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on                                                          , at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

6

FOR HOSPITAL INPATIENT SERVICES

Amendment No. 7

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 7 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State,” and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider,” entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of Appendix D

Appendix D is hereby amended to read:

1

APPENDIX D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental payments Fund, the parties hereby additionally agree as follows:

A.Services

In addition to any other promises and services agreed to be provided pursuant to this Contract, Provider agrees to maintain its current emergency room licensure status until December 31, 2003.

B.Payments

In addition to any other payments made to Provider pursuant to this Contract, and subject to Subparagraph A above, the State hereby agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from July 1, 2003 through November 30, 2003.  Payments shall be made in the following amounts on the following dates, or as soon thereafter as practicable:

(1)on August 28, 2003, the amount of ***;

(2)on December 1, 2003, the amount of ***.

2

C.Hold Harmless and Right of Offset

(1)Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2003-04 state fiscal year if the Department determines that the Provider fails to meet the criteria for disproportionate share hospital (DSH) status, under Welfare and Institutions Code Sections 14105.98 and 14163, for the 2003-04 payment adjustment year.  If the Provider fails to return the fund within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(2)It is understood that payments made to the Provider pursuant to this Appendix D include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the federal disallowance or withholding the State may, in is sole discretion, recover from the Provider the amount of funds

3

disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payment made to the Provider under this Appendix D.

4

D.Breach

If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider fails to comply with Subparagraph A above, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on August 28, 2003.

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

5

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on                                                          , at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on                                                          , at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

6

FOR HOSPITAL INPATIENT SERVICES

Amendment No. 8

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 8 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services executed September 14, 2000, and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One – Amendment of Appendix D

Appendix D is hereby amended to read:

1

APPENDIX D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

This Appendix D supercedes any previous Appendix D of this Contract.

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund, the parties hereby additionally agree as follows:

D.Services

In addition to any other payments made to Provider pursuant to this Contract, and subject to Subparagraph B of this Appendix D, the State agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from January 1, 2004 through May 31, 2004.  Payments shall be made in the following amount on June 1, 2004, or as soon thereafter as practicable:

(1)The amount of ***.

2

B.Recovery, Right of Offset, and Hold Harmless

(1)Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2003-04 state fiscal year if the Department determines that the Provider fails an anytime during the 2003-04 state fiscal year to meet the criteria for participation as specified in Welfare and Institutions Code Section 14085.6.  Such criteria includes, but is not limited to, the Provider receiving and maintaining disproportionate share hospital (DSH) status, under Welfare and Institutions Code Sections 14105.98 and 14163, for the 2003-04 DSH payment adjustment year.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may off-set the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(2)It is understood that payments made to the Provider pursuant to this Appendix D include State and matching federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payments made to Provider pursuant to this Appendix D and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to Appendix D, at the time of the

3

federal disallowance or withholding, the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding, and State recovery or set-off of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payments made to the Provider under this Appendix D.

C.Notice of Termination

Notwithstanding Paragraph 6.15, Termination Without Cause, Provider shall not exercise or attempt to exercise paragraph 6.15 until After December 31, 2004.

4

D.Remedy for Provider’s Breach

(1)If, subsequent to receiving payments pursuant to the provisions of this Appendix D, Provider fails to comply with Subparagraph C of this Appendix D, the State may, in its sole discretion, recover from the Provider the amount of funds paid by the State to the Provider pursuant to Appendix D, which shall not be the State’s sole remedy.  Provider agrees that the amount of any such payments may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment shall be effective on May 13, 2004.

5

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

Provider	State of California Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

6

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 9

Contract No.		00-83122
Facility:		ALTA LOS ANGELES HOSPITALS, INC.
	dba:	LOS ANGELES COMMUNITY HOSPITAL
Address:	4081	East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 9 TO CONTRACT NO. 00 - 83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One - Appendix D

Appendix D is hereby amended to read:

1

APPENDIX D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year (SFY) 2004-05.

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund (SB 1255 Program), the parties agree as follows:

A.Payment

(1)In addition to any other payments made to Provider pursuant to this Contract, and subject to Section B of this Appendix D, the State agrees to pay the Provider a total of *** from the Emergency Services and Supplemental Payments Fund for services rendered from July 1, 2004 through November 30, 2004.  Payment shall be made in the following amount on December 1, 2004, or as soon thereafter as practicable.

(a)           The amount of ***.

2

(2)           The above payment to Provider is conditioned upon the Emergency Services and Supplemental Payments Fund having received sufficient new funds during SFY 2004-05 to meet all the S8 1255 Program’s payment objectives for services rendered from July 1, 2004 through November 30, 2004.  Until such time as a sufficient amount of unencumbered funds has been deposited in the Fund to support the non-federal portion of the SB 1255 Program’s total payment objectives for this service period, and the coinciding portion of federal financial participation funds are available, the State shall have no obligation to make the above payment.

B.Recovery, Right of Offset, and Hold Harmless

(1)           Provider must promptly return to the Department of Health Services (Department) all payments received under this amendment from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund) for the 2004-05 state fiscal year if the Department determines that the Provider fails to meet the criteria for participation, as specified in Welfare and Institutions Code Section 14085.6, at anytime during the 2004-05 state fiscal year.  Such criteria includes, but is not limited to, the Provider receiving and maintaining disproportionate share hospital (DSH) status, under Welfare and Institutions Code Sections 14105.98 and 14163, for the 2004-05 DSH payment adjustment year.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which

3

otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(2)           It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

4

(3)           Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payment made to the Provider under this Appendix D. All other terms and conditions of Appendix D remain unchanged.

Paragraph Two - Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on October 21, 2004.

Paragraph Three - Obligations Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

5

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

	State of California
Provider	Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

6

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 10

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 10 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and Alta Los Angeles Hospitals, Inc., doing business as: Los Angeles Community Hospital, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Amendment of 3.4 – Appointment of Liaisons and Agency Status of Provider’s Liaison

3.4Appointment of Liaisons and Agency Status of Provider ‘s Liaison is hereby amended to read:

(a)           Provider shall designate in writing a person to act as liaison to the Department. Such person shall coordinate all communications between the parties.  The written designation of

such person shall constitute the conferral of full agency powers to bind the Provider as principal in all dealings with the Department.

(b)           The Department shall designate a liaison in conformity with the procedures and with such authority as specified in Paragraph 6.8 of this Contract.  Communications to the Department shall be submitted to its liaison at the following address:

Contract Officer

Medi-Cal Operations Division

P.O. Box 997419

MS 4506

Sacramento, CA 95899-7419

Paragraph Two – Amendment of 3.7 – Open Staffing/Exclusive Staffing Contracts

3.7Open Staffing/Exclusive Staffing Contracts is hereby amended to read:

(a)           As a Selective Provider Contracting Program contractor, the Provider shall comply with Welfare and Institutions Code section 14087.28.

(b)           Notwithstanding Subparagraph (a) above and Welfare and Institutions Code section 14087.28, Provider may enter into exclusive contracts for the provision of pathology, radiology, and anesthesiology acute inpatient services, except for consulting services requested by the admitting physician.

(c)           The Parties acknowledge that although Paragraph 3.7 of this Contract and Section 14087.28 of the Welfare and Institutions Code prohibit exclusive staffing arrangements for Selective Provider Contracting Program hospitals, their applicability is limited to physician staffing for acute inpatient services.  Therefore, contractual staffing arrangements to provide outpatient services are not contrary to Paragraph 3.7 of this Contract or Section 14087.28 of the Welfare and Institutions Code.

Paragraph Three – Amendment of 4.1 – Rate Structure; Contingent Liability of State

4.1Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid as follows:

(a)           For Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

(b)           Commencing March 10, 2006, for Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

Paragraph Four – Amendment of 4.2 – Rate Inclusive of Physician, Transportation and Certain Prior Patient Services

4.2Rate Inclusive of Physician, Transportation and Certain Prior Patient Services is hereby amended to read:

The rate structure under Paragraph 4.1 of this Contract is intended by both the State and Provider to be inclusive of all Inpatient Services rendered by the Provider and to constitute the State’s only financial obligation under this Contract. As nonlimiting examples:

(a)           There shall be no separate billing by either the Provider or physicians for the services specified in Appendix A, Section II, rendered by physicians to Beneficiaries.

(b)           There shall be no separate billing for any transportation services required in providing Inpatient Services under this Contract.

(c)           There shall be no separate billing for any services rendered by the Provider within a 24-hour period prior to the Beneficiary’s admission as an inpatient, such as outpatient or emergency services, which are related to the condition for which the Beneficiary is admitted as an inpatient.  Such prior services shall be deemed Inpatient Services and included in the rates set under Paragraph 4.1.

Paragraph Five – Amendment of 4.3 – Billing Procedures as Express Conditions Precedent to State’s Payment Obligation

4.3Billing Procedures as Express Conditions Precedent to State’s Payment Obligation is hereby amended to read:

(a)           As an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider shall determine that inpatient services rendered are not covered, in whole or in part, under any other state or federal medical care program or under any other contractual or legal entitlement, including, but not limited to, a private group indemnification or insurance program or workers’ compensation.  To the extent that such coverage is available, the State’s payment obligation pursuant to Paragraph 4.1 shall be reduced.

(b)           As a further express condition precedent to maturing the State’s payment obligation under Paragraph 4.l of this

Contract, the Provider shall submit claims to the fiscal intermediary for all services rendered under the terms of this Contract, in accordance with the applicable billing requirements contained in Title 22 of the California Code of Regulations.

(c)           A day of service shall be billed for each beneficiary who occupies an inpatient bed at 12:00 midnight in the facilities of the Provider.  However, a day of service may be billed if the beneficiary is admitted and discharged during the same day provided that such admission and discharge is not within 24-hours of a prior discharge. Only one patient day of service may be billed for mother and newborn child (children) when both mother and newborn child (children) are inpatients of the hospital.

(d)           The State may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, without the need to amend this Contract as set forth in Paragraph 6.11.

Paragraph Six – Amendment of 6.8 – Contract Officer – Delegation of Authority

6.8           Contract Officer – Delegation of Authority is hereby amended to read:

The Department will administer this Contract through a single administrator, the Contract Officer.  Until such time as the Director gives the Provider written notice of successor appointment, the person designated above shall make all determinations and take all actions necessary to administer this Contract, subject to the limitations of California laws and State administrative regulations.  No person other than the Contract Officer or the Director shall have the power to bind the Department relative to the rights and duties of the Contractor and the Department under this Contract, nor shall any other person be considered to have the delegated authority of the Contract Officer or to be acting on his behalf unless the Contract Officer has expressly stated in writing that that person is acting as his authorized agent.

Paragraph Seven – Amendment of 6.9 – Notice

6.9        – Notice is hereby amended to read:

Any notice required to be given pursuant to the terms and provisions of the Contract shall be in writing and shall be sent by certified mail, return receipt requested. Notice to the Department shall be sent to the following address:

Contract Officer
Medi-Cal Operations
Division P.O. Box 997419
MS 4506
Sacramento, CA 95899-7419

Notice to the Provider shall be sent to the Chief Executive Officer at the following address:

Los Angeles Community Hospital
4081 East Olympic Boulevard
Los Angeles, CA 90023-3330

Paragraph Eight – Amendment of 6.15 – Termination Without Cause

6.15       – Termination Without Cause is hereby amended to read:

The Provider or the State may terminate this Contract without cause in accordance with this Paragraph.  Termination without cause shall be effected by giving written notice of the termination to the other party on or after November 10, 2006, and at least 120 days prior to the effective date of the termination and stating the effective date of the termination.

Paragraph Nine – Deletion of 6.22 – Prohibition Against Use of State Funds to Assist, Promote. or Deter Union Organizing

6.22 – Prohibition Against Use of State Funds to Assist, Promote, or Deter Union Organizing is hereby deleted.

Paragraph Ten – Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of March 10, 2005, then the Contract changes agreed to in this Amendment shall be effective on March 10, 2005.  If this Amendment is not signed and returned within thirty days, then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

Paragraph Eleven – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on                                                         , at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on                                                         , at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Diana M. Bontá, R.N., Dr. P.H. Director Department of Health Services

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 11

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 11 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read:

APPENDIX D

EMERGENCY SERVICES AND SUPPLEMENTAL PAYMENTS FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year (SFY) 2004 – 05.

Pursuant to the provisions of Welfare and Institutions Code Section 14085.6 (SB 1255 Program) relating to negotiations and disbursements from the Emergency Services and Supplemental Payments Fund (SB 1255 Fund), the parties agree as follows:

A.Payment

(1)           In addition to any other payments made to Provider pursuant to this Contract, and subject to Section B of this Appendix D, for services rendered from January 1, 2005 through May 31, 2005, the State agrees to pay the Provider *** from the SB 1255 Fund.  Payment shall be made on June 1, 2005, or as soon thereafter as practicable.

(2)           The above payment to Provider is conditioned upon the SB 1255 Fund having received sufficient new funds during SFY 2004-05 to meet all the SB 1255 Program’s payment objectives for services rendered from January 1, 2005 through May 31, 2005.  Until such time as a sufficient amount of unencumbered funds has been deposited in the SB 1255 Fund to support the non-federal portion

of the SB 1255 Program’s total payment objectives for this service period, and the coinciding portion of federal financial participation funds are available, the State shall have no obligation to make the above payment.  The State shall instead be obligated only to pay a pro-rata portion of the above payment amount based on the ratio of total funds available to total SB 1255 Program objectives for this service period.

B.Recovery, Right of Offset, and Hold Harmless

(1)           The total payment received by Provider from the SB 1255 Fund for the 2004-05 state fiscal year may be subject to recovery by the Department of Health Services (Department) if the Department determines that the Provider fails at anytime during the 2004-05 state fiscal year to meet the criteria for participation in the SB 1255 Program, as specified in Welfare and Institutions Code Section 14085.6.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(a)           Provider must promptly return to the Department all payments received from the SB 1255 Fund for the 2004-05 state fiscal year if the Department determines that the Provider fails at anytime during the 2004-05 state fiscal year to receive and/or maintain disproportionate share hospital (DSH)

status, under Welfare and Institutions Code Sections 14105.98 and 14163, for the 2004-05 DSH payment adjustment year.

(b)           Unless paragraph (a) applies, Provider must promptly return to the Department the pro-rata portion of the payments, as determined by the Department, received from the S8 1255 Fund for the 2004-05 state fiscal year if the Department determines that the Provider failed to meet the criteria, other than DSH status addressed in paragraph (a), for participation in the SB 1255 Program for the entire fiscal year or service period, as specified in Welfare and Institutions Code Section 14085.6.

(2)           It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the

Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods. If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the funds shall be repaid by the State to the Provider.

(3)           Any recoupment by the State pursuant to subsection (2) shall be limited to the amount of federal financial participation recouped from the State by the federal government with respect to actual payment made to the Provider under this Appendix D. All other terms and conditions of Appendix D remain unchanged.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on April 28, 2005.

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

	State of California
Provider	Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 12

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 12 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read:

APPENDIX D

PRIVATE HOSPITAL SUPPLEMENTAL FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year 2005-06.

Pursuant to the provisions of Welfare and Institutions Code Section 14166.12 relating to negotiations and disbursements from the Private Hospital Supplemental Fund (Fund), the parties agree as follows:

A.Payment

In accordance with subdivisions (j) and (m) of Section 14166.12 of the Welfare and Institutions Code, and subject to Section B of this Appendix D, for services rendered from July 1, 2005 through November 30, 2005, the State agrees to pay the Provider *** from the Fund. Payment shall be made on December 1, 2005, or as soon thereafter as practicable.

B.Recovery, Right of Offset, and Hold Harmless

(1)           The total payment received by Provider from the Fund for the 2005-06 state fiscal year may be subject to recovery by the Department of Health Services (Department) if the Department determines that the Provider fails at any time during the 2005-06 state fiscal year to meet the eligibility criteria for Fund

disbursements, as specified In Welfare and Institutions Code Section 14166.12.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section l4115.5.

(a)           Provider must promptly return to the Department all payments received from the Fund for the 2005-06 state fiscal year if the Department determines that the Provider fails at any time during the 2005-06 state fiscal year to receive and/or maintain disproportionate share hospital (DSH) status, under Welfare and Institutions Code Sections 14166.11, 14105.98, and 14:63, for the 2005-06 DSH payment adjustment year.

(b)           Unless paragraph (a) applies, Provider must promptly return to the Department the pro-rata portion of the payments, as determined by the Department, received from the Fund for the 2005-06 state fiscal year if the Department determines that the Provider failed to meet the criteria, other than DSP. status addressed in paragraph (a), for participation in the Program for the entire fiscal year or service period, as specified in Welfare and Institutions Code Section 14166.12.

(2)           It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D. In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider. Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the federal and related state funds shall be repaid by the State to the Provider.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on November 3, 2005.

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

	State of California
Provider	Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 13

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 13 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, In accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read:

APPENDIX D

PRIVATE HOSPITAL SUPPLEMENTAL FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year 2005-06.

Pursuant to the provisions of Welfare and Institutions Code Section 14166.12 relating to negotiations and disbursements from the Private Hospital Supplemental Fund (Fund), the parties agree as follows:

A.Payment

In accordance with Section 14166.12 of the Welfare and Institutions Code, and subject to Section B of this Appendix D, for services rendered from December 1, 2005 through May 31, 2006, the State agrees to pay the Provider *** from the Fund. Payment shall be made on June 1, 2006, or as soon thereafter as practicable.

B.Recovery, Right of Offset. and Hold Harmless

(1)           The total payment received by Provider from the Fund for the 2005-06 state fiscal year may be subject to recovery by the Department of Health Services (Department) if the Department determines that the Provider fails at any time during the 2005-06

state fiscal year to meet the eligibility criteria for Fund disbursements, as specified in Welfare and Institutions Code Section 14166.12.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(a)           Provider must promptly return to the Department all payments received from the Fund for the 2005-06 state fiscal year if the Department determines that the Provider fails at any time during the 2005-06 state fiscal year to receive and/or maintain disproportionate share hospital (DSH) status, under Welfare and Institutions Code Sections 14166.11, 14105.98, and 14163, for the 2005-06 DSH payment adjustment year.

(b)           Unless paragraph (a) applies, Provider must promptly return to the Department the pro-rata portion of the payments, as determined by the Department, received from the Fund for the 2005-06 state fiscal year if the Department determines that the Provider failed to meet the criteria, other than DSH status addressed in paragraph (a), for participation in the Program for the entire fiscal year or service period, as specified in Welfare and Institutions Code Section 14166.12.

(2)           It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D. In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contract or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the federal and related state funds shall be repaid by the State to the Provider.

C.            Notice of Termination

Notwithstanding Paragraph 6.15, Termination Without Cause, Provider shall not exercise or attempt to exercise Paragraph 6.15 until after December 31, 2006.

Paragraph Two – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on April 27, 2006.

Paragraph Three – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

	State of California
Provider	Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 14

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba:  LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 14 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read as attached.

Paragraph Two – Notice of Termination

Provider shall not submit a notice for the purpose of terminating this Contract, pursuant to Paragraph 6.15, Termination without Cause, until on or after December 31, 2007.

Paragraph Three – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on September 21, 2006.

Paragraph Four – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

2

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

Provider	State of California Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

3

APPENDIX D

PRIVATE HOSPITAL SUPPLEMENTAL FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year 2006-07.

Pursuant to the provisions of Welfare and Institutions Code Section 14166.12 relating to negotiations and disbursements from the Private Hospital Supplemental Fund (Fund), the parties agree as follows:

A.Payment

In accordance with subdivisions (j) and (m) of Section 14166.12 of the Welfare and Institutions Code, and subject to Section B of this Appendix D, the State agrees to pay the Provider from the Fund as follows:

(1)*** for services rendered from July 1, 2006 through September 30, 2006, if Provider is listed on the 2006-07 tentative Disproportionate Share Hospital (DSH) list issued by the California Department of Health Services (Department).  Payment will be made by October 15, 2006, or as soon thereafter as practicable after the issuance of the 2006-07 tentative DSH list.

4

2)*** for services rendered from October 1, 2006 through December 31, 2006, if Provider is listed on the 2006-07 final DSH list issued by the Department.  Payment shall be made by January 1, 2007, or as soon thereafter as practicable after the issuance of the 2006-07 final DSH list.

(3)*** for services rendered from January 1, 2007 through February 28, 2007, if Provider is listed on the 2006-07 final DSH list issued by the Department.  Payment shall be made by March 15, 2007, or as soon thereafter as practicable.

B.Recovery, Right of Offset, and Hold Harmless

B.Payment(s) received by Provider from the Fund for the 2006-07 state fiscal year may be subject to recovery by the Department if the Department determines that the Provider fails at any time during the 2006-07 state fiscal year to meet the eligibility criteria for Fund disbursements, as specified in Welfare and Institutions Code Section 14166.12.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

5

(a)Provider must promptly return to the Department all payments received from the Fund for the 2006-07 state fiscal year if the Department determines that the Provider fails at any time during the 2006-07 state fiscal year to receive and/or maintain final DSH status, under Welfare and Institutions Code Sections 14166.11, 14105.98, and 14163, for the 2006-07 DSH payment adjustment year.

(b)Unless paragraph (a) applies, Provider must promptly return to the Department the pro-rata portion of the payments, as determined by the Department, received from the Fund for the 2006-07 state fiscal year if the Department determines that the Provider failed to meet the criteria, other than DSH status addressed in paragraph (a), for participation in the Program for the entire fiscal year or service period, as specified in Welfare and Institutions Code Section 14166.12.

(2)It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D.  In the event of federal disallowance or withholding of

6

federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance of withholding the State may, in its sole discretion, recover from the Provider the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such disallowance may be recouped by the Department by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contact or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the federal and related state funds shall be repaid by the State to the Provider.

7

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 15

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 15 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read as attached.

Paragraph Two – Notice of Termination

In accordance with Welfare and Institutions Code section 14166.12(p), Provider shall not submit a notice for the purpose of terminating this Contract as provided in Paragraph 6.15 of

this Contract, Termination without Cause, until on or after December 31, 2007.

Paragraph Three – Addition of 6.30 – Employee Education About False Claims Recovery

6.30 – Employee Education About False Claims Recovery is hereby added, which reads as follows:

Provider shall comply with 42 USC Section 1396a(a)(68), Employee Education About False Claims Recovery, as a condition of receiving payments under this Contract.  Upon request by the Department, Provider shall demonstrate compliance with this provision, which may include providing the Department with copies of Provider’s applicable written policies and procedures and any relevant employee handbook excerpts.

Paragraph Four – Effective Date of Contract Amendment

Contract changes agreed to in this Amendment are effective on March 8, 2007.

2

Paragraph Five – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

3

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

Provider	State of California
	Department of Health Services
Signature	Signature
	Sandra Shewry
Type Name	Director
Type Title
Date:	Date:

4

APPENDIX D

PRIVATE HOSPITAL SUPPLEMENTAL FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year 2006-07.

Pursuant to the provisions of Welfare and Institutions Code Section 14166.12 relating to negotiations and disbursements from the Private Hospital Supplemental Fund (Fund), the parties agree as follows:

A.Payment

In accordance with subdivisions (j) and (m) of Section 14166.12 of the Welfare and Institutions Code, and subject to Section B of this Appendix D, the State agrees to pay the Provider from the Fund as follows:

(1)*** for services rendered from July 1, 2006 through September 30, 2006, if Provider is listed on the 2006-07 tentative Disproportionate Share Hospital (DSH) list issued by the California Department of Health Services (Department).  Payment will be made by October 15, 2006, or as soon thereafter as practicable after the issuance of the 2006-07 tentative DSH list.

5

(2)*** for services rendered from October 1, 2006 through December 31, 2006, if Provider is listed on the 2006-07 final DSH list issued by the Department.  Payment shall be made by January 1, 2007, or as soon thereafter as practicable after the issuance of the 2006-07 final DSH list.

(3)*** for services rendered from January 1, 2007 through February 28, 2007, if Provider is listed on the 2006-07 final DSH list issued by the Department.  Payment shall be made by March 15, 2007, or as soon thereafter as practicable.

(4)For services rendered from March 1, 2007 through April 30, 2007 as follows:

(a)The installment amount of *** will be made by April 1, 2007, or as soon thereafter as practicable.

(b)The installment amount of *** will be made by May 15, 2007, or as soon thereafter as practicable.

B.Recovery, Right of Offset, and Hold Harmless

(1)Payment(s) received by Provider from the Fund for the 2006-07 state fiscal year may be subject to recovery by the Department if the Department determines that the Provider fails at any time during the 2006-07 state fiscal year to meet the eligibility criteria for Fund disbursements, as specified in

6

Welfare and Institutions Code Section 14166.12.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(a)Provider must promptly return to the Department all payments received from the Fund for the 2006-07 state fiscal year if the Department determines that the Provider fails at any time during the 2006-07 state fiscal year to receive and/or maintain final DSH status, under Welfare and Institutions Code Sections 14166.11, 14105.98, and 14163, for the 2006-07 DSH payment adjustment year.

(b)Unless paragraph (a) applies, Provider must promptly return to the Department the pro-rata portion of the payments, as determined by the Department, received from the Fund for the 2006-07 state fiscal year if the Department determines that the Provider failed to meet the criteria, other than DSH status addressed in paragraph (a), for participation in the Program for the entire fiscal year, as specified in Welfare and Institutions Code Section 14166.12.

(2)It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D,

7

include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State, in its sole discretion, may limit its recovery from the Provider to the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such recovery may be recouped by the State by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contact or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the federal and related state funds shall be repaid by the State to the Provider.

8

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 16

Contract No.	00-83122
Facility:	ALTA LOS ANGELES HOSPITALS, INC.
	dba:	LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330
	And
	ALTA LOS ANGELES HOSPITALS, INC.,
	dba:	LOS ANGELES COMMUNITY HOSPITAL
		OF NORWALK
	13222 Bloomfield Avenue
	Norwalk, CA 90650-3249

CONFIDENTIAL
DO NOT RELEASE
Exempt from Public Records Act
(Government Code Section 6254 [q])

AMENDMENT NO. 16 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL AND LOS ANGELES COMMUNITY HOSPITAL OF NORWALK.

WHEREAS, the State of California, hereinafter designated “the State”, and Alta Los Angeles Hospitals, Inc., doing business as Los Angeles Community Hospital and Los Angeles Community Hospital of Norwalk, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Amendment of 3.5 – Service Location

3.5 – Service Location is hereby amended to read:

Inpatient Services rendered pursuant to this Contract shall be rendered at the following facilities:

LOS ANGELES COMMUNITY HOSPITAL
4081 East Olympic Boulevard
Los Angeles, CA 90023-3330

And

LOS ANGELES COMMUNITY HOSPITAL OF NORWALK
13222 Bloomfield Avenue
Norwalk, CA 90650-3249

Paragraph Two – Amendment of 3.7 – Open Staffing/Exclusive Staffing Contracts

3.7 – Open Staffing/Exclusive Staffing Contracts is hereby amended to read:

Pursuant to Welfare and Institutions Code section 14087.28, subdivision (b), Provider is authorized to enter into an exclusive contract for the provision of pathology, radiology, and anesthesiology Inpatient Services, except for consulting services requested by the admitting physician.

Paragraph Three – Amendment of 4.1 – Rate Structure; Contingent Liability of State

4.1 – Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid as follows:

(a)For Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

(b)Commencing August 10, 2008, for Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

Paragraph Four – Amendment of 6.15 – Termination Without Cause

6.5 – Termination Without Cause is hereby amended to read:

The Provider or the State may terminate this Contract without cause in accordance with this Paragraph.  Termination without cause shall be effected by giving written notice of the termination to the other party on or after July 10, 2009 and at

2

least 120 days prior to the effective date of the termination and stating the effective date of the termination.

Paragraph Five – Addition of 6.30 – Employee Education About False Claims Recovery

6.30 – Employee Education About False Claims Recovery is hereby added, which reads as follows:

Provider shall comply with 42 USC Section 1396a(a)(68), Employee Education About False Claims Recovery, as a condition of receiving payments under this Contract.  Upon request by the Department, Provider shall demonstrate compliance with this provision, which may include providing the Department with copies of Provider’s applicable written policies and procedures and any relevant employee handbook excerpts.

Paragraph Six – Amendment of Appendix A

Appendix A is hereby amended to read as attached to this amendment.

3

Paragraph Seven – Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of May 10, 2007, then the Contract changes agreed to in this Amendment shall be effective on May 10, 2007.  If this Amendment is not signed and returned within thirty days, then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

Paragraph Eight – Incorporation of Contract Rights, Duties and Obligations

The terms in this Amendment shall have no retroactive effect on any Department audit determinations or related appeals for dates of service prior to the effective date of this Amendment.  All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

4

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on
, at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Sandra Shewry Director Department of Health Services

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on
, at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Sandra Shewry Director Department of Health Services

EXECUTION

This Contract Amendment shall be deemed duly executed and binding upon execution by both parties below.

Executed on
, at
(City, State, Zip)
	Hospital
	By
	Signature
	Type Name and Title
Executed on
, at
Sacramento, California
	STATE OF CALIFORNIA
	By
	Sandra Shewry Director Department of Health Services

APPENDIX A

HOSPITAL NAME:	Los Angeles Community Hospital & Los Angeles Community Hospital of Norwalk
CONTRACT:	00-83122, A-16
EFFECTIVE DATE:	May 10, 2007

I.Provider shall provide a Medi-Cal Beneficiary his/her specific Medi-Cal benefit Inpatient Services if Provider renders those same services to a non-Medi-Cal beneficiary, without exception.

As of the effective date of this Appendix A, the common acute and/or intensive Inpatient Services listed below are not directly, or indirectly, provided by Provider to any patients regardless of payor source, i.e., Medi-Cal, Medicare, private pay, commercial insurance, third-party payor, or other payor source.

If any of the Inpatient Services below are subsequently made available to non-Medi-Cal patients and are a Medi-Cal benefit, Provider shall provide such services to Medi-Cal Beneficiaries at the all inclusive, general acute care hospital (GACH) per diem rate(s) specified in Paragraph 4.1 of this Contract.

	REVENUE CODES
REHABILITATION – PRIVATE	118
REHABILITATION – SEMI-PRIVATE 2 BEDS	128
REHABILITATION – SEMI-PRIVATE 3 OR 4 BEDS	138
REHABILITATION – WARD (MEDICAL OR GENERAL)	158
NURSERY, NEWBORN LEVEL III	173
NURSERY, NEWBORN LEVEL IV	174
INTENSIVE CARE, PEDIATRIC	203
INTENSIVE CARE, INTERMEDIATE ICU	206
INTENSIVE CARE, BURN CARE	207
INTENSIVE CARE, TRAUMA	208
CORONARY CARE, INTERMEDIATE CCU	214
LITHOTRIPSY, GENERAL CLASSIFICATION	790

Inpatient Transplant Services:

TRANSPLANT RELATED SERVICE	ICD-9 PROCEDURE CODE*
BONE MARROW	41.01, 41.02, 41.03, 41.04, 41.05, 41.07, 41.08 or 41.09
HEART	37.5 or 37.51
HEART-LUNG	33.6
KIDNEY	55.61 or 55.69
COMBINED KIDNEY/PANCREAS	52.80 and 55.61 or 55.69
PANCREAS	55.69
LIVER	50.51 or 50.59
SMALL BOWEL	46.97
COMBINED LIVER/SMALL BOWEL	46.97 and 50.59
LUNG	33.50, 33.51 or 33.52

* Billed in conjunction with Revenue Code 201 or 203

* The State may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, to the extent the service remains a Medi-Cal benefit, without the need to amend this Contract as set forth in Paragraph 6.11.

APPENDIX A (CONTINUED)

HOSPITAL NAME:	Los Angeles Community Hospital & Los Angeles Community Hospital of Norwalk
CONTRACT:	00-83122, A-16
EFFECTIVE DATE:	May 10, 2007

	CPT-4 CODES
CARDIAC CATHETERIZATION	93501-93562
CARDIOVASCULAR SURGERY	33010-37799
ABORTIONS	59840-59857
NEUROSURGERY	61000-64999
CORNEAL TRANSPLANTS	65710, 65730, 65750, 65755
RADIATION THERAPY	77261-77499, 77750-77799
THERAPEUTIC NUCLEAR MEDICINE	79000-79999
MAGNETIC RESONANCE IMAGING	70336, 70540
MAGNETIC RESONANCE IMAGING	70551-70553, 71550
MAGNETIC RESONANCE IMAGING	72141-72142, 72146-72149
MAGNETIC RESONANCE IMAGING	72156-72158, 72195-72197
MAGNETIC RESONANCE IMAGING	73218-73225, 73718-73725
MAGNETIC RESONANCE IMAGING	74181-74185, 75552-75556
MAGNETIC RESONANCE IMAGING	76093-76094, 76400
HYPERBARIC OXYGEN	99183

II.Professional physician fees, excluding technical fees, for the following services provided during an acute and/or intensive inpatient admission are included in Provider’s all inclusive per diem rate(s) specified in Paragraph 4.1 of this Contract and must not be separately claimed to the Medi-Cal Program by Provider, the physician(s) providing the service, or other claimant.  Professional physician fees for services not listed below may be separately claimed using applicable Medi-Cal Billing and Payment Policies for reimbursement.

NONE

III.The following allied health professional services, durable medical equipment, and other listed items provided during an acute and/or intensive inpatient stay are not included in the all inclusive per diem rate(s) specified in Paragraph 4.1 of this Contract, and may be separately claimed.

	HCPC CODES
CLINICAL PSYCHOLOGISTS	X9500-X9699
PROSTHETIC DEVICES	L5000-L8699
PROSTHETIC DEVICES	X8800-X9299
ORTHOTIC DEVICES	L0100-L4398
ORTHOTIC DEVICES	X8100-X8599

The State may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, to the extent the service remains a Medi-Cal benefit, without the need to amend this Contract as set forth in Paragraph 6.11.

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 17

Contract No.	00-83122
Hospital:	ALTA LOS ANGELES HOSPITALS, INC.
	dba: LOS ANGELES COMMUNITY HOSPITAL
Address:	4081 East Olympic Boulevard
	Los Angeles, CA 90023-3330

CONFIDENTIAL

DO NOT RELEASE

Exempt from Public Records Act

(Government Code Section 6254 [q])

AMENDMENT NO. 17 TO CONTRACT NO. 00-83122 BETWEEN THE STATE OF CALIFORNIA AND ALTA LOS ANGELES HOSPITALS, INC., DOING BUSINESS AS LOS ANGELES COMMUNITY HOSPITAL.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA LOS ANGELES HOSPITALS, INC., doing business as LOS ANGELES COMMUNITY HOSPITAL, hereinafter designated “the Provider”, entered into a contract (Contract No. 00-83122) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One – Appendix D

Appendix D is hereby amended to read as attached.

Paragraph Two – Notice of Termination

In accordance with Welfare and Institutions Code section 14166.12(p), Provider shall not submit a notice for the purpose of terminating this Contract as provided in Paragraph 6.15 of this Contract, Termination without Cause, until on or after

December 31, 2008, unless a later date is specified in Paragraph 6.15.

Paragraph Three – Effective Date of Contract Amendment

Unless otherwise specified herein, Contract changes agreed to in this Amendment are effective on October 11, 2007.

Paragraph Four – Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of the Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

2

SIGNATURES

The signatories to this Amendment warrant that they have full and binding authority to make the commitments contained herein on behalf of their respective entities.

Provider	State of California Department of Health Care Services
Signature
	Signature
Type Name	Sandra Shewry
	Director
Type Title
Date:
	Date:

3

APPENDIX D

PRIVATE HOSPITAL SUPPLEMENTAL FUND

This version of Appendix D governs dates of services and related Medi-Cal supplemental reimbursements for State Fiscal Year 2007-08.

Pursuant to the provisions of Welfare and Institutions Code Section 14166.12 relating to negotiations and disbursements from the Private Hospital Supplemental Fund (Fund), the parties agree as follows:

A.Payment

In accordance with subdivisions (j) and (m) of Section 14166.12 of the Welfare and Institutions Code, and subject to Section B of this Appendix D, the State agrees to pay the Provider from the Fund:

(1)For services rendered from July 1, 2007 through November 30, 2007:

(a)The installment amount of *** if Provider is listed on the 2007-08 tentative Disproportionate Share Hospital (DSH) list issued by the California Department of Health Care Services (Department).  Payment will be

4

made by September 27, 2007, or as soon thereafter as practicable.

(b)The installment amount of *** if Provider is listed on the 2007-08 final DSH list issued by the Department.  Payment shall be made by December 1, 2007, or as soon thereafter as practicable after the issuance of the 2007-08 final DSH list.

B.Recovery, Right of Offset, and Hold Harmless

(1)Payment(s) received by Provider from the Fund for the 2007-08 state fiscal year may be subject to recovery by the Department if the Department determines that the Provider fails at any time during the 2007-08 state fiscal year to meet the eligibility criteria for Fund disbursements, as specified in Welfare and Institutions Code Section 14166.12.  If the Provider fails to return the funds within 30 calendar days from the time of the Department’s notification, the Department may offset the amount to be recovered against any Medi-Cal payments which otherwise would be payable by the Department to the Provider, pursuant to Welfare and Institutions Code Section 14115.5.

(a)Provider must promptly return to the Department all payments received from the Fund for the 2007-08 state fiscal year if the Department determines that the Provider fails at any time during the 2007-08 state

5

fiscal year to receive and/or maintain final DSH status, under Welfare and Institutions Code Sections 14166.11, 14105.98, and 14163, for the 2007-08 DSH payment adjustment year.

(b)Unless Subparagraph (a) applies, Provider must promptly return to the Department amounts received from the Fund for the 2007-08 state fiscal year that equal the pro-rata portion of Provider’s 2002-03 supplement fund amount plus any payments over the Provider’s 2002-03 supplement fund amount received from the Fund for the 2007-08 state fiscal year if the Department determines that the Provider failed to meet participation criteria for the entire 2007-08 state fiscal year, other than DSH status addressed in Paragraph (a), specified in Welfare and Institutions Code Section 14085.6 and 14166.12, which includes, but is not limited to, failed for any reason to maintain its Emergency Department as operational and licensed at the Basic Level or higher level.  For purposes of this Subparagraph (b), the amount equal to the pro-rata portion of Provider’s 2002-03 supplement fund payment, pursuant to Welfare and Institutions Code Section 14166.12(j), will be calculated on the number of days during the 2007-08 state fiscal year that the Provider failed to meet participation criteria.

6

(2)It is understood that payment made to the Provider pursuant to this Appendix D, and all prior versions of Appendix D, include State and federal funds.  The State shall be held harmless from any federal disallowance or withholding resulting from payment made to Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, and the Provider shall be liable for any reduced federal financial participation resulting from the payment of funds pursuant to this Appendix D, or any prior version(s) of Appendix D.  In the event of federal disallowance or withholding of federal financial participation for any payments made to the Provider pursuant to this Appendix D, or any prior version(s) of Appendix D, at the time of the federal disallowance or withholding the State, in its sole discretion, may limit its recovery from the Provider to the amount of funds disallowed and paid by the State to the Provider.  Provider agrees that the amount of any such recovery may be recouped by the State by withholding and offsetting, under Welfare and Institutions Code Section 14115.5, the amount due from what would otherwise be the State’s liability to the Provider under this Contact or otherwise, seeking recovery by payment from the Provider, or a combination of these two methods.  If, after federal disallowance or withholding and State recovery or offset of funds paid to the Provider, the State regains the federal funds disallowed or withheld, then the federal and related state funds shall be repaid by the State to the Provider.

7

EX-10.56

Exhibit 10.56

***  Confidential Information Omitted and filed separately with the Securities and Exchange Commission.

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Contract No.:	00-83123
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba:  HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD
Address:	6245 De Longpre Avenue Hollywood, CA 90028
	AND
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba:  HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS
Address:	14433 Emelita Street Van Nuys, CA 91401
Provider No.:	HSC 30135H – Hollywood Comm. Hosp, Hollywood HSC 30135H – Hollywood Comm. Hosp, Van Nuys

TERMS OF THIS CONTRACT AMENDMENT MUST REMAIN CONFIDENTIAL AND NOT SUBJECT TO PUBLIC DISCLOSURE UNTIL:
SERVICES:	09-14-01
PER DIEM RATE:		09-14-04

CONFIDENTIAL
DO NOT RELEASE
Exempt From Public Records Act
Government Code Section 6254(q)

TABLE OF CONTENTS

ARTICLE 1		FORMATION
	1.1		Identification of Parties
	1.2		Specification of State’s Authority and Instrumentalities
	1.3		Declaration that Beneficiaries under the Medi-Cal Program Are Not Third Party Beneficiaries under this Contract
	1.4		Declaration of Present Contractual Intent
ARTICLE 2		DEFINITIONS
	2.1		General Meaning of Words and Terms
	2.2		Acute Administrative Day
	2.3		Beneficiary
	2.4		Department
	2.5		Fiscal Intermediary
	2.6		Inpatient Services
	2.7		May
	2.8		Shall
ARTICLE 3		PERFORMANCE PROVISIONS
	3.1		General Agreement
	3.2		Licensure and Certification as Conditions Precedent to State’s Payment Obligation
	3.3		Utilization Controls: Compliance by Provider as Condition Precedent to Maturing State’s Payment Obligation
	3.4		Appointment of Liaisons and Agency Status of Provider ‘s Liaison
	3.5		Service Location
	3.6		Quality of Care
	3.7		Open Staff
	3.8		Assumption of Risk by Provider
	3.9		Delegation of Provider’s Duties: When Permitted
	3.10		Patient Rights
	3.11		Beneficiary Evaluation of Provider’s Services
	3.12		Grievance Procedure
ARTICLE 4		PAYMENT PROVISIONS
	4.1		Rate Structure; Contingent Liability of State
	4.2		Rate Inclusive of Physician, Transportation and Certain Prior Patient Services
	4.3		Billing Procedures as Express Conditions Precedent to State’s Payment Obligation
	4.4		Cost Reports
	4.5		Recovery of Overpayments to Provider, Liability for Interest
	4.6		Customary Charges Limitation
	4.7		Assumption of Debts, Liabilities, and respective Other Obligations Deriving from Contract No. 96-83089
ARTICLE 5		RECORDS AND AUDIT PROVISIONS
	5.1		Onsite Reviews
	5.2		Records to be Kept; Audit or Review: Availability; Period of Retention

ARTICLE 6		GENERAL PROVISIONS
	6.1		Integration Clause
	6.2		Performance Obligations; Effective Date and Term of this Waiver of Provider’s Right to Administrative Hearing
	6.3		Headings – The headings of articles and paragraphs contained in this Contract are for reference purposes only and shall not affect in any way its meaning or interpretation.
	6.4		Governing Authorities
	6.5		Conformance with Federal Regulations
	6.6		Application for Termination in the Face of a Declaration or Finding of Partial Invalidity
	6.7		Restriction on Provider’s Freedom to Assign Benefits Only under this Contract or to Engage in Organic Change
	6.8		Contract Officer - Delegation of Authority
	6.9		Notice
	6.10		Status as Independent Contractors
	6.11		Informal Amendments Ineffective, Toleration of Deviation from Terms of Contract Not to be Construed as Waiver
	6.12		Beneficiary Eligibility
	6.13		Indemnification
	6.14		Limitation of State Liability
	6.15		Termination Without Cause
	6.16		Termination for Default
	6.17		Disputes
	6.18		Conflict of Interest
	6.19		Confidentiality of Information
	6.20		Confidentiality of Contractual Provisions
	6.21		Additional Provisions
APPENDIX A
APPENDIX B

ARTICLE 1
FORMATION

1.1Identification of Parties

This Contract is between the State of California, hereinafter designated “the State,” and ALTA HOLLYWOOD HOSPITALS, INC., doing business as HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD and HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS, hereinafter designated “the Provider.”

1.2Specification of State’s Authority and Instrumentalities

The Provider hereby recognizes that this Contract is formed under the authority of Sections 14081, et seq. of the Welfare and Institutions Code and the regulations adopted pursuant thereto which authorize the Department of Health Services to contract for provision of inpatient hospital services to beneficiaries eligible for such services under the Medi-Cal program in accordance with the rates, terms and conditions negotiated by the California Medical Assistance Commission.

1.3Declaration that Beneficiaries under the Medi-Cal Program Are Not Third Party Beneficiaries under this Contract

Notwithstanding mutual recognition that services under this agreement will be rendered by the Provider to beneficiaries under the Medi-Cal program, as more fully defined in Paragraph 2.3, it is not the intention of either the State or Provider that such individuals occupy the position of intended third party beneficiaries of the obligations assumed by either party to this Contract.

1.4Declaration of Present Contractual Intent

The State and the Provider, in consideration of the covenants, conditions, stipulations, terms and warranties hereinafter expressed, presently contract as follows.

1

ARTICLE 2
DEFINITIONS

2.1General Meaning of Words and Terms

The words and terms used in this Contract are intended to have their usual meanings unless a particular or more limited meaning is associated with their usage in Sections 14000, et seq. of the Welfare and Institutions Code, or Title 22 of the California Code of Regulations pertaining to the rendition of health care or unless specifically defined in this Article or otherwise in this Contract.

2.2Acute Administrative Day

“Acute Administrative Day” means those days approved in an acute inpatient facility which provides a higher level of care than that currently needed by the patient (22 California Code of Regulations Section 51173).

2.3Beneficiary

“Beneficiary” means a person certified, pursuant to Sections 14016 and 14018 of the Welfare and Institutions Code, as eligible for Medi-Cal, except that beneficiary shall not include Medi-Cal beneficiaries enrolled in Prepaid Health Plans or other organized health systems which contract with the Department under the provisions of Sections 14000, et seq. of the Welfare and Institutions Code, and the regulations and definitions adopted under Title 22 of the California Code of Regulations.  A beneficiary also includes that person whose eligibility was not determined until after the rendition of inpatient services.  Medi-Cal beneficiaries who are also eligible for Medicare hospital benefits under the provisions of Title XVIII of the Social Security Act, and who have not exhausted those benefits, are not considered beneficiaries within the meaning of this Contract.  Beneficiary does not include those individuals receiving skilled nursing facility or long term care services or acute administrative day care.

2

2.4Department

“Department” means the State Department of Health Services.

2.5Fiscal Intermediary

“Fiscal Intermediary” means that person or entity who has contracted, as specified in Section 14104.3 of the Welfare and Institutions Code, with the Department to perform fiscal intermediary services related to this Contract.

2.6Inpatient Services

“Inpatient Services” includes, but is not limited to, the following services when rendered in accordance with Sections 14133 and 14133.1 of the Welfare and Institutions Code, and Section 51327 of Title 22 of the California Code of Regulations to a Medi-Cal beneficiary:

(a)Bed and board;

(b)Medical, nursing, surgical, pharmacy and dietary services;

(c)All diagnostic and therapeutic services required by the beneficiary, including physicians’ services, except as noted in Appendix A which is incorporated herein by this reference;

(d)Use of hospital facilities, medical social services furnished by the hospital, and such drugs, including takehome drugs, biologicals, supplies, appliances and equipment, as are required by the beneficiary.

(e)Transportation services subsequent to admission required in providing inpatient services under this Contract.

(f)All other services provided to hospital inpatients except as noted in Appendix A.

(g)Services rendered by the Provider within 24 hours prior to the beneficiary’s admission as an inpatient, such as outpatient or emergency services which are related to the condition for which the beneficiary is admitted as an inpatient.

3

(h)Administrative services required in providing inpatient services under this Contract.

2.7May

“May” is used to indicate a permissive or discretionary term of function.

2.8Shall

“Shall” is used to introduce a covenant of either the State or the Provider, and is mandatory.

4

ARTICLE 3
PERFORMANCE PROVISIONS

3.1General Agreement

(a)Provider agrees to render inpatient services (Paragraph 2.7) to any eligible beneficiary (Paragraph 2.3) in need of such services and assumes full responsibility for provision of all inpatient services, either directly, or as otherwise provided in this Contract.  Provider agrees to accept as payment in full for these inpatient services payment from the Department as provided in Article 4 of this Contract.  The Department agrees to pay the Provider for such services rendered in accordance with the terms and under the express conditions of this Contract.

(b)Provider shall, at its own expense, provide and maintain facilities and professional, allied and supportive paramedical personnel to provide all necessary and appropriate inpatient services.

(c)Provider shall, at its own expense, provide and maintain the organizational and administrative capabilities to carry out its duties and responsibilities under this Contract and all applicable statutes and regulations pertaining to Medi-Cal providers.

(d)For the purpose of (a) of this Paragraph “any eligible beneficiary” means any individual who meets the criteria established in Paragraph 2.3 of this Contract without reference to residence, domicile or any other geographic factor.

(e)For the purpose of (a) of this Paragraph “all inpatient services” means those services defined in Paragraph 2.7 of this Contract unless expressly excluded in Appendix A of this Contract.

3.2Licensure and Certification as Conditions Precedent to State’s Payment Obligation

(a)Provider hereby represents and warrants that it is currently, and for the duration of this Contract shall remain,

5

licensed as a general acute care hospital in accordance with Sections 1250 et seq. of the Health and Safety Code and the licensing regulations contained in Title 22 and Title 17 of the California Code of Regulations.

(b)Provider hereby represents and warrants that it is currently, and for the duration of this Contract shall remain, certified under Title XVIII of the Federal Social Security Act.

(c)Provider agrees that compliance with its obligations to remain licensed as a general acute care hospital as provided in (a) of this Paragraph, and certified under the Federal Social Security Act as provided in (b) of this Paragraph shall be express conditions precedent to maturing the State’s payment obligations under Paragraph 3.1(a) and Article 4 of this Contract.

3.3Utilization Controls: Compliance by Provider as Condition Precedent to Maturing State’s Payment Obligation

As express conditions precedent to maturing the State’s payment obligation under the terms of this Contract the Provider shall adhere to all utilization controls and obtain prior authorization for services in accordance with the statutes and, except for those provisions waived by the Director of the Department of Health Services, regulations and Provider Bulletins governing the Medi-Cal program (Paragraph 6.4 [a] [1]).

3.4Appointment of Liaisons and Agency Status of Provider ‘s Liaison

(a)Provider shall designate in writing a person to act as liaison to the Department.  Such person shall coordinate all communications between the parties.  The written designation of such person shall constitute the conferral of full agency powers to bind the Provider as principal in all dealings with the Department.

(b)The Department shall designate a liaison in conformity with the procedures and with such authority as specified in Paragraph

6

6.8 of this Contract.  Communications to the Department shall be submitted to its liaison at the following address:

Contract Officer
Medi-Cal Operations Division
P.O. Box 942732
Sacramento, CA 94234-7320

3.5Service Location

Inpatient services rendered pursuant to this Contract shall be rendered at the following facilities:

HOLLYWOOD COMMUNITY HOSPITAL
OF HOLLYWOOD
6245 De Longpre Avenue
Hollywood, CA  90028

HOLLYWOOD COMMUNITY HOSPITAL
OF VAN NUYS
14433 Emelita Street
Van Nuys, CA  91401

3.6Quality of Care

As express conditions precedent to maturing the State’s payment obligation under the terms of this Contract, the Provider shall:

(1)Assure that any and all eligible beneficiaries receive care as required by Sections 51207 (a) (4) and 70703 (a) of Title 22 of the California Code of Regulations.

(2)Take such action as required by Provider’s Medical Staff Bylaws against medical staff members who violate those bylaws, as the same may be from time to time amended.

(3)Provide inpatient services in the same manner to beneficiaries as it provides to all patients to whom it renders inpatient services.

(4)Not discriminate against Medi-Cal beneficiaries in any manner, including admission practices, placement in special or separate wings or rooms, provision of special or separate meals, or waiting time for surgical procedures.

3.7Open Staff

Provider shall not deny medical staff membership or clinical

7

privileges for reasons other than a physician’s individual qualifications as determined by professional and ethical criteria, uniformly applied to all medical staff applicants and members.  Determination of medical staff membership or clinical privileges shall not be made upon the basis of:

(1)The existence of a contract with the Provider or with others;

(2)Membership in or affiliation with any society, medical group or teaching facility or upon the basis of any criteria lacking professional justification, such as sex, race, creed or national origin.

3.8Assumption of Risk by Provider

The Provider shall bear total risk for the cost of all inpatient services rendered to each beneficiary covered by this Contract.  As used in this Paragraph “risk” means that the Provider covenants to accept as payment in full for any and all inpatient services (Paragraph 2.6) payments made by the State pursuant to Article 4 of this Contract.  Such acceptance shall be made irrespective of whether the cost of such services, transportation and related administrative expenses shall have exceeded the payment obligation of the State matured under the conditions set forth in this Contract.  The term “risk” also includes, but is not limited to the cost for all inpatient services for illness or injury which results from or is contributed to by catastrophe or disaster which occurs subsequent to the effective date of this Contract, including but not limited to acts of God, war or the public enemy.

3.9Delegation of Provider’s Duties: When Permitted

The Provider and State recognize that the inpatient hospital services covered by this Contract are personal and non-delegable.  Any attempt by the Provider to delegate or otherwise vest responsibility for performance of its duties in any manner shall constitute a present material breach of this Contract.

3.10Patient Rights

The Provider shall adopt and post in a conspicuous place a

8

written policy on patient’s rights in accordance with Section 70707 of Title 22 of the California Code of Regulations.  Procedures for resolving a beneficiary’s complaint involving patients’ rights may be combined with the grievance procedure in Paragraph 3.12.  Complaints by beneficiaries with regard to substandard conditions may be instigated by the Department’s Licensing and Certification Division or by the Joint Commission on Accreditation of Healthcare Organization, or such other agency, as required by law or regulation.

3.11Beneficiary Evaluation of Provider’s Services

The Provider shall provide a written questionnaire to the beneficiary at the time of the beneficiary’s admission.  The questionnaire shall be approved by the Department and offer the beneficiary the opportunity to evaluate the care given.  It shall be collected at the time of discharge and maintained in the Provider’s file for four years, and shall be made available to agents of the Department.

3.12Grievance Procedure

The Provider shall establish and maintain a procedure for resolving beneficiary grievances.  Such procedure shall be approved by the Department prior to implementation.  The grievance procedure shall include:

(1)Immediate recording of all grievances received, including information sufficient to identify the grievant, date of receipt, nature of the problem, date and resolution or disposition of the grievance.  Such records and related documents shall be open to inspection by the Department and the Federal Department of Health and Human Services for a period of four years.

(2)A finding of fact and resolution within 30 days of receipt of the grievance.

(3)In those cases where the grievant is not identifiable, or when the problem cannot be resolved, entry of notations to that effect in the record, including the reasons why the grievance could not be resolved

9

and the individual responsible for that decision.

(4)If the grievant is identifiable, transmittal of a copy of the finding of fact, and an explanation of the resolution or disposition of the grievance to the grievant and the Department within five days of the decision.

(5)If the grievant is identifiable, notification to the grievant regarding a right to appeal the disposition of the grievance in the form of a complaint with the Department’s liaison designated under Paragraph 6.8.

(6)A grievance coordinator.

10

ARTICLE 4
PAYMENT PROVISIONS

4.1Rate Structure; Contingent Liability of State

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid at the all-inclusive rate per patient per day of *** for inpatient services provided to beneficiaries.

4.2Rate Inclusive of Physician, Transportation and Certain Prior Patient Services

The rate structure under Paragraph 4.1 of this Contract is intended by both the State and Provider to be inclusive of all inpatient services rendered by the Provider and to constitute the State I s only financial obligation under this Contract.  As nonlimiting examples:

(a)There shall be no separate billing by either the Provider or physicians for inpatient services rendered by physicians to beneficiaries covered by this Contract, except for those inpatient services set forth in Appendix A previously incorporated by reference as part of this Contract.

(b)There shall be no separate billing for any transportation services required in providing inpatient services under this Contract.

(c)There shall be no separate billing for any services rendered by the Provider within a 24-hour period prior to the beneficiary’s admission as an inpatient, such as outpatient or emergency services, which are related to the condition for which the beneficiary is admitted as an inpatient.  Such prior services shall be deemed inpatient services and included in the rates set under Paragraph 4.1.

4.3Billing Procedures as Express Conditions Precedent to State’s Payment Obligation

(a)As an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider

11

shall determine that inpatient services rendered directly are not covered, in whole or in part, under any other state or federal medical care program or under any other contractual or legal entitlement, including, but not limited to, a private group indemnification or insurance program or workers’ compensation.  To the extent that such coverage is available, the State’s payment obligation pursuant to paragraph 4.1 shall be reduced.

(b)As a further express condition precedent to maturing the State is payment obligation under Paragraph 4.1 of this Contract, the Provider shall submit claims to the fiscal intermediary for all services rendered under the terms of this Contract, in accordance with the applicable billing requirements contained in Title 22 of the California Code of Regulations.

(c)A day of service shall be billed for each beneficiary who occupies an inpatient bed at 12:00 midnight in the facilities of the Provider.  However, a day of service may be billed if the beneficiary is admitted and discharged during the same day provided that such admission and discharge is not within 24 hours of a prior discharge.  Only one patient day of service may be billed for mother and newborn child (children) when both mother and newborn child (children) are inpatients of the hospital.

4.4Cost Reports

Although they shall not be used for payment purposes under this Contract, as an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract the Provider shall complete and file Medi-Cal cost reports in accordance with the requirements in effect during the terms of this Contract.

4.5Recovery of Overpayments to Provider, Liability for Interest

(a)When an audit performed by the Department, the State Controller’s Office, or any other State agency discloses that the Provider has been overpaid under this Contract, or where the total payments exceed

12

the total liability under this Contract, the Provider covenants that any such overpayment or excess payments over liability may be recouped by the Department withholding the amount due from future payments, seeking recovery by payment from the Provider, or a combination of these two methods.

(b)Overpayments determined as a result of audits of periods prior to the effective date of this Contract may be recouped by the Department withholding the amount due from what would otherwise be the State’s liability under this Contract, seeking recovery by payment from the Provider, or a combination of those two methods.

(c)When the Department seeks recoupment or recovery under (a) of this Paragraph the Provider may appeal according to applicable procedural requirements of Sections 51016-51047 of Title 22 of the California Code of Regulations, with the following exceptions:

(1)There shall be no informal hearing.

(2)The recovery or recoupment shall commence sixty (60) days after issuance of account status or demand resulting from an audit or review and shall not be deferred by the filing of a request for hearing pursuant to Section 51022 of Title 22 of the California Code of Regulations.

(3)The Provider’s liability to the State for any amount recovered under this Paragraph shall be as provided in Sections 14171 and 14171.5 of the Welfare and Institutions Code and regulations adopted pursuant thereto.

4.6Customary Charges Limitation

(a)No provision in this Contract withstanding, the State’s total liability to the Provider shall not exceed the Provider’s total customary charges for like services during each hospital fiscal year or part thereof, in which this Contract is in effect.  The Department may recoup any excess of total payments above such total customary charges under Paragraph 4.5.

13

(b)As used in (a) of this Paragraph “customary charges” is defined in conformity with 42 USC Section 1395(f) and the regulations promulgated pursuant thereto.

4.7Assumption of Debts, Liabilities, and respective Other Obligations Deriving from Contract No. 96-83089

The parties hereby agree to assume all their respective debts, liabilities, and other obligations related to or deriving from Contract No.  96-83089 between HOLLYWOOD HOSPITAL MEDICAL CENTER, INC., A CALIFORNIA LIMITED PARTNERSHIP doing business as HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD, and the Department of Health Services.

14

ARTICLE 5
RECORDS AND AUDIT PROVISIONS

5.1Onsite Reviews

(a)Agents of the Department shall conduct periodic audits or reviews, including onsite audits or reviews, of performance under this Contract.  These audits or reviews may evaluate the following:

(1)Level and quality of care, and the necessity and appropriateness of the services provided.

(2)Internal procedures for assuring efficiency, economy and quality of care.

(3)Grievances relating to medical care and their disposition.

(4)Financial records when determined necessary by the Department to protect public funds.

(b)The Provider shall make adequate office space available for the review team or auditors to meet and confer.  Such space must be capable of being locked and secured to protect the work of the review team or auditors during the period of their investigation.

(c)Onsite reviews and audits shall occur during normal working hours with at least 72-hour notice, except that unannounced onsite reviews and requests for information may be made in those exceptional situations where arrangement of an appointment beforehand is clearly not possible or clearly inappropriate to the nature of the intended visit.

5.2Records to be Kept; Audit or Review: Availability; Period of Retention

The Provider covenants that:

(1)It shall maintain books, records, documents, and other evidence, accounting procedures, and practices sufficient to reflect properly all direct and indirect costs of whatever nature claimed to have

15

been incurred in the performance of this Contract.

(2)The above information shall be maintained in accordance with Medicare principles of reimbursement and generally accepted accounting principles, and shall be consistent with the requirements of the Office of Statewide Health Planning and Development.

(3)The Provider shall also maintain medical records required by Sections 70747 - 70751 of the California Code of Regulations, and other records related to a beneficiary’s eligibility for services, the service rendered, the beneficiary to whom the service was rendered, the date of the service, the medical necessity of the service and the quality of the care provided.  Records shall be maintained in accordance with Section 51476 of Title 22 of the California Code of Regulations.  The foregoing constitute “records” for the purposes of this Paragraph.

(4)The facility or office, or such part thereof as may be engaged in the performance of this Contract, and the information specified in this Paragraph shall be subject at all reasonable times to inspection, audits and reproduction by any duly authorized agents of the Department, the Federal Department of Health and Human Services and Comptroller General of the United States.  The Federal Department of Health and Human Services and Comptroller General of the United States are intended third party beneficiaries of this covenant.

(5)Preserve and make available its records relating to payments made under this Contract for a period of four years from the close of the Provider’s fiscal year, or for such longer period, required by subparagraphs (A) and (B) below.

(A)If this Contract is terminated, the records relating to the work terminated shall be preserved and made available for a period of four years from the date of the last payment made under the Contract.

(B)If any litigation, claim, negotiation, audit or other

16

action involving the records has been started before the expiration of the four year period, the related records shall be retained until completion and resolution of all issues arising therefrom or until the end of the four year period whichever is later.

17

ARTICLE 6
GENERAL PROVISIONS

6.1Integration Clause

The State and Provider declare that this instrument, including Appendix A and Appendix B, contains a total integration of all rights and obligations of both parties.  There are no extrinsic conditions or collateral agreements or undertakings of any kind.  In regarding this instrument as the full and final expression of their Contract it is the express intention of both the State and the Provider that any and all prior or contemporaneous agreements, promises, negotiations, or representations, either oral or written, relating to the subject matter and period of time governed by this instrument which are not expressly set forth herein are to have no force, effect, or legal consequence of any kind.

6.2Performance Obligations; Effective Date and Term of this Waiver of Provider’s Right to Administrative Hearing

Performance obligations assumed under this Contract shall commence on the 14^th day of September 2000, and shall apply to all inpatient admissions on or after this date.  This Contract shall continue indefinitely subject to the provisions of Paragraph 6.14 and the rights of termination reserved under Paragraphs 6.15, 6.16 and 6.18.  However, the terms of this Contract shall continue to apply to any beneficiary receiving inpatient services at the date of termination.  There shall be no entitlement to an administrative hearing pursuant to these sections.  The Provider waives any claim it may have to such a hearing in consideration of the covenants, conditions and provisions of this Contract.

6.3Headings – The headings of articles and paragraphs contained in this Contract are for reference purposes only and shall not affect in any way its meaning or interpretation.

18

6.4Governing Authorities

(a)This Contract shall be governed and construed in accordance with:

(1)Part 3, Division 9 of the Welfare and Institutions Code; Divisions 3 and 5 of Title 22 of the California Code of Regulations; and all other applicable state laws and regulations according to their content on the effective date stipulated in Paragraph 6.2; and

(2)Titles 42 and 45 (Part 74) of the Code of Federal Regulations and all other applicable federal laws and regulations according to their content on and after the effective date stipulated in Paragraph 6 .2, except those provisions or applications of those provisions waived by the Secretary of the Department of Health and Human Services.

(b)Any provision of this Contract in conflict with the laws or regulations stipulated in (a) of this Paragraph is hereby amended to conform to the provisions of those laws and regulations.  Such amendment of the Contract shall be effective on the effective date of the statute or regulation necessitating it, and shall be binding on the parties even though such amendment may not have been reduced to writing and formally agreed upon and executed by the parties as provided in Paragraph 6.11.

6.5Conformance with Federal Regulations

The Provider stipulates that this Contract, in part, implements Title XIX of the Federal Social Security Act and, accordingly, covenants that it will conform to such requirements and regulations as the United States Department of Health and Human Services may issue from time to time, except for those provisions waived by the Secretary of Health and Human Services.

6.6Application for Termination in the Face of a Declaration or Finding of Partial Invalidity

In the event any provision of this Contract is declared null and

19

void by any court of law, either party may apply to that court for permission to immediately rescind the remainder of the Contract.  In ruling upon this request the court shall consider the impact upon the affected Medi-Cal population as well as the relative degree of hardship which would be imposed upon either or both of the parties if the request is denied.

6.7Restriction on Provider’s Freedom to Assign Benefits Only under this Contract or to Engage in Organic Change

The State and Provider hereby declare their mutual recognition that the subject matter of this Contract is personal, being founded upon the State’s confidence in the reputation, type and location of facilities, and other personal attributes of the Provider.  For this reason:

(1)Unless given prior written approval by the Department any attempt by the Provider to make an assignment of the right to receive the contingent payment obligations of the State under this contract shall operate as an express condition subsequent to those obligations discharging the State from what may otherwise have been a matured obligation of performance.

(2)If the Provider desires to make an assignment of rights only under this Contract it shall submit a written application for approval to the Department.  Such an application shall identify the proposed assignee and include a detailed explanation of the reason and basis for the proposed assignment.  If the Department is satisfied that the proposed assignment is consistent with the continued receipt of satisfactory performance on the part of the Provider it shall be approved in writing.  The effective date of the assignment shall be the date upon which the Department issues written approval.

(3)Unless given prior written approval by the Department any attempt by the Provider to participate as a constituent entity in any

20

merger, consolidation or sale of assets other than in the regular course of business shall operate as an express condition subsequent discharging the State from what may otherwise have been a matured obligation of performance under this Contract.

(4)If the Provider desires to participate as a constituent entity in any merger, consolidation or sale of assets other than in the regular course of business it shall submit a written application for approval to the Department.  The Department shall act upon such requests within 30 days of the receipt of such requests.

(A)If approval is sought for participation in a merger or consolidation the application shall identify all proposed constituent entities and disclose the rights and preferences of all classes of stock in the resulting or surviving entity.  In addition, the application shall inform the Department of the licensure and certification status of the proposed resulting or surviving entity (Paragraph 3.2), and such other information as the Department may require.

(B)If application is sought for approval of a sale of assets other than in the regular course of business it shall identify the purchaser; inform the Department of licensure and certification status of the purchaser (Paragraph 3.2); and, such other information as the Department may require.

(5)If the Department is satisfied that the proposed merger, consolidation or sale of assets other than in the regular course of business is consistent with the continued satisfactory performance of the Provider is obligations under this Contract it shall be approved in writing.  The effective date of the merger, consolidation or sale of assets other than in the regular course of business shall be no earlier than the date upon which the Department issues written approval.

21

6.8Contract Officer - Delegation of Authority

The Department will administer this Contract through a single administrator, the Contract Officer.  Until such time as the Director gives the Provider written notice of successor appointment, the person designated above shall make all determinations and take all actions necessary to administer this Contract, subject to the limitations of California laws and state administrative regulations.  No person other than the Contract Officer or the Director shall have the power to bind the Department relative to the rights and duties of the Contractor and the Department under this Contract, nor shall any other person be considered to have the delegated authority of the Contract Officer or to be acting on his behalf unless the Contract Officer has expressly stated in writing that that person is acting as his authorized agent.

6.9Notice

Any notice required to be given pursuant to the terms and provisions of the Contract shall be in writing and shall be sent by certified mail, return receipt requested.  Notice to the Department shall be sent to the following address:

Contract Officer
Medi-Cal Operations Division
P.O. Box 942732
Sacramento, CA 94234-7320.

Notice to the Provider shall be sent to the Chief Executive Officer at the following address:

HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD
6245 De Longpre Avenue
Hollywood, CA 90028

6.10Status as Independent Contractors

The State and Provider hereby acknowledge that they are

22

independent contractors to one another and neither is an officer, agent, or employee of the other for any purpose.

6.11Informal Amendments Ineffective, Toleration of Deviation from Terms of Contract Not to be Construed as Waiver

(a)It is the express intention of both the State and Provider that the terms of this totally integrated writing shall comprise their entire Contract and are not subject to rescission, modification or waiver except as defined in a subsequent written instrument executed in the same manner and with the same authority.  In furtherance of this agreement the State and Provider mutually covenant and request of any reviewing tribunal that any claim of rescission, modification, or waiver predicated upon any evidence other than a subsequent written instrument executed in the same manner and with the same authority as this writing be regarded as void.

(b)The informal toleration by either party of defective performance of any independent covenant in this Contract shall not be construed as a waiver of either the right to performance or the express conditions which have been created in this Contract.

6.12Beneficiary Eligibility

This Contract is not intended to change the determination of Medi-Cal eligibility for beneficiaries in any way.  However, in the event the California State Legislature or Congress of the United States enacts a statute which redefines Medi-Cal eligibility so as to affect the provision of inpatient services under this Contract, this new definition shall apply to the terms of this Contract.

6.13Indemnification

The Provider covenants to indemnify, defend and hold harmless the State, its officers, agents and employees from any and all claims and losses accruing or resulting to any and all contractors, subcontractors, materialmen, laborers or any other person, firm or corporation

23

furnishing or supplying work, services, materials or supplies in connection with the performance of this Contract, and from any and all claims and losses accruing or resulting to any person, firm or corporation who may be injured or damaged by the Provider in the performance of this Contract.

6.14Limitation of State Liability

No provision of this Contract withstanding, the liability of the State shall not exceed the amount of funds appropriated in the support of this Contract by the California Legislature.  Any requirement of performance by the Department and the Provider is dependent upon the availability of appropriations by the Legislature for the purpose of this Contract.

6.15Termination Without Cause

The Provider or the State may terminate this Contract without cause in accordance with this Paragraph.  Termination without cause shall be effected by giving written notice of the termination to the other party at least 120 days prior to the effective date of the termination and stating the effective date of the termination.

6.16Termination for Default

(a)The State may terminate this Contract for default upon thirty (30) days written notice to the Provider, except in cases where the Department determines that the health and welfare of Medi-Cal beneficiaries is jeopardized by continuation of the Contract, in which case the Contract may be immediately terminated.  Notification shall state the effective date of and grounds for termination.

(b)The State may terminate this agreement upon thirty (30) days written notice to the Provider in the event that: (1) The Secretary of the Department of Health and Human Services determines that the Provider does not meet the requirements for participation in the Medicaid

24

program, Title XIX of the Social Security Act; (2) The Provider has violated the conflict of interest provisions contained in Paragraph 6.18 of this Contract; or, (3) The Department determines that the Provider is abusing or defrauding the Medi-Cal program or its beneficiaries.

6.17Disputes

(a)As an alternative to the judicial remedy available to the Provider under Section 14087.27(a) of the Welfare and Institutions Code the Provider may appeal disputes relating to performance under this Contract to an independent hearing examiner appointed by the Director of the Department.  The proceedings for review of such disputes shall be conducted by the hearing examiner and a decision rendered pursuant to the applicable procedural requirements of Sections 51016-51047 of Title 22 of the California Code of Regulations regarding provider audit appeals with the following exceptions:

(1)There shall be no informal hearing.

(2)All references to a hearing officer shall apply to the independent hearing examiner appointed by the Director of the Department.

(b)The State and Provider stipulate recognition that the Provider Audit Appeals provisions referenced in (a) of this Paragraph were enacted as an administrative mechanism for disputing audit or examination findings regarding the Provider’s cost report.  The obligations of the parties to this Contract are not predicated upon a reimbursement of cost basis and, for that reason, many of the provisions of Section 51016-51047 of Title 22 of the California Code of Regulations, such as cost reports, amended cost reports, audit reports, amended audit reports, home office-chain organization related entities, and informal hearings will not be applicable in the resolution of disputes arising under this Contract.  “Applicable procedural requirements” is employed in (a) of this Paragraph to render irrelevant such inapplicable provisions.

25

6.18Conflict of Interest

(a)The Provider is subject to the terms and conditions of Section 51466 of Title 22 of the California Code of Regulations as promulgated pursuant to Sections 14022, 14124.5, 14030 and 14031 of the Welfare and Institutions Code, and must submit a Medi-Cal Personal Disclosure Statement of Significant Beneficial Interest form as provided by the Department.

(b)This Contract shall be terminated immediately if it is determined that a state officer or state employee responsible for development, negotiation, contract management, or supervision of this Contract has a financial interest in the Contract as that term is defined in Section 87103 of the Government Code and the regulations adopted pursuant thereto.

6.19Confidentiality of Information

(a)No provision of this Contract withstanding, names of persons receiving public social services are confidential and are to be protected from unauthorized disclosure in accordance with Title 45, Code of Federal Regulations Section 205.50; Sections 10850 and 14100.2 of the Welfare and Institutions Code; and, regulations adopted pursuant thereto.  For the purpose of this Contract, all information, records, and data elements pertaining to beneficiaries shall be protected by the Provider from unauthorized disclosure.

(b)With respect to any identifiable information concerning beneficiaries under this Contract that is obtained by the Provider, the Provider:

(1)Shall not use any such information for any purpose other than carrying out the express terms of this Contract;

(2)Shall promptly transmit to the Department all requests for disclosure of such information;

26

(3)Shall not disclose, except as otherwise specifically permitted by this Contract, any such information to any party other than the Department without the Department’s prior written authorization specifying that the information may be released under Title 45, Code of Federal Regulations Section 205.50; Sections 10850 and 14100.2 of the Welfare and Institutions Code; and, regulations adopted pursuant thereto; and,

(4)Shall, at the termination of this Contract, return all such information to the Department or maintain such information according to written procedures sent to the Provider by the Department for this purpose.

6.20Confidentiality of Contractual Provisions

This Contract and its terms shall remain confidential and the terms of the Contract may be disclosed by the parties only in accordance with the disclosure time limits set out in Government Code Section 6254 (q).

6.21Additional Provisions

Provider shall comply with Paragraphs 1.0 through 6.0 as set forth in “Appendix B,” attached hereto and incorporated herein by this reference, but only to the extent that it is mandated by law that the State incorporate and enforce such provisions in this Contract, and the Provider reserves any and all rights it may have to seek administrative and/or judicial review with respect to such provisions.

27

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on September 8, 2000, at
Santa Monica, CA  90405
(City, State, Zip)
	Alta Healthcare System, Inc.
	By:
		Signature
	David R. Topper, President and CEO
	Type Name and Title
	Hollywood Community Hospital of Hollywood and Hollywood Community Hospital of Van Nuys
	By:
		Signature
	Remy Hart, CEO
	Type Name and Title

Executed on NOV – 2  2000, at
Sacramento, California

STATE OF CALIFORNIA
By:
	Diana M. Bontá, R.N., Dr. P.H.
	Director
	Department of Health Services

28

APPENDIX A

HOSPITAL NAME:	Hollywood Community Hospital of Hollywood and Hollywood Community Hospital of Van Nuys New Contract
DATE PREPARED:	August 31, 2000
PREPARED BY:	Karen A. Thalhammer

I.SERVICES NOT PROVIDED BY HOSPITAL OR ITS DELEGATE UNDER THIS CONTRACT AND NOT REIMBURSABLE

	UNIVERSAL BILLING CODES
INTENSIVE CARE, TRAUMA	208
INTENSIVE CARE, POST ICU	206
INTENSIVE CARE, PEDIATRIC	203
INTENSIVE CARE, LUNG TRANSPLANT	083
INTENSIVE CARE, HEART-LUNG TRANSPLANT	084
INTENSIVE CARE, HEART TRANSPLANT	086
INTENSIVE CARE, LIVER TRANSPLANT	087
INTENSIVE CARE, BONE MARROW TRANSPLANT	088
INTENSIVE CARE, KIDNEY TRANSPLANT	089
INTENSIVE CARE, BURN CARE IN LICENSED BURN CENTER BEDS	207
CORONARY CARE, GENERAL	210
CORONARY CARE, MYOCARDIAL INFARCTION	211
CORONARY CARE, OTHER	219
CORONARY CARE, PULMONARY CARE	212
CORONARY CARE, POST CCU	214
NURSERY, NEONATAL INTENSIVE CARE	175
LITHOTRIPSY	090
PEDIATRIC - PRIVATE	113
PEDIATRIC - SEMI-PRIVATE 2 BEDS	123
PEDIATRIC - SEMI-PRIVATE 3 OR 4 BEDS	133
PEDIATRIC - WARD (MEDICAL OR GENERAL)	153
OBSTETRIC - PRIVATE	112
OBSTETRIC - SEMI-PRIVATE 2 BEDS	122
OBSTETRIC - SEMI-PRIVATE 3 OR 4 BEDS	132
OBSTETRIC - WARD (MEDICAL OR GENERAL)	152
NURSERY NEWBORN, WELL BABY	171
NURSERY ACUTE WITHOUT ASSOCIATED DELIVERY	085
NURSERY NEWBORN, INELIGIBLE	094
MOTHER NURSERY ACUTE WITH ASSOCIATED DELIVERY	095
ADMINISTRATIVE DAY	098*
REHABILITATION - PRIVATE	118
REHABILITATION - SEMI-PRIVATE 2 BEDS	128
REHABILITATION - SEMI-PRIVATE 3 OR 4 BEDS	138
REHABILITATION - WARD (MEDICAL OR GENERAL)	158

	CPT-4 CODES
CARDIAC CATHETERIZATION	93501-93562
CARDIOVASCULAR SURGERY	33010-37799
ABORTIONS	59840-59857
STERILIZATION	55250,55450,56301,56302
STERILIZATION	58600,58605,58611,58615
NEUROSURGERY	61000-64999
CORNEAL TRANSPLANTS	65710,65730,65750,65755
RADIATION THERAPY	77261-77499,77750-77799
THERAPEUTIC NUCLEAR MEDICINE	79000-79999
MAGNETIC RESONANCE IMAGING	70336,70540
MAGNETIC RESONANCE IMAGING	70551-70553,71550
MAGNETIC RESONANCE IMAGING	72141-72142,72146-72149
MAGNETIC RESONANCE IMAGING	72156-72158,72196
MAGNETIC RESONANCE IMAGING	73220-73221,73720-73721
MAGNETIC RESONANCE IMAGING	74181,75552,75554-75556
MAGNETIC RESONANCE IMAGING	76093-76094,76400
HYPERBARIC OXYGEN	99183

*BILLABLE ONLY OUTSIDE THE PROVISIONS OF THE CONTRACT.

29

APPENDIX A (CONTINUED)

HOSPITAL NAME:	Hollywood Community Hospital of Hollywood and Hollywood Community Hospital of Van Nuys New Contract
DATE PREPARED:	August 31, 2000
PREPARED BY:	Karen A. Thalhammer

II.ONLY THE FOLLOWING PHYSICIAN SERVICES ARE INCLUDED IN THE ALL-INCLUSIVE RATE AND ARE NOT SEPARATELY BILLED:

NONE

III.ONLY THE FOLLOWING OTHER PROVIDER SERVICES MAY BE BILLED FEE-FOR-SERVICE BY SUCH PROVIDER AND ARE NOT INCLUDED IN THE ALL-INCLUSIVE CONTRACT RATE:

NONE

30

APPENDIX B

1.0Fair Employment Practices

(a)In the performance of this Contract, the Provider shall not discriminate against any employee or applicant for employment because of race, color, religion, ancestry, sex, age, national origin, physical handicap, mental condition, sexual orientation, or marital status.  The Contractor shall take affirmative action to ensure that applicants are employed and that employees are treated during employment without regard to their race, color, religion, ancestry, sex, age, national origin, mental condition, physical handicap, marital status, or sexual orientation.  Such action shall include, but not be limited to the following: employment, upgrading, demotion or transfer; recruitment or recruitment advertising, layoff or termination; rates of pay or other forms of compensation; and selection for training, including apprenticeship.  The Contractor shall post in conspicuous places, available to employees and applicants for employment, notices to be provided by the State setting forth the provisions of this Fair Employment Practices section.

(b)The Provider shall permit access to his records of employment, employment advertisements, application forms, and other pertinent data and records by the State Fair Employment and Housing Commission, or any other agency of the State of California designated by the State, for the purposes of investigation to ascertain compliance with the Fair Employment Practices section of this Contract.

(c)Remedies for Unlawful Employment Practice:

(1)The State may determine an unlawful practice under the Fair Employment Practices section of this Contract to have occurred upon receipt of a final judgment having that effect from a court in an action to which Provider was a party, or upon receipt of a written notice from the Fair Employment and Housing Commission that it has investigated and determined that the Provider has violated the provisions of the Fair Employment and Housing Act and has issued an order, under Government Code Section 12970, which has become final.

(2)For unlawful practices under this Fair Employment Practices section, the State shall have the right to terminate this Contract after a determination pursuant to (c)(1) of this section has been made.

Any loss or damage sustained by the State in securing a replacement provider to render the services contracted for under this Contract shall be borne and paid for by the Provider and the State may deduct from any moneys due to that thereafter may become due to the Provider, the difference between the price named in the contract and the actual cost thereof to the State.

(d)Provider agrees to comply with Title 2, Division 3, Part 2.8 (Government Code Sections 12900 et seq.), any amendments thereto, and any regulation adopted pursuant to that part.

1

2.0Nondiscrimination in Services, Benefits and Facilities

(a)The Provider shall not discriminate in the provision of services because of race, color, religion, national origin, sex, age, mental or physical handicap or sexual orientation as provided by state and federal law.

(b)For the purposes of this Contract, distinctions on the grounds of race, color, religion, national origin, age or mental or physical handicap or sexual orientation include but are not limited to the following:  denying a beneficiary any service or benefit which is different, or is provided in a different manner or at a different time from that provided other beneficiaries under this Contract; subjecting a beneficiary to segregation or separate treatment in any matter related to his receipt of any service; restricting a beneficiary in any way in the enjoyment, advantage or privilege enjoyed by others receiving any service or benefit; treating a beneficiary differently from others in determining whether the beneficiary satisfied any admission, eligibility, other requirement or condition which individuals must meet in order to be provided any benefit; the assignment of times or places for the provision of services on the basis of the race, color, religion, national origin, age, mental or physical handicap or sexual orientation of the beneficiaries to be served.

(c)The Provider shall take affirmative action to ensure that services to intended beneficiaries are provided without regard to race, color, religion, national origin, sex, age, mental or physical handicap or sexual orientation.

3.0Clean Air and Water

(This paragraph 3.0 applicable only if the Contract exceeds $100,000, or the Federal Contracting Officer or State has determined that orders under an indefinite quantity contract in anyone year will exceed $100,000, or a facility to be used has been the subject of a conviction under the Clean Air Act (42 USC 1857c-8 [c][l]) or the Federal Water Pollution Control Act (33 USC 1319[c]) and is listed by EPA, or the contract is not otherwise exempt.)

(a)The Provider agrees as follows:

(1)To comply with all the requirements of Section 114 of the Clean Air Act, as amended (42 USC 1857, et seq., as amended by Pub.L., 91-604) and Section 308 of the Federal Water Pollution Control Act (33 USC 1251 et seq., as amended by Pub.L., 92-500), respectively relating to inspection monitoring, entry, reports, and information, as well as other requirements specified in Section 114 and Section 308 of the Air Act and the Water Act, respectively, and all regulations and guidelines issued thereunder before the award of this Contract.

(2)No obligation required by this Contract will be performed in a facility listed on the Environmental Protection Agency List of Violating Facilities on the date when this contract was executed unless and until the EPA eliminates the name of such facility or facilities from such listing.

2

(3)           To use its best efforts to comply with clean air standards and clean water standards at the facility in which the services are being performed.

(4)           To insert the substance of the provisions of this Paragraph 3.0 into any written delegation.

(b)The terms used in this Paragraph have the following meanings:

(1)           The term “Air Act” means the Clean Air Act, as amended (42 USC 1857 et seq., as amended by Pub.L., 91-604) .

(2)           The terms “Water Act” means Federal Water Pollution Control Act, as amended (33 USC 1251 et seq., as amended by Pub.L., 92-500).

(3)           The term “clean air standards” means any enforceable rules, regulations, guidelines, standards, limitations, orders, controls, prohibitions, or other which are contained in, issued under, or otherwise adopted pursuant to the Air Act or Executive Order 11738, an approved implementation procedure or plan under section 110(d) of the Clean Air Act (42 USC 1857c-5[d]), an approved implementation procedure or plan under section 111(c) or section 111(d), or an approved implementation procedure under section 112(d) of the Air Act (42 use 1857c-7[d]).

(4)           The terms “clean water standards” means any enforceable limitation, control, condition, prohibition, standard, or other requirement which is promulgated pursuant to the Water Act or contained in a permit issued to a discharger by the Environmental Protection Agency or by a state under an approved program, as authorized by Section 402 of the Water Act (33 USC 1317).

(5)           The term “compliance” means compliance with clean air or water standards.  Compliance shall also mean compliance with a schedule or plan ordered or approved by a Court of competent jurisdiction, the Environmental Protection Agency or an air or water pollution control agency in accordance with the requirements of the Air Act or Water Act and regulations issued pursuant thereto.

(6)           The term “facility” means any building, plan, installation, structure, mine, vessel or other floating craft, location, or site of operations, owned, leased, or supervised by a Provider or delegate, to be utilized in the performance of a contract of delegation.  Where a location or site of operations contains or includes more than one building, plant, installation, or structure, the entire location or site shall be deemed to be a facility except where the Director, Office of Federal Activities, Environmental Protection Agency, determines that independent facilities are collected in one geographical area.

3

4.0Utilization of Small Business Concerns

(a)           It is the policy of the Federal Government and the State as declared by the Congress and the State Legislature that a fair proportion of the purchases and contracts for supplies and services for the State be placed with small business concerns.

(b)           The Provider shall accomplish the maximum amount of delegation to and purchased of goods or services from small business concerns that the Contractor finds to be consistent with the efficient performance of this Contract.

5.0Utilization of Minority Business Enterprises

(a)           It is the policy of the Federal Government and the State that minority business enterprises shall have the maximum practicable opportunity to participate in the performance of State contracts.

(b)           The Provider agrees to use its best efforts to carry out this policy in its delegations and purchases of goods and services to the fullest extent consistent with the efficient performance of this Contract.  As used in this Contract, the terms “minority business enterprise” means a business, at least 50 percent of which is owned by minority group members or, in the case of public owned business, at least 51 percent of the stock of which is owned by minority group members.  For the purpose of this definition, minority group members are Black, Asian, Spanish-speaking/Surnamed, Filipino, Polynesian, American Indian, or Alaskan Native.  Non-minority women-owned firms may be included when business is 50 percent owned and operated by a woman and the co-owner is not her husband, or 51 percent (or greater) when owned and operated by a woman and the co-owner is her husband, and/or is publicly owned.  Providers may rely on written representations from businesses regarding their status as minority business enterprises in lieu of an independent investigation.

6.0Provision of Bilingual Services

(a)           When the community potentially served by the Provider consists of non-English or limited-English speaking persons, the Provider shall take all steps necessary to develop and maintain an appropriate capability for communicating in any necessary second language, including, but not limited to the employment of, or contracting for, in public contact positions of persons qualified in the necessary second languages in a number sufficient to ensure full and effective communication between the non-English and limited-English speaking applicants for, and beneficiaries of, the facility’s services and the facility’s employees.

Provider may comply with this paragraph 6.0 by providing sufficient qualified translators to provide translation

4

in any necessary second language for any patient, caller or applicant for service, within ten minutes of need for translation.  Provider shall maintain immediate translation capability in the emergency room when five percent of the emergency room patients or applicants for emergency room services are non-English or limited-English speaking persons.

Provider shall provide immediate translation to non-English or limited English speaking patients whose condition is such that failure to immediately translate would risk serious impairment.  Provider shall post notices in prominent places in the facility of the availability of translation in the necessary second languages.

(b)As used in this Paragraph:

(1)           “Non-English or limited English speaking persons” refers to persons whose primary language is a language other than English;

(2)           “Necessary second language” refers to a language, other than English, which is the primary language of at least five percent (5%) of either the community potentially served by the contracting facility or of the facility’s patient population; and

(3)           “Community potentially served by the contracting facility” refers to the geographic area from which the facility derives eighty percent (80%) of its patient population.

(4)           “Qualified translator” is a person fluent in English and in the necessary second language, familiar with medical terminology, and who can accurately speak, read, write and readily interpret in the necessary second language.

5

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 1

Contract No.:	00-83123
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba: HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD
Address:	6245 De Longpre Avenue Hollywood, CA 90028
	AND
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba: HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS
Address:	Address:     14433 Emelita Street                    Van Nuys, CA 91401
	TERMS OF THIS CONTRACT AMENDMENT MUST REMAIN CONFIDENTIAL AND NOT SUBJECT TO PUBLIC DISCLOSURE UNTIL:
	SERVICES:   01-24-03
	PER DIEM RATE:   01-24-05

CONFIDENTIAL
DO NOT RELEASE
Exempt From Public Records Act
Government Code Section 6254 [q]

AMENDMENT NO.  1 TO CONTRACT NO. 00-83123 BETWEEN THE STATE OF CALIFORNIA AND ALTA HOLLYWOOD HOSPITALS, INC., DOING BUSINESS AS HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD AND HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS.

WHEREAS, the State of California, hereinafter designated “the State”, and ALTA HOLLYWOOD HOSPITALS, INC., doing business as HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD and HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS, hereinafter designated “the Provider”, entered into a contract (Contract No.  00-83~23) for provision of inpatient hospital services effective, September 14, 2000;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Section 6.11 of said Contract, the Contract is amended as follows:

Paragraph One - Amendment of 4.1 - Rate Structure; Contingent Liability of State

4.1 - Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid at the all-inclusive rate per patient per day of *** for inpatient services provided to beneficiaries.

1

Paragraph Two - Addition of 6.22 - Prohibition Against Use of State Funds to Assist, Promote, or Deter Union Organizing

6.22 - Prohibition Against Use of State Funds to Assist, Promote, or Deter Union Organizing is hereby added as follows:

In accordance with Government Code Section 16645, et seq. Contractor shall not use State funds to assist, promote, or deter union organizing during the life of this Contract, including any extensions or renewals of this Contract.

Paragraph Three - Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of January 24, 2002, then the Contract changes agreed to in this Amendment shall be effective on January 24, 2002.  If this Amendment is not signed and returned within thirty days.  then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

2

Paragraph Four - - Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

3

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on January 16, 2002, at
Santa Monica, Calif. 90405
(City, State, Zip)
	Alta Hollywood Hospitals, Inc.
	Hospital
	By:
		Signature
	David Topper CEO
	Type Name and Title
Executed on February 13, 2002, at Sacramento, California
	STATE OF CALIFORNIA
	By:
		Diana M. Bontá, R.N., Dr., P.H.
		Director
		Department of Health Services

4

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment: No. 2

Contract No.:	00-83123
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba: HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD
Address:	6245 De Longpre Avenue Hollywood, CA 90028-8253
	AND
Hospital:	ALTA HOLLYWOOD HOSPITALS, INC. dba: HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS
Address:	Address:     14433 Emelita Street                    Van Nuys, CA 91401-4213
Provider No.:
	TERMS OF THIS CONTRACT AMENDMENT MUST REMAIN CONFIDENTIAL AND NOT SUBJECT TO PUBLIC DISCLOSURE UNTIL:
	SERVICES:    03-10-06
	PER DIEM RATE:    03-10-09

CONFIDENTIAL
DO NOT RELEASE
Exempt From Public Records Act
Government Code Section 6254 [q]

AMENDMENT NO. 2 TO CONTRACT NO. 00-83123 BETWEEN THE STATE OF CALIFORNIA AND ALTA HOLLYWOOD HOSPITAL, INC., DOING BUSINESS AS HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD AND HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS.

WHEREAS, the State of California, hereinafter designated “the State”, and Alta Hollywood Hospital, Inc., doing business as Hollywood Community Hospital of Hollywood and Hollywood Community Hospital of Van Nuys I hereinafter designated “the Provider,” entered into a contract (Contract No. 00-83123) for provision of inpatient hospital services effective September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One - - Amendment of 3.4 - Appointment of Liaisons and Agency Status of Provider’s Liaison

3.4 - Appointment of Liaisons an Liaison is hereby amended to read:

1

(a)           Provider shall designate in writing a person to act as liaison to the Department.  Such person shall coordinate all communications between the parties.  The written designation of such person shall constitute the conferral of full agency powers to bind the Provider as principal in all dealings with the Department.

(b)           The Department shall designate a liaison in conformity with the procedures and with such authority as specified in Paragraph 6.8 of this Contract.  Communications to the Department shall be submitted to its liaison at the following address:

Contract Officer

Medi-Cal Operations Division

P.O. Box 997419

MS 4506

Sacramento, CA 95899-7419

Paragraph Two – Amendment of 3.7 - Open Staffing/Exclusive Staffing Contracts

3.7 - Open Staffing/Exclusive Staffing Contracts is hereby amended to read:

(a)           As a Selective Provider Contracting Program contractor, the Provider shall comply with Welfare and Institutions Code section 14087.28.

2

(b)           Notwithstanding Subparagraph (a) above and Welfare and Institutions Code section 14087.28, Provider may enter into exclusive contracts for the provision of pathology, radiology, and anesthesiology acute inpatient services, except for consulting services requested by the admitting physician.

(c)           The Parties acknowledge that although Paragraph 3.7 of this Contract and Section 14087.28 of the Welfare, and Institutions Code prohibit exclusive staffing arrangements for Selective Provider Contracting Program hospitals, their applicability is limited to physician staffing for acute inpatient services.  Therefore, contractual staffing arrangements to provide outpatient services are not contrary to Paragraph 3.7 of this Contract or Section 14087.28 of the Welfare and Institutions Code.

Paragraph Three - Amendment 4.1 - Rate Structure; Contingent Liability of State

4.1 - Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid as follows:

3

(a)           For Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

(b)           Commencing March 10, 2006, for Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

Paragraph Four - - Amendment of 4.2 - Rate Inclusive of Physician, Transportation and Certain Prior Patient Services

4.2 - Rate Inclusive of Physician, Transportation and Certain Prior Patient Services is hereby amended to read:

The rate structure under Paragraph 4.1 of this Contract is intended by both the State and Provider to be inclusive of all Inpatient Services rendered by the Provider and to constitute the State’s only financial obligation under this Contract.  As nonlimiting examples:

(a)           There shall be no separate billing by either the Provider or physicians for the services specified in Appendix A, Section II, rendered by physicians to Beneficiaries.

(b)           There shall be no separate billing for any transportation services required in providing Inpatient Services under this Contract.

4

(c)           There shall be no separate billing for any services rendered by the Provider within a 24-hour period prior to the Beneficiary’s admission as an inpatient, such as outpatient or emergency services, which are related to the condition for which the Beneficiary is admitted as an inpatient.  Such prior services shall be deemed Inpatient Services and included in the rates set under Paragraph 4.1.

Paragraph Five - - Amendment of 4.3 - Billing Procedures as Express Conditions Precedent to State’s Payment Obligation

4 .3 - Billing Procedures as Express Conditions Precedent to State’s Payment Obligation is hereby amended to read:

(a)           As an express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider shall determine that inpatient services rendered are not covered, in whole or in part, under any other state or federal medical care program or under any other contractual or legal entitlement, including, but not limited to, a private group indemnification or insurance program or workers I compensation.  To the extent that such coverage is available, the State’s payment obligation pursuant to Paragraph 4.1 shall be reduced.

5

(b)           As a further express condition precedent to maturing the State’s payment obligation under Paragraph 4.1 of this Contract, the Provider shall submit claims to the fiscal intermediary for all services rendered under the terms of this Contract, in accordance with the applicable billing requirements contained in Title 22 of the California Code of Regulations.

(c)           A day of service shall be billed for each beneficiary who occupies an inpatient bed at 12:00 midnight in the facilities of the Provider.  However, a day of service may be billed if the beneficiary is admitted and discharged during the same day provided that such admission and discharge is not within 24-hours of a prior discharge.  Only one patient day of service may be billed for mother and newborn child (children) when both mother and newborn child (children) are inpatients of the hospital.

(d)           The State may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, without the need to amend this Contract as set forth in Paragraph 6.11.

6

Paragraph Six - - Amendment of 6.8 - Contract Officer - Delegation of Authority

6.8 - Contract Officer Delegation of Authority is hereby amended to read:

The Department will administer this Contract through a single administrator, the Contract Officer.  Until such time as the Director gives the Provider written notice of successor appointment, the person designated above shall make all determinations and take all actions necessary to administer this Contract, subject to the limitations of California laws and State administrative regulations.  No person other than the Contract Officer or the Director shall have the power to bind the Department relative to the rights and duties of the Contractor and the Department under this Contract, nor shall any other person be considered to have the delegated authority of” the Contract Officer or to be acting on his behalf unless the Contract Officer has expressly stated in writing that that person is acting as his authorized agent.

Paragraph Seven - Amendment of 6.9 - Notice

6.9 - Notice is hereby amended to read:

7

Any notice required to be given pursuant to the terms and provisions of the Contract shall be in writing and shall be sent by certified mail, return receipt requested.  Department shall be sent to the following address:

Contract Officer

Medi-Cal Operations Division

P.O. Box 997419

MS 4506

Sacramento, CA 95899-7419

Notice to the Provider shall be sent to the Chief Executive Officer at the following address:

Hollywood Community Hospital of Hollywood

6245 De Longpre Avenue

Hollywood, CA 90028-8253

Paragraph Eight - Amendment of 6.15 - Termination Without Cause

6.15 - Termination Without Cause is hereby amended to read:

The Provider or the State may terminate this Contract without cause in accordance with this Paragraph.  Termination without cause shall be effected by giving written notice of the termination to the other party on or after November 10, 2006, and at least 120 days prior to the effective date of the termination and stating the effective date of the termination.

8

Paragraph Nine - - Deletion of 6.22 - Prohibition Against Use of State Funds to Assist, Promote, or Deter Union Organizing

6.22 - Prohibition Against Use of State Funds to Assist, Promote, or Deter Union Organizing is hereby deleted.

Paragraph Ten - - Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of March 10, 2005, then the Contract changes agreed to in this Amendment shall be effective on March 10, 2005.  If this Amendment is not signed and returned within thirty days, then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

Paragraph Eleven - Incorporation of Contract Rights, Duties and Obligations

All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

9

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on March 2, 2005, at

Los Angeles, California

 (City, State, Zip)

Alta Hollywood Hospitals, Inc
Hospital
By:
	Signature
David Topper, Chief Executive Officer
Type Name and Title

Executed on 3/21/05, at
Sacramento, California

STATE OF CALIFORNIA
By:
	Sandra Shewry
	Director
	Department of Health Services

10

CONTRACT FOR HOSPITAL INPATIENT SERVICES

Amendment No. 3

Contract No.:	00 - 83123
Hospital:	ALTA	HOLLYWOOD HOSPITALS, INC.
	dba:	HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD
Address:	6245 De Longpre Avenue Hollywood, CA 90028  -  8253
	AND
Hospital:	ALTA	HOLLYWOOD HOSPITALS, INC.
	dba:	HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS
Address:	Address:		14433 Emelita Street
			Van Nuys, CA 91401 - 4213

CONFIDENTIAL
DO NOT RELEASE
Exempt From Public Records Act
Government Code Section 6254 [q]

AMENDMENT NO. 3 TO CONTRACT NO. 00 - 83123 BETWEEN THE STATE OF CALIFORNIA AND ALTA HOLLYWOOD HOSPITALS, INC., DOING BUSINESS AS HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD AND HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS.

WHEREAS, the State of California, hereinafter designated “the State”, and Alta Hollywood Hospitals, Inc., doing business as Hollywood Community Hospital of Hollywood and Hollywood Community Hospital of Van Nuys, hereinafter designated “the Provider”, entered into a contract (Contract No. 00 - 83123) for provision of inpatient hospital services September 14, 2000 and subsequently amended;

NOW THEREFORE, in accordance with the provisions for renegotiation and modification set forth in Article 6, Paragraph 6.11 of the Contract, the Contract is amended as follows:

Paragraph One  -  Amendment of 3.5  -  Service Location

3 .5 – Service Location is hereby amended to read:

Inpatient Services rendered pursuant to this Contract shall be rendered at the following facilities:

1

HOLLYWOOD COMMUNITY HOSPITAL OF HOLLYWOOD

6245 De Longpre Avenue

Hollywood, CA 90028 - 8253

And

HOLLYWOOD COMMUNITY HOSPITAL OF VAN NUYS

14433 Emelita Street

Van Nuys, CA 91401 - 4213

Paragraph Two - Amendment of 3.7 Open Staffing / Exclusive Staffing Contracts

3.7 – Open Staffing / Exclusive Staffing Contracts is hereby amended to read:

Pursuant to Welfare and Institutions Code section 14087.28, subdivision (b) , Provider is authorized to enter into an exclusive contract for the provision of pathology, radiology, and anesthesiology Inpatient Services, except for consulting services requested by the admitting physician.

2

Paragraph Three - Amendment of 4.1 - Rate Structure: Contingent Liability of State

4.1 – Rate Structure; Contingent Liability of State is hereby amended to read:

Provided that there shall first have been a submission of claims in accordance with Paragraph 4.3 of this Contract, the Provider shall be paid as follows:

(a)           For Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

(b)           Commencing August 10, 2008, for Inpatient Services provided to Beneficiaries, the all-inclusive rate per patient per day of ***.

Paragraph Four - Amendment of 6.15 – Termination Without Cause

6.15 – Termination Without Cause is hereby amended to read:

The Provider or the State may terminate this Contract without cause in accordance with this Paragraph.  Termination without cause shall be  effected by giving written notice of the termination to the other party on or after July 10, 2009 and at

3

least 120 days prior to the effective date of the termination and stating the effective date of the termination.

Paragraph Five - Addition of 6.30 - Employee Education About False Claims Recovery

6.30 – Employee Education About False Claims Recovery is hereby added, which reads as follows:

Provider shall comply with 42 USC Section 1396a(a) (68), Employee Education About False Claims Recovery, as a condition of receiving payments under this Contract.  Upon request by the Department, Provider shall demonstrate compliance with this provision, which may include providing the Department with copies of Provider’s applicable written policies and procedures and any relevant employee handbook excerpts.

Paragraph Six – Amendment of Appendix A

Appendix A is hereby amended to read as attached to this amendment.

4

Paragraph Seven – Effective Date of Contract Amendment

If this Amendment is signed by the Provider and returned to the California Medical Assistance Commission within thirty (30) days of May 10, 2007, then the Contract changes agreed to in this Amendment shall be effective on May 10, 2007.  If this Amendment is not signed and returned within thirty days, then the Contract changes agreed to in this Amendment shall be effective on the date the Contract is signed by both parties.

Paragraph Eight – Incorporation of Contract Rights, Duties and Obligations

The terms in this Amendment shall have no retroactive effect on any Department audit determinations or related appeals for dates of service prior to the effective date of this Amendment.  All other terms and provisions of said Contract shall remain in full force and effect, so that all rights, duties and obligations, and liabilities of the parties hereto otherwise remain unchanged.

5

EXECUTION

This Contract shall be deemed duly executed and binding upon execution by both Parties below.

Executed on May 3, 2007, at

Los Angeles, CA

 (City, State, Zip)

Hollywood Community Hospital of Hollywood
Hospital
By:
	Signature
David Topper, Chief Executive Officer
Type Name and Title

Executed on May 3, 2007, at

Sacramento, California

STATE OF CALIFORNIA
By:
	Sandra Shewry
	Director
	Department of Health Services

6

APPENDIX A

HOSPITAL NAME:	Hollywood Community Hospital of Hollywood & Van Nuys
CONTRACT:	00 - 83123, A - 03
EFFECTIVE DATE:	May 10, 2007

I.Provider shall provide a Medi-Cal Beneficiary his/her specific Medi-Cal benefit Inpatient Services if Provider renders those same services to a non-Medi-Cal beneficiary, without exception.

As of the effective date of this Appendix A, the common acute and/or intensive Inpatient Services listed below are not directly, or indirectly, provided by Provider to any patients regardless of payor source, i.e., Medi -Cal, Medicare, private pay, commercial insurance, third-party payor, or other payor source.

If any of the Inpatient Services below are subsequently made available to non-Medi-Cal patients and are a Medi-Cal benefit, Provider shall provide such services to Medi -Cal Beneficiaries at the all inclusive, general acute care hospital (GACH) per diem rate(s) specified in Paragraph 4.1 of this Contract.

	REVENUE CODES
OBSTETRIC - PRIVATE	112
OBSTETRIC - SEMI-PRIVATE 2 BEDS	122
OBSTETRIC - SEMI-PRIVATE 3 OR 4 BEDS	132
OBSTETRIC - WARD (MEDICAL OR GENERAL)	152
PEDIATRIC - PRIVATE	113
PEDIATRIC - SEMI-PRIVATE 2 BEDS	123
PEDIATRIC - SEMI-PRIVATE 3 OR 4 BEDS	133
PEDIATRIC - WARD (MEDICAL OR GENERAL)	153
REHABILITATION - PRIVATE	118
REHABILITATION - SEMI-PRIVATE 2 BEDS	128
REHABILITATION - SEMI-PRIVATE 3 OR 4 BEDS	138
REHABILITATION WARD (MEDICAL OR GENERAL)	158
NURSERY, GENERAL CLASSIFICATION	170
NURSERY, NEWBORN LEVEL I	171
NURSERY, NEWBORN LEVEL II	172
NURSERY, NEWBORN LEVEL III	173
NURSERY, NEWBORN LEVEL IV	174
INTENSIVE CARE, PEDIATRIC	203
INTENSIVE CARE, INTERMEDIATE ICU	206
INTENSIVE CARE, BURN CARE	207
INTENSIVE CARE, TRAUMA	208
CORONARY CARE, GENERAL CLASSIFICATION	210
CORONARY CARE, MYOCARDIAL INFARCTION	211

The state may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, to the extent the

1

service remains a Medi-Cal benefit, without the need to amend this Contract as set forth in Paragraph 6.11.

2

CORONARY CARE, PULMONARY CARE	212
CORONARY CARE, INTERMEDIATE CCU	214
CORONARY CARE, OTHER	219
LITHOTRIPSY, GENERAL CLASSIFICATION	790

Inpatient Transplant Services

TRANSPLANT RELATED SERVICE	ICD-9 PROCEDURE CODE*
BONE MARROW	41.01, 41.02, 41.03, 41.04, 41.05, 41.07, 41.08 or 41.09
HEART	37.5 or 37.51
HEART-LUNG	33.6
KIDNEY	55.61 or 55.69
COMBINED KIDNEY/PANCREAS	52.80 and 55.61 or 55.69
PANCREAS	55.69
LIVER	50.51 or 50.59
SMALL BOWEL	46.97
COMBINED LIVER/SMALL BOWEL	46.97 and 50.59
LUNG	33.50, 33.51 or 33.52

*Billed in conjunction with Revenue Code 201 or 203

	CPT-4 CODES
CARDIAC CATHETERIZATION	93501-93562
CARDIOVASCULAR SURGERY	33010-37799
ABORTIONS	59840-59857
STERILIZATION	55250,55450,56301,56302
STERILIZATION	58600,58605,58611,58615
NEUROSURGERY	61000-64999
CORNEAL TRANSPLANTS	65710,65730,65750,65755
RADIATION THERAPY	77261-77499,77750-77799
THERAPEUTIC NUCLEAR MEDICINE	79000-79999
MAGNETIC RESONANCE IMAGING	70336,70540
MAGNETIC RESONANCE IMAGING	70551-70553,71550
MAGNETIC RESONANCE IMAGING	72141-72142,72146-72149
MAGNETIC RESONANCE IMAGING	72156-72158,72196
MAGNETIC RESONANCE IMAGING	73220-73221,73720-73721
MAGNETIC RESONANCE IMAGING	74181,75552,75554-75556
MAGNETIC RESONANCE IMAGING	76093-76094,76400
HYPERBARIC OXYGEN	99183

The state may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, to the extent the service remains a Medi-Cal benefit, without the need to amend this Contract as set forth in Paragraph 6.11.

3

II.Professional physician fees, excluding technical fees, for the following services provided during an acute and/or intensive inpatient admission are included in Provider’s all inclusive per diem rate(s) specified in Paragraph 4.1 of this Contract and must not be separately claimed to the Medi-Cal Program by Provider, the physician(s) providing the service, or other claimant.  Professional physician fees for services not listed below may be separately claimed using applicable Medi-Cal Billing and Payment Policies for reimbursement.

NONE

III.The following allied health professional services, durable medical equipment, and other listed items provided during an acute and/or intensive inpatient stay are not included in the all inclusive per diem rate(s) specified in Paragraph 4.1 of this Contract, and may be separately claimed.

NONE

The state may from time to time adopt updated billing codes by means of regulation, Medi-Cal Provider Manual, Medi-Cal Update Bulletin, or similar instruction, which shall automatically replace the applicable billing codes expressly stated in this Contract and/or its appendices, to the extent the service remains a Medi-Cal benefit, without the need to amend this Contract as set forth in Paragraph 6.11.

4

EX-21.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 21.1

Subsidiaries of Registrant

Prospect Medical Systems, Inc., a Delaware corporation
Sierra Medical Management, Inc., a Delaware corporation
Pinnacle Health Resources, a California corporation
Prospect Hospital Advisory Services, Inc., a Delaware corporation
Prospect Advantage Network, Inc., a California corporation
ProMed Health Services Company, a California corporation
ProMed Health Care Administrators, a California corporation
Alta Hospitals System, LLC, a California limited liability company
Alta Los Angeles Hospitals, Inc., a California corporation
Alta Hollywood Hospitals, Inc., a California corporation

QuickLinks

EXHIBIT 21.1

Subsidiaries of Registrant

EX-23.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-128700) pertaining to the 1998 Stock Option Plan, as amended, of Prospect Medical Holdings, Inc., and the Registration Statement (Form S-3 No. 333-137496) for the registration of 3,299,910 shares of common stock, of our reports dated May 28, 2008, with respect to the consolidated financial statements and schedule of Prospect Medical Holdings, Inc. included in the Annual Report (Form 10-K) for the year ended September 30, 2007.

/s/  ERNST & YOUNG LLP

Los Angeles, California
May 28, 2008

QuickLinks

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.1

CERTIFICATION PURSUANT TO
RULES 13a-14(a)/15d-14(a)
UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED

I, Samuel S. Lee, certify that:

1.

I have reviewed this report on Form 10-K for the year ended September 30, 2007 of Prospect Medical Holdings, Inc.;

2.

Based on my knowledge, the 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 the 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 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, is made known to us by others within those entities, particularly during the period for which this report is 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 the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to 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 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.

May 30, 2008 /s/  SAMUEL S. LEE Samuel S. Lee
Chief Executive Officer

QuickLinks

EXHIBIT 31.1

EX-31.2

QuickLinks -- Click here to rapidly navigate through this document

EXHIBIT 31.2

CERTIFICATION PURSUANT TO
RULES 13a-14(a)/15d-14(a)
UNDER THE SECURITIES EXCHANGE
ACT OF 1934, AS AMENDED

I, Mike Heather, certify that:

1.

I have reviewed this report on Form 10-K for the year ended September 30, 2007, of Prospect Medical Holdings, Inc.;

2.

Based on my knowledge, the 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 the 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 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, is made known to us by others within those entities, particularly during the period for which this report is 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 the report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) 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 and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to 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 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.

May 30, 2008 /s/  MIKE HEATHER Mike Heather
Chief Financial Officer

QuickLinks

EXHIBIT 31.2

EX-32.1

QuickLinks -- Click here to rapidly navigate through this document

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

        In connection with the report of Prospect Medical Holdings, Inc. (the "Company") on Form 10-K for the period ended September 30, 2007 (the "Report"), I, Samuel S. Lee, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 30, 2008 /s/  SAMUEL S. LEE Samuel S. Lee
Chief Executive Officer

QuickLinks

EXHIBIT 32.1

EX-32.2

QuickLinks -- Click here to rapidly navigate through this document

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

        In connection with the report of Prospect Medical Holdings, Inc. (the "Company") on Form 10-K for the period ended September 30, 2007 (the "Report"), I, Mike Heather, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and



(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 30, 2008 /s/  MIKE HEATHER Mike Heather
Chief Financial Officer

QuickLinks

EXHIBIT 32.2