10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	For the quarterly period ended December 31, 2012; or

[_]       Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ______ to ______

Commission File Number 0-23511

INTEGRATED HEALTHCARE HOLDINGS, INC.

(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

NEVADA	87-0573331
(STATE OR OTHER JURISDICTION OF	(I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

1301 NORTH TUSTIN AVENUE
SANTA ANA, CALIFORNIA	92705
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)	(ZIP CODE)

(714) 953-3503 (Registrant's telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

Large accelerated filer [_]	Accelerated filer [_]
Non-accelerated filer [_]	Smaller reporting company [X]

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

There were 255,307,262 shares outstanding of the registrant's common stock as of December 31, 2012.

1

INTEGRATED HEALTHCARE HOLDINGS, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements:	3
	Condensed Consolidated Balance Sheets as of December 31 and March 31, 2012 – (unaudited)	3
	Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2012 and 2011 – (unaudited)	4
	Condensed Consolidated Statement of Stockholders’ Deficiency for the nine months ended December 31, 2012 – (unaudited)	5
	Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011 – (unaudited)	6
	Notes to Condensed Consolidated Financial Statements – (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.	Controls and Procedures	33
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	34
Item 1A.	Risk Factors	34
Item 6.	Exhibits	35
	Signatures	36

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial statements

INTEGRATED HEALTHCARE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(amounts in 000's, except par value)

(unaudited)

	December 31,			March 31,
	2012			2012
ASSETS
Current assets:
Cash and cash equivalents	$	10,175		$	11,829
Restricted cash		9			10
Accounts receivable, net of allowance for doubtful accounts of $23,656 and $18,201, respectively		59,035			53,599
Inventories of supplies, at cost		6,788			6,855
Due from governmental payers		6,710			5,183
Hospital quality assurance receivable		7,722			2,436
Prepaid insurance		741			366
Prepaid income taxes		2,238			892
Other prepaid expenses and current assets		8,719			8,339
Total current assets		102,137			89,509
Property and equipment, net		61,861			55,529
Debt issuance costs, net		–			64
Total assets	$	163,998		$	145,102
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Revolving line of credit	$	28,806		$	14,000
Accounts payable		62,768			52,700
Accrued compensation and benefits		20,171			19,847
Accrued insurance retentions		11,846			14,377
Hospital quality assurance payable		7,225			–
Warrant liability, current		134			–
Due to governmental payers		414			–
Other current liabilities		4,043			3,242
Total current liabilities		135,407			104,166
Debt, noncurrent		46,350			45,000
Warrant liability, noncurrent		3,084			1,641
Capital lease obligations, net of current portion of $1,035 and $891, respectively		6,938			5,944
Total liabilities		191,779			156,751
Commitments, contingencies and subsequent events
Stockholders' deficiency:
Integrated Healthcare Holdings, Inc. stockholders' deficiency:
Common stock, $0.001 par value; 800,000 shares authorized; 255,307 shares issued and outstanding		255			255
Additional paid in capital		62,911			62,911
Accumulated deficit		(86,092	)		(71,828	)
Total Integrated Healthcare Holdings, Inc. stockholders' deficiency		(22,926	)		(8,662	)
Noncontrolling interests		(4,855	)		(2,987	)
Total stockholders' deficiency		(27,781	)		(11,649	)
Total liabilities and stockholders' deficiency	$	163,998		$	145,102

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

INTEGRATED HEALTHCARE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(amounts in 000's, except per share amounts)

(unaudited)

	Three months ended December 31,						Nine months ended December 31,
	2012			2011			2012			2011
Patient service revenues (net of contractual allowances and discounts)	$	101,020		$	123,033		$	331,983		$	306,398
Provision for bad debts		(11,995	)		(9,034	)		(35,430	)		(25,851	)
Net patient service revenues		89,025			113,999			296,553			280,547
Operating expenses:
Salaries and benefits		54,391			56,101			160,669			162,499
Supplies		13,969			14,004			41,998			40,217
Other operating expenses		28,967			32,038			97,072			61,213
Depreciation and amortization		1,029			997			2,947			3,164
		98,356			103,140			302,686			267,093
Operating income (loss)		(9,331	)		10,859			(6,133	)		13,454
Other expense:
Interest expense, net		(3,389	)		(2,446	)		(8,838	)		(7,768	)
Income from electronic health records incentive program					6,802						6,802
Gain (loss) on warrants		(1,182	)		256			(1,577	)		39
		(4,571	)		4,612			(10,415	)		(927	)
Income (loss) before income tax provision (benefit)		(13,902	)		15,471			(16,548	)		12,527
Income tax provision (benefit)		(89	)		2,812			(1,967	)		2,012
Net income (loss)		(13,813	)		12,659			(14,581	)		10,515
Net (income) loss attributable to noncontrolling interests (Note 9)		439			(117	)		317			(336	)
Net income (loss) attributable to Integrated Healthcare Holdings, Inc.	$	(13,374	)	$	12,542		$	(14,264	)	$	10,179
Per Share Data (Note 8):
Earnings (loss) per common share attributable to Integrated Healthcare Holdings, Inc. stockholders
Basic	$	(0.05	)	$	0.05		$	(0.06	)	$	0.04
Diluted	$	(0.05	)	$	0.05		$	(0.06	)	$	0.04
Weighted average shares outstanding
Basic		255,307			255,307			255,307			255,307
Diluted		255,307			256,839			255,307			256,848

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

4

INTEGRATED HEALTHCARE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY

(amounts in 000's)

(unaudited)

	Integrated Healthcare Holdings, Inc. Stockholders
					Additional
	Common Stock				Paid-in		Accumulated			Noncontrolling
	Shares		Amount		Capital		Deficit			Interests			Total
Balance, March 31, 2012		255,307	$	255	$	62,911	$	(71,828	)	$	(2,987	)	$	(11,649	)
Net loss		–		–		–		(14,264	)		(317	)		(14,581	)
Noncontrolling interests distributions		–		–		–		–			(1,551	)		(1,551	)
Balance, December 31, 2012		255,307	$	255	$	62,911	$	(86,092	)	$	(4,855	)	$	(27,781	)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5

INTEGRATED HEALTHCARE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(amounts in 000's)

(unaudited)

	Nine months ended December 31,
	2012			2011
Cash flows from operating activities:
Net income (loss)	$	(14,581	)	$	10,515
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of property and equipment		2,947			3,164
Provision for doubtful accounts		35,430			25,851
Amortization of debt issuance costs		1,248			487
Loss on warrants		1,577			(39	)
Changes in operating assets and liabilities:
Accounts receivable		(40,866	)		(23,523	)
Inventories of supplies		67			(572	)
Due from governmental payers		(1,527	)		(302	)
Prepaid income taxes		(1,346	)		–
Hospital quality assurance fees receivable		(5,286	)		(11,681	)
Electronic health records incentive program receivable		–			(4,191	)
Prepaid insurance, other prepaid expenses and current assets, and other assets		21			348
Accounts payable		10,068			453
Accrued compensation and benefits		324			301
Due to governmental payers		414			–
Hospital quality assurance fees payable		7,225			–
Income taxes payable		–			(10,776	)
Accrued insurance retentions and other current liabilities		(1,874	)		(3,822	)
Net cash used in operating activities		(6,159	)		(13,787	)
Cash flows from investing activities:
Decrease in restricted cash		1			13
Additions to property and equipment		(7,368	)		(1,678	)
Net cash used in investing activities		(7,367	)		(1,665	)
Cash flows from financing activities:
Proceeds from revolving line of credit		14,806			919
Debt issuance costs		(610	)		–
Noncontrolling interests distributions		(1,551	)		(1,414	)
Payments on capital lease obligations		(773	)		(724	)
Payment received - receivable from stockholders		–			132
Net cash provided by (used in) financing activities		11,872			(1,087	)
Net decrease in cash and cash equivalents		(1,654	)		(16,539	)
Cash and cash equivalents, beginning of period		11,829			20,539
Cash and cash equivalents, end of period	$	10,175		$	4,000
Supplemental information:
Cash paid for interest	$	7,147		$	6,641
Cash paid for income taxes	$	–		$	13,095

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements of Integrated Healthcare Holdings, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, the accompanying unaudited condensed consolidated statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three and nine months ended December 31, 2012 are not necessarily indicative of the results for the entire 2013 fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 22, 2012.

The Company has determined that Pacific Coast Holdings Investment, LLC ("PCHI") (Note 9), is a variable interest entity as defined by GAAP and the Company is the primary beneficiary and, accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements.

All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise indicated, all amounts included in these notes to the condensed consolidated financial statements are expressed in thousands (except per share amounts, percentages and stock option prices and values). 

LIQUIDITY - As of December 31, 2012, the Company had a total stockholders’ deficiency of $28 million and a working capital deficit of $33 million.  For the three and nine months ended December 31, 2012, the Company had net loss of $13 million and $14 million, respectively. At December 31, 2012, the Company had $1 million in additional availability under its revolving credit facility (Note 3).

DESCRIPTION OF BUSINESS - Effective March 8, 2005, the Company acquired four hospitals from subsidiaries of Tenet Healthcare Corporation (the "Acquisition"). The Company owns and operates the four community-based hospitals (the "Hospitals") located in southern California, which are:

● 282-bed Western Medical Center in Santa Ana

● 188-bed Western Medical Center in Anaheim

● 178-bed Coastal Communities Hospital in Santa Ana

● 114-bed Chapman Medical Center in Orange

RECLASSIFICATION FOR PRESENTATION - Certain amounts previously reported have been reclassified to conform to the current period's presentation with no impact on the reported net income (loss) of the Company.

CONCENTRATION OF RISK - The Hospitals are subject to licensure by the State of California and accreditation by the Joint Commission. Loss of either licensure or accreditation would impact the ability to participate in various governmental and managed care programs, which provide the majority of the Company's revenues.

Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 59% and 64% of the patient service revenues for the three months ended December 31, 2012 and 2011, respectively, and 61% and 59% for the nine months ended December 31, 2012 and 2011, respectively. No other payers represent a significant concentration of the Company's patient service revenues.

The Company receives all of its inpatient service revenues from operations in Orange County, California. The economic conditions of this market could affect the ability of patients and third-party payers to reimburse the Company for services, through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs.

7

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

USE OF ESTIMATES - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Principal areas requiring the use of estimates include third-party cost report settlements, income taxes, accrued insurance retentions, self-insurance reserves, and net patient receivables. Management regularly evaluates the accounting policies and estimates that are used. In general, management bases the estimates on historical experience and on assumptions that it believes to be reasonable given the particular circumstances in which its Hospitals operate. Although management believes that all adjustments considered necessary for fair presentation have been included, actual results may materially vary from those estimates.

PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances.

The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for bad debts:

	Three months ended				Nine months ended
	December 31,				December 31,
	2012		2011		2012		2011
Medicare	$	14,654	$	14,474	$	41,246	$	45,071
Medicaid		20,340		42,402		82,041		66,569
Managed care		48,453		50,081		152,883		149,321
Indemnity, self-pay and other		16,828		15,326		53,343		43,132
Miscellaneous		745		750		2,470		2,304
	$	101,020	$	123,033	$	331,983	$	306,398

Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement (payables) receivables of ($414) and $190 as of December 31 and March 31, 2012, respectively.

The Hospitals receive supplemental payments from the State of California to support indigent care (Medi-Cal Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received supplemental payments of $5.5 million and $4.0 million during the three months ended December 31, 2012 and 2011, respectively, and $9.6 million and $9.9 million during the nine months ended December 31, 2012 and 2011, respectively. The related revenue recorded for the three months ended December 31, 2012 and 2011, was $4.4 million and $3.1 million, respectively, and $11.3 million and $10.5 million for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, estimated DSH receivables were $6.7 million and $5.0 million, respectively, which are included as due from government payers in the accompanying unaudited condensed consolidated balance sheets.

8

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $24.4 million and $26.2 million for the three months ended December 31, 2012 and 2011, respectively, and $79.8 million and $72.3 million for the nine months ended December 31, 2012 and 2011, respectively), are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues.

The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended December 31, 2012 and 2011 were approximately $1.9 million and $2.5 million, respectively, and $6.5 million and $6.3 million for the nine months ended December 31, 2012 and 2011, respectively.

The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements.

PROVISION FOR BAD DEBTS - The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.

The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated.

Effective March 31, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which requires health care entities to present the provision for bad debts relating to patient service revenues as a deduction from patient service revenues in the statement of operations rather than as an operating expense. All periods presented have been reclassified in accordance with the provisions of ASU 2011-07.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250 per depositor at each financial institution, and the Company’s non-interest bearing cash balances may again exceed federally insured limits.

9

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The following is a summary of the principal components of accounts receivable and due from government payers as of December 31 and March 31, 2012:

	December 31,			March 31,
	2012			2012
Accounts receivable:
Patient accounts receivable	$	82,691		$	71,800
Allowance for doubtful accounts		(23,656	)		(18,201	)
Accounts receivable, net	$	59,035		$	53,599
Due from government payers:
Settlement receivables	$	–		$	190
DSH		6,710			4,993
	$	6,710		$	5,183
Due to government payers:
Settlement payables	$	414		$	–
	$	414		$	–

The Company’s self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 4.9% and 11.3% as of December 31 and March 31, 2012, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay uninsured was 96.1% and 90.3%, respectively, of self-pay uninsured patient accounts receivable. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay balance after insurance was 75.4% and 77.4%, respectively, of self-pay balance after insurance patient accounts receivable, consisting primarily of co-pays and deductibles owed by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for managed care was 15.9% and 16.1%, respectively, of managed care patient accounts receivable.

Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending under the MEP, with appropriate contractual allowances recorded. If the patient does not qualify for Medicaid, the receivables are reclassified to charity care and written off, or they are reclassified to self-pay and adjusted to their net realizable value through the provision for bad debts. Reclassifications of pending Medicaid accounts to self-pay do not typically have a material impact on the results of operations as the estimated Medicaid contractual allowances initially recorded are not materially different than the estimated provision for bad debts accounts recorded when the accounts are reclassified. All accounts classified as pending Medicaid, as well as certain other governmental receivables, over the age of 90 days were reserved in contractual allowances as of December 31 and March 31, 2012 based on historical collections experience.

INVENTORIES OF SUPPLIES - Inventories of supplies are valued at the lower of weighted average cost or market.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to property and equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Capital leases are recorded at the beginning of the lease term as property and equipment and a corresponding lease liability is recognized. The value of the property and equipment under capital lease is recorded at the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are amortized over the shorter of the lease term or their estimated useful life, where applicable.

The Company uses the straight-line method of depreciation for buildings and improvements, and equipment over their estimated useful lives of 25 years, and 3 to 15 years, respectively.

10

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

LONG-LIVED ASSETS - The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated undiscounted future cash flows. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated future net cash flows. The estimates of future net cash flows are based on assumptions and projections believed by the Company to be reasonable and supportable. These assumptions take into account patient volumes, changes in payer mix, revenue, and expense growth rates and changes in legislation and other payer payment patterns.

DEBT ISSUANCE COSTS - Debt issuance costs are amortized over the related credit facility’s life using the straight-line method. On August 1, 2012, the Company amended its debt and incurred an aggregate of $1.96 million in origination, consent, and amendment fees which are being amortized over the remaining lives of the respective credit facilities (Note 3). Debt issuance costs of $718 and $38 were amortized during the three months ended December 31, 2012 and 2011, respectively, and $1,248 and $487 during the nine months ended December 31, 2012 and 2011, respectively.  At December 31 and March 31, 2012, prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets included $929 and $153, respectively, as the current portion of debt issuance costs.

FAIR VALUE MEASUREMENTS - The Company's financial assets and liabilities recorded in the unaudited condensed consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, debt, accounts payable, and other liabilities, all of which are recorded at book value which approximates fair value.

GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1:	Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:	Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:	Unobservable inputs for the asset or liability.

The Company utilizes the best available information in measuring fair value.  Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company currently has no financial or nonfinancial assets or liabilities subject to fair value measurement on a recurring basis except for warrants issued in April 2010 (Note 4).

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy:

	Total		Level 1		Level 2		Level 3
Warrant liability at December 31, 2012	$	3,218		–		–	$	3,218
Warrant liability at March 31, 2012	$	1,641		–		–	$	1,641

Warrant liability - fair value measurements using significant unobservable inputs (Level 3)
Balance at March 31, 2012	$	1,641
Change in fair value of warrant liability included in earnings		(730)
Balance at June 30, 2012		911
Change in fair value of warrant liability included in earnings		1,125
Balance at September 30, 2012		2,036
Change in fair value of warrant liability included in earnings		1,182
Balance at December 31, 2012	$	3,218

WARRANTS - The Company has entered into complex transactions that contain warrants (Notes 3 and 4). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). The Company has concluded that the warrants should be classified as liabilities as the settlement of the warrants are not deemed to be in the control of the Company.

11

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

INCOME (LOSS) PER COMMON SHARE – Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds (Note 8).

INCOME TAXES - Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company has recorded a 100% valuation allowance on its deferred tax assets.

There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of the Company’s income tax provision.

SEGMENT REPORTING - The Company operates in one line of business, the provision of healthcare services through the operation of general hospitals and related healthcare facilities. The Company's Hospitals generate substantially all of its net patient service revenues.

The Company's four Hospitals and related healthcare facilities operate in one geographic region in Orange County, California. There are similarities in the region's economic characteristics and the nature of the Hospitals' operations, the regulatory environment in which they operate and the manner in which they are managed. This region is an operating segment, as defined by GAAP. In addition, the Company's Hospitals and related healthcare facilities share certain resources and benefit from many common clinical and management practices. Accordingly, the Company aggregates the facilities into a single reportable operating segment.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	December 31,			March 31,
	2012			2012
Buildings	$	36,536		$	35,376
Land and improvements		13,523			13,523
Equipment		25,588			18,268
Construction in progress		–			1,160
Assets under capital leases		13,129			11,218
		88,776			79,545
Less accumulated depreciation		(26,915	)		(24,016	)
Property and equipment, net	$	61,861		$	55,529

Equipment at December 31 and March 31, 2012 includes $11.7 million and $4.6 million, respectively, relating to the Company’s ongoing development of its new electronic health record technology, which has not been fully placed into service (Note 12).

The Hospitals are located in an area near active and substantial earthquake faults. The Hospitals carry earthquake insurance with a policy limit of $50.0 million. A significant earthquake could result in material damage and temporary or permanent cessation of operations at one or more of the Hospitals.

12

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

The State of California has imposed hospital seismic safety requirements. Under these requirements, the Hospitals must meet stringent seismic safety criteria in the future. In addition, there could be other remediation costs pursuant to this seismic retrofit.

The State of California has a seismic review methodology known as HAZUS. The HAZUS methodology may preclude the need for some structural modifications. All four Hospitals requested HAZUS review and received a favorable notice pertaining to structural reclassification. All Hospital buildings, with the exception of one (an administrative building), have been deemed compliant until January 1, 2030 for both structural and nonstructural retrofit. The Company does not have an estimate of the cost to remediate the seismic requirements for the administrative building as of December 31, 2012.

There are additional requirements that must be complied with by 2030. The costs of meeting these requirements have not yet been determined. Compliance with seismic ordinances will be costly and could have a material adverse effect on the Company's cash flow.  In addition, remediation could possibly result in certain environmental liabilities, such as asbestos abatement.

NOTE 3 - DEBT

On August 1, 2012, the Company entered into Amendment No. 4 to Credit Agreement and Consent (the “Credit Agreement Amendment”), which amends the Term Loan Credit Agreement.  Under the Credit Agreement Amendment, Silver Point consented to and waived certain provisions under the Term Loan Credit Agreement in connection with the Company’s execution of the Revolving Loan Amendment. In addition, the provisions in the Term Loan Credit Agreement that provide for mandatory prepayment of the Company’s outstanding “A/R Financing,” as defined, upon receipt of certain federal matching funds under the QAF program were amended to replace 65% with 80%. In connection with the Credit Agreement Amendment, the Company agreed to pay Silver Point a one-time consent and amendment fee in an aggregate amount equal to $1.8 million, of which $450 was paid upon execution of the Credit Agreement Amendment and the balance was added to the principal amount under the Term Loan Credit Agreement.

Also on August 1, 2012, the Company entered into Amendment No. 3 to Credit and Security Agreement (the “Revolving Loan Amendment”), which amends the Revolving Loan Agreement. Under the Revolving Loan Amendment, the minimum Revolving Loan Commitment Amount under the Revolving Loan Agreement was increased from $14.0 million to $30.0 million, and the Company agreed to pay to MidCap Funding IV, LLC, as assigned to it from MidCap Financial, LLC, as administrative agent and a lender, and Silicon Valley Bank, as a lender (collectively, the “Lenders”) an origination fee of 1.0% of the Lenders’ increased commitment under the Revolving Loan Amendment, or $160.

In addition, pursuant to the Revolving Loan Amendment, the lockbox requirements under the Revolving Loan Agreement were amended to provide that in the event the Revolving Loan Commitment Amounts are $30.0 million or less during any period prior to March 31, 2013, or $20.0 million or less thereafter (and assuming there is no Event of Default at the time), the Company would be permitted to transfer funds that are deposited into any Lockbox Account, as defined, to a different bank account designated by the Company, subject to the other terms and conditions contained in the Revolving Loan Agreement.

As of December 31, 2012, the Company had the following credit facilities:

● $46.35 million term loan under the Credit Agreement, dated as of October 9, 2007, as amended (the “Term Loan Credit Agreement”), by and among the Company, Silver Point, and PCHI and Ganesha Realty LLC (“Ganesha”), as Credit Parties, bearing a fixed interest rate of 14.5% per year ($46.35 million outstanding balance at December 31, 2012). If any event of default occurs and continues, the lender can increase the interest rate to 19.5% per year.

● $30.0 million revolving line of credit under the Credit and Security Agreement, dated as of August 30, 2010, as amended (the “Revolving Loan Agreement”), by and among the Company, MidCap Funding IV, LLC, as assigned to it from the Lenders, bearing an interest rate of 5.0% plus LIBOR, with a 2.5% floor, per year (7.5% at December 31, 2012) and an unused commitment fee of 0.625% per year ($28.8 million outstanding balance at December 31, 2012).  For purposes of calculating interest, all payments the Company makes on the revolving line of credit are subject to a six business day clearance period.  The stated maturity date for this Revolving Loan Agreement is August 30, 2013. At December 31, 2012, the Company had $1.2 million in additional availability under its revolving credit facility.

13

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

The Company’s credit facilities contain various affirmative and negative covenants and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, and the occurrence of events which have a material adverse effect on the Company.

As described in Note 14, the Company entered into an Amendment on February 7, 2013, which changed the measurement period for the term loan facility. The next assessment date for which the Company is required to comply with the term loan financial covenants will be for the period ended June 30, 2013.

The Company did not meet the financial covenants for its revolving line of credit for the period ended December 31, 2012.Although the Company is not required to report compliance with the financial covenant for its revolving line of credit until 50 days after the fiscal quarter end, the Company is seeking the lenders’ consent to a potential non-compliance with this financial covenant.

The Company's outstanding debt consists of the following:

	December 31,		March 31,
	2012		2012
Current:
Revolving line of credit	$	28,806	$	14,000
Noncurrent:
Term loan	$	46,350	$	45,000

On February 7, 2013, the Company amended its $46.35 million term loan (Note 14).

NOTE 4 - COMMON STOCK WARRANTS

On April 13, 2010, the Company issued warrants (the “Omnibus Warrants”) to purchase its common stock for a period of three years at an exercise price of $0.07 per share in the following denominations: 139.0 million shares to KPC Resolution Company (a company owned and controlled by Kali P. Chaudhuri, M.D., the Company’s majority shareholder) or its designees and 96.0 million shares to the $46.35 million term loan lender or its designees. The Omnibus Warrants also provide the holders with certain pre-emptive, information and registration rights. On April 13, 2010, the Company recorded warrant expense and the related warrant liability of $2.9 million, representing fair value.  As of December 31, 2012, the fair value of the Omnibus Warrants was $1.9 million.

In addition, on April 13, 2010, the Company issued a three-year warrant (the “Release Warrant”) to acquire up to 170.0 million shares of its common stock at $0.07 per share to Dr. Chaudhuri who facilitated a release enabling the Company to recover amounts due from the Company’s prior lender and a $1.0 million reduction in principal of its outstanding debt, among other benefits to the Company. As a result, the Company recorded the fair value of the Release Warrant ($2.1 million) as an offsetting cost of the recovery of amounts due from the Company’s prior lender. The Release Warrant also provides the holder with certain pre-emptive, information and registration rights. As of December 31, 2012, the fair value of the Release Warrant was $1.3 million.

The Omnibus Warrants and the Release Warrant are collectively referred to as the “April Warrants.” The net gain (loss) recorded related to the April Warrants for the three months ended December 31, 2012 and 2011 was $(1,182) and $256, respectively, and $(1,577) and $39 for the nine months ended December 31, 2012 and 2011, respectively.

The fair value of warrants issued by the Company is estimated using the Black-Scholes valuation model, which the Company believes is the appropriate valuation method under the circumstances. Since the Company’s stock is thinly traded, the expected volatility is based on an analysis of the Company's stock and the stock of eight other publicly traded companies that own hospitals.

14

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED)

The risk-free interest rate is based on the average yield on U.S. Treasury notes with maturity commensurate with the terms of the warrants. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.  The assumptions used in the Black-Scholes valuation model are as follows.

	December 31, 2012		March 31, 2012
Expected dividend yield		0.0%		0.0%
Risk-free interest rate		0.1%		0.2%
Expected volatility		32.5%		57.3%
Expected term (in years)		0.28		1.04

On February 7, 2013, the Company amended its $46.35 million term loan and in connection therewith extended the term of related warrants (Note 14).

NOTE 5 - INCOME TAXES

The utilization of net operating loss (“NOL”) and credit carryforwards is limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. Section 382 of the IRC of 1986 generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. In fiscal year 2009, the Company entered into the amended purchase agreement which resulted in a change in control. The Company conducted an analysis and determined that it is subject to significant IRC Section 382 limitations. For both Federal and State tax purposes, the Company's utilization of NOL and credit carryforwards is subject to significant IRC Section 382 limitations. The Company evaluates its ability to utilize the net operating losses each period with regard to the limitations imposed under IRC 382 and also considering the continuing expiration of statutes of limitation for prior years; and in the prior year determined that a portion of the federal and state net operating losses were no longer realizable, and removed from the schedule of deferreds those net operating losses in excess of the IRC 382 limitation and also considering prior years statutes now closed.

The difference between the reported income tax provision (benefit) and the amount computed by multiplying income before income tax provision (benefit) in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2012 and 2011 by the statutory federal income tax rate primarily relates to the impact of a full valuation allowance reserving the net deferred assets, permanently nondeductible expenses, state and local income taxes, and variable interest entity.

The application of FASB Interpretation Number 18 requires the Company to compute the interim period income tax provision (benefit) by applying the estimated annual effective tax rate to the income (loss) from continuing operations for the three and nine months ended December 31, 2012 which resulted in the recognition of a tax benefit for the nine months ended December 31, 2012.

The Company evaluated its historical and projected sources of income to determine the extent to which the net deferred tax assets projected at December 31, 2012 could be realized and, based on this analysis, the Company concluded that there was not sufficient positive evidence to support the realization of the net deferred tax assets, and therefore will continue to maintain a full valuation allowance against its net deferred assets as of December 31, 2012.

The Company’s California Enterprise Zone credits were recently examined by the California taxing authority, which issued a Notice of Proposed Adjusted Carryover Amount.  The Company has filed a Protest requesting an oral hearing with the taxing authority. The Protest is currently pending review by the taxing authority. As a result of the examination, during the year ended March 31, 2011, the Company recorded a liability of approximately $18.9 million for unrecognized tax benefits.  The Company's utilization of these credits is also subject to significant IRC Section 383 limitations, and these limitations have been incorporated into the tax provision calculation.

PCHI tax status – PCHI is a limited liability company. PCHI's taxable income or loss will flow through to its owners and be their separate responsibility. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any amounts for the income tax expense or benefit, or liabilities related to PCHI's income or loss.

NOTE 6 - STOCK INCENTIVE PLAN

The Company's 2006 Stock Incentive Plan (the "Plan"), which is shareholder-approved, permits the grant of share options to its employees and board members for up to a maximum aggregate of 12.0 million shares of common stock. In addition, as of the first business day of each calendar year in the period 2007 through 2015, the maximum aggregate number of shares shall be increased by a number equal to one percent of the number of shares of common stock of the Company outstanding on December 31 of the immediately preceding calendar year. Accordingly, as of December 31, 2012, the maximum aggregate number of shares under the Plan was 23.5 million. The Company believes that such awards better align the interests of its employees with those of its shareholders. In accordance with the Plan, incentive stock options, nonqualified stock options, and performance based compensation awards may not be granted at less than 100 percent of the estimated fair market value of the common stock on the date of grant. Incentive stock options granted to a person owning more than 10 percent of the voting power of all classes of stock of the Company may not be issued at less than 110 percent of the fair market value of the stock on the date of grant. Option awards generally vest based on 3 years of continuous service (1/3 of the shares vest on the twelve month anniversary of the grant date, and an additional 1/12 of the shares vest on each subsequent fiscal quarter-end of the Company following such twelve month anniversary). Certain option awards provide for accelerated vesting if there is a change of control, as defined. The option awards have 7-year contractual terms.

15

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

When the measurement date is certain, the fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model. Since there is limited historical data with respect to both pre-vesting forfeiture and post-vesting termination, the expected life of the options was determined utilizing the simplified method, whereby the expected term is calculated by taking the sum of the vesting term plus the original contractual term and dividing that quantity by two.

No options were granted or exercised during the three and nine months ended December 31, 2012 and 2011. All outstanding options were fully vested as of December 31 and March 31, 2012.

A summary of stock option activity for the nine months ended December 31, 2012 is presented as follows.

	Shares		Weighted- average exercise price		Weighted- average grant date fair value		Weighted- average remaining contractual term (years)		Aggregate intrinsic value
Outstanding, March 31, 2012		8,235	$	0.18
Granted		–	$	–	$	–
Exercised		–	$	–
Forfeited or expired		(620)	$	0.27
Outstanding, December 31, 2012		7,615	$	0.18			1.9	$	–
Exercisable at December 31, 2012		7,615	$	0.18			1.9	$	–

NOTE 7 - RETIREMENT PLAN

The Company has a 401(k) plan for its employees. All employees with 90 days of service are eligible to participate, unless they are covered by a collective bargaining agreement which precludes coverage. The Company matches employee contributions up to 3% of the employee's compensation, subject to IRS limits. During the three months ended December 31, 2012 and 2011, the Company incurred expenses of $0.8 and $0.8 million, respectively, and $2.4 million and $2.4 million for the nine months ended December 31, 2012 and 2011, respectively. These costs are included in salaries and benefits in the accompanying unaudited condensed consolidated statements of operations.  At December 31 and March 31, 2012, accrued compensation and benefits in the accompanying unaudited condensed consolidated balance sheets included $3.2 million and $3.9 million, respectively, in accrued employer contributions.

NOTE 8 - INCOME (LOSS) PER SHARE

Income (loss) per share is calculated under two different methods, basic and diluted. Basic income per share is calculated by dividing the net income by the weighted average shares of common stock outstanding during the period. Diluted income per share is calculated by dividing the net income by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds.

Income per share for the three and nine months ended December 31, 2011 was computed as shown below. Stock options and warrants aggregating approximately 411 and 412 million shares were not included in the diluted calculations since they were anti-dilutive.

16

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

	Three months ended		Nine months ended
	December 31, 2011		December 31, 2011
Numerator:
Net income attributable to Integrated Healthcare Holdings, Inc.	$	12,542	$	10,179
Denominator:
Weighted average common shares		255,307		255,307
Dilutive options		1,532		1,541
Denominator for diluted calculation		256,839		256,848
Income per share - basic	$	0.05	$	0.04
Income per share - diluted	$	0.05	$	0.04

Since the Company incurred a loss for the three and nine months ended December 31, 2012, the potential shares of common stock consisting of approximately 411 and 413 million shares, respectively, issuable under warrants and stock options were not included in the diluted calculations since they were anti-dilutive.

NOTE 9 - VARIABLE INTEREST ENTITY

Concurrent with the close of the Acquisition, PCHI simultaneously acquired title to substantially all of the real property acquired by the Company in the Acquisition. The Company received $5.0 million and PCHI guaranteed the Company's $46.35 million term loan. The Company remains primarily liable as the borrower under the $46.35 million term loan notwithstanding its guarantee by PCHI. The $46.35 million term loan is cross-collateralized by substantially all of the Company's assets and all of the real property of the Hospitals. All of the Company's operating activities are directly affected by the real property that was sold to PCHI, which is a related party entity that is affiliated with the Company through common ownership and control. As of December 31, 2012, PCHI was owned 51% by various physician investors and 49% by Ganesha, which is managed by Dr. Chaudhuri.

The Company entered into a lease agreement dated March 7, 2005 (amended and restated as of April 13, 2010) under which it leased back from PCHI all of the real estate that it transferred to PCHI (Note 13). The amended lease terminates on the 25-year anniversary of the original lease (March 7, 2005), grants the Company the right to renew for one additional 25-year period, and requires combined annual base rental payments of $8.3 million for all the properties. However, until PCHI refinances the related $46.35 million term loan, the annual base rental payments are reduced to $7.3 million. In addition, the Company offsets, against its rental payments owed to PCHI, interest payments that it makes on the related $46.35 million term loan. Lease payments to PCHI and offsetting interest payments are eliminated in consolidation.

GAAP defines variable interest entities (“VIE”) as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as a VIE, the guidance sets forth a model to a primary beneficiary based on an assessment of which party to a VIE, if any, bears a majority of the exposure to expected losses, or stands to gain from a majority of its expected returns and has the power to direct activities of the VIE that impacts economic performance. The primary beneficiary of a VIE should consolidate the VIE.

The Company determined that it provides the majority of financial support to PCHI through various sources including lease payments, remaining primarily liable under the $46.35 million term loan, and cross-collateralization of the Company's non-real estate assets to secure the $46.35 million term loan. The Company concluded that PCHI is a VIE and it is the primary beneficiary. Accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements.

17

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

PCHI's assets, liabilities, and deficiency are set forth below.

	December 31, 2012			March 31, 2012
Cash	$	64		$	68
Property, net		40,018			40,984
Other		1,009			207
Total assets	$	41,091		$	41,259
Debt (as guarantor)	$	46,350		$	45,000
Other		541			641
Total liabilities		46,891			45,641
Deficiency		(5,800	)		(4,382	)
Total liabilities and accumulated deficit	$	41,091		$	41,259

As noted above, PCHI is a guarantor on the $46.35 million term loan should the Company not be able to perform.  PCHI's total liabilities represent the Company's maximum exposure to loss. Additionally, the Company is responsible for seismic remediation under the terms of the lease agreement (Notes 2 and 13).

PCHI rental income and the Company’s related rental expense of $1.9 million and $1.9 million were eliminated upon consolidation for the three months ended December 31, 2012 and 2011, respectively, and $5.8 and $5.6 million for the nine months ended December 31, 2012 and 2011, respectively.

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company leases substantially all of the real property of the acquired Hospitals from PCHI which is owned by various physician investors and Ganesha, which is managed by Dr. Chaudhuri. As of December 31 and March 31, 2012, Dr. Chaudhuri and Mr. William E. Thomas are the beneficial holders of an aggregate of 447.5 million shares of the outstanding stock of the Company. As described in Note 9, PCHI is a variable interest entity and the Company is the primary beneficiary, accordingly, the Company has consolidated the financial statements of PCHI in the accompanying unaudited condensed consolidated financial statements.

NOTE 11 - HOSPITAL QUALITY ASSURANCE FEES (“QAF”)

In October 2009, the Governor of California signed legislation supported by the hospital industry to impose a provider fee on general acute care hospitals that, combined with federal matching funds, would be used to provide supplemental Medi-Cal payments to hospitals. The State submitted the plan to the Centers for Medicare and Medicaid Services (“CMS”) for a required review and approval process, and certain changes in the plan were required by CMS. Legislation amending the fee program to reflect the required changes was passed by the legislature and signed by the Governor on September 8, 2010. Among other changes, the legislation leaves distribution of “pass-through” payments received by Medi-Cal managed care plans that will be paid to hospitals under the program to the discretion of the plans.  The hospital quality assurance fee program (“QAF”) created by this legislation initially provided payments for up to 21 months retroactive to April 2009 and expiring on December 31, 2010 (“2010 QAF”).  In February 2011, CMS gave final approval for the 2010 QAF. 

In December 2011, CMS gave final approval for the extension of the QAF for the period from January 1 through June 30, 2011 (“2011 QAF”).  Accordingly, for the three and nine months ended December 31, 2011 the Company recognized $31.9 million in revenue and recorded expenses of $15.9 million relating to the 2011 QAF. 

In June 2012, CMS conditionally approved the extension of the QAF for the thirty month period from July 1, 2011 through December 31, 2013 (“2013 QAF”).  In June 2012, the California State Legislature amended the hospital fee statute to recognize separate CMS approval of the fee-for-service portion and managed care portion of the 2013 QAF, which was further clarified in legislation approved by the governor of California in September 2012.  As a result, during the three and nine months ended December 31, 2012, the Company recognized revenue of $7.8 million and $46.5 million and expenses of $6.9 million and $45.3 million relating to the fee-for-service portion of the 2013 QAF for the periods from October 1, 2012 through December 31, 2012 and July 1, 2011 through December 31, 2012, respectively.

18

INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

Based on the most recent modeling prepared by the California Hospital Association, the Company anticipates making payments for provider fees and other expenses relating to the 2013 QAF of approximately $105.8 million and receiving approximately $235.5 million in revenues from the State ($79.4 million from the fee-for-service portion and $156.1 million from the managed care portion). 

The Company cannot provide any assurances or estimates in connection with CMS’s final approval of the 2013 QAF or a possible continuation of the QAF program beyond December 31, 2013.

NOTE 12 – ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM

Provisions of the American Recovery and Reinvestment Act of 2009 provide incentive payments for the adoption and meaningful use of certified electronic health record (EHR) technology. The Medicare EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) that are meaningful users of certified EHRs. The Medicaid EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) for efforts to adopt, implement, upgrade, or meaningfully use of certified EHR technology.

CMS has established the final rule which requires eligible providers in their first year of participation in the Medicaid incentive payment program to demonstrate that they have adopted (acquired, purchased, or secured access to), or implemented, or upgraded to certified EHR technology in order to qualify for an incentive payment. During the second and subsequent years of the program, eligible providers are required to meet other criteria, including meaningful use, to receive additional funds. The Company has been awarded a total amount of $13.6 million under the Medicaid EHR incentive program, which will be earned and received over a four year period. The Company adopted certified EHR technology and it recognized other income of $6.8 million relative to the first year under the Medicaid EHR incentive program during fiscal year 2012.

NOTE 13 - COMMITMENTS AND CONTINGENCIES

INFORMATION TECHNOLOGY SYSTEMS – On July 1, 2011, the Company entered into software and services agreements with McKesson Technologies Inc. (“McKesson”) to upgrade the Company’s information technology systems.

Under the agreements, McKesson will provide the Company with a variety of services, including new software implementation and education/training services for the Company’s personnel, software maintenance services and professional services related to movement and migration of data from legacy systems.  McKesson will also furnish to the Company and maintain new hardware to accommodate the upgraded software and systems.  The new hardware will include computers and servers, among other things, and will include installation, testing, and ongoing maintenance.  The Company has entered into the arrangement to enhance its clinical information systems and upgrade its billing and revenue management information systems.

The agreements will initially run for a period of five years, and the recurring services may be renewed by the Company for successive periods.  The agreements do not provide that they may be terminated by the Company prior to the initial expiration date.  The agreements provide for one-time fees and recurring fees which aggregate a total of $22.0 million.  Approximately 60% of the fees are for one-time charges, while the balance is for recurring services. During the three months ended December 31, 2012 the Company commenced conversion of one of its facilities to the McKesson system and is concurrently completing testing and developing system applications where necessary.

LONG TERM LEASE COMMITMENT WITH VARIABLE INTEREST ENTITY – On April 13, 2010, the Company and PCHI entered into a Second Amendment to Amended and Restated Triple Net Hospital Building Lease (the “2010 Lease Amendment”).  Under the 2010 Lease Amendment, the annual base rent to be paid by the Company to PCHI was increased from $5.4 million to $7.3 million. The base rent is subject to an annual Consumer Price Index increase on January 1 of each year; such increase shall not be less than 2% or more than 6% per year. As a result, the annual base rent as of January 1, 2012 is $7.7 million. If PCHI refinances the $46.35 million term loan, the annual base rent will increase to $8.3 million. This lease commitment with PCHI is eliminated in consolidation.

CAPITAL LEASES - In connection with the Acquisition, the Company also assumed the leases for the Chapman facility, which include buildings and land with terms that were extended concurrently with the assignment of the leases to December 31, 2023. The Company leases equipment under capital leases expiring at various dates through December 2015. Assets under capital leases with a net book value of $7.2 million and $6.2 million are included in the accompanying unaudited condensed consolidated balance sheets as of December 31 and March 31, 2012, respectively. Interest rates used in computing the net present value of the lease payments are based on the interest rates implicit in the leases.

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INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

INSURANCE - The Company accrues for estimated general and professional liability claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The Company has purchased as primary coverage a claims-made form insurance policy for general and professional liability risks. Estimated losses within general and professional liability retentions from claims incurred and reported, along with incurred but not reported (“IBNR”) claims, are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of December 31 and March 31, 2012, the Company had accrued $9.3 million and $11.5 million, respectively, which is comprised of $4.2 million and $4.5 million, respectively, in incurred and reported claims, along with $5.1 million and $7.0 million, respectively, in estimated IBNR. Estimated insurance recoveries of $2.7 million and $3.0 million are included in other prepaid expenses and current assets as of December 31 and March 31, 2012, respectively.

The Company has also purchased occurrence coverage insurance to fund its obligations under its workers compensation program. The Company has a "paid loss plan" policy, under which the carrier pays all workers compensation claims, with no deductible or reimbursement required of the Company. The Company accrues for estimated workers compensation claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The ultimate costs related to this program include expenses for deductible amounts associated with claims incurred and reported in addition to an accrual for the estimated expenses incurred in connection with IBNR claims. Claims are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of December 31 and March 31, 2012, the Company had accrued $593 and $673, respectively, comprised of $282 and $338, respectively, in incurred and reported claims, along with $311 and $335, respectively, in estimated IBNR.

In addition, the Company has a self-insured health benefits plan for its employees. As a result, the Company has established and maintains an accrual for IBNR claims arising from self-insured health benefits provided to employees. The Company's IBNR accruals at December 31 and March 31, 2012 were based upon projections. The Company determines the adequacy of this accrual by evaluating its limited historical experience and trends related to both health insurance claims and payments, information provided by its insurance broker and third party administrator, and industry experience and trends. The accrual is an estimate and is subject to change. Such change could be material to the Company's unaudited condensed consolidated financial statements. As of December 31 and March 31, 2012, the Company had accrued $2.0 million and $2.2 million, respectively, in estimated IBNR.

The Company has also purchased umbrella liability policies with aggregate limits of $25 million. The umbrella policies provide coverage in excess of the primary layer and applicable retentions for insured liability risks such as general and professional liability, auto liability, and workers compensation (employers liability).

As of December 31, 2012, the Company finances various insurance policies at an interest rate of 4.39% per annum. The Company incurred finance charges relating to such policies of $7 and $7 for the three months ended December 31, 2012 and 2011, respectively, and $32 and $32 for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, the accompanying unaudited condensed consolidated balance sheets include the following balances relating to the financed insurance policies.

	December 31, 2012		March 31, 2012
Prepaid insurance	$	741	$	366
Accrued insurance premiums	$	197	$	–
(Included in other current liabilities)

CLAIMS AND LAWSUITS – The Company and the Hospitals are subject to various legal proceedings, most of which relate to routine matters incidental to operations. The results of these claims cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on the Company's business (both in the near and long term), financial position, results of operations, or cash flows. Although the Company defends itself vigorously against claims and lawsuits and cooperates with investigations, these matters (1) could require payment of substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under insurance policies where coverage applies and is available, (2) cause substantial expenses to be incurred, (3) require significant time and attention from the Company's management, and (4) could cause the Company to close or sell the Hospitals or otherwise modify the way its business is conducted. The Company accrues for claims and lawsuits when an unfavorable outcome is probable and the amount is reasonably estimable.

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INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

Fitzgibbons v. IHHI

The second phase of trial before a jury commenced on January 22, 2013. When submitted to the jury, three of Dr. Fitzgibbons’ four original causes of action had been dismissed, leaving the jury to decide Dr. Fitzgibbons’ claim for intentional infliction of emotional distress. On February 8, 2013 the jury returned a verdict in Dr. Fitzgibbons’ favor for $5.2 million. The jury is scheduled to consider whether to award any additional sum as punitive damages on February 13, 2013. The Company has reserved the contingent loss as of December 31, 2012. Management currently is unable to estimate unfavorable outcomes of the punitive damages hearing beyond the amount accrued. Accordingly, management cannot express an opinion as to the ultimate amount, if any, of the Company’s liability, nor is it possible to estimate what litigation-related costs will be in future periods.

There have been no other material developments in the matters identified in the Company’s Form 10-K filed with the SEC on June 22, 2012.

NOTE 14 – SUBSEQUENT EVENTS

Amendment to Credit Agreement with Silver Point

On February 7, 2013, Integrated Healthcare Holdings, Inc. (“IHHI”) and its subsidiaries WMC-A, Inc., WMC-SA, Inc., Chapman Medical Center, Inc. and Coastal Communities Hospital, Inc. (together with IHHI, the “Company”), entered into an “Amendment and Restatement to the Credit Agreement” (the “Amendment”) with SPCP Group IV, LLC, SPCP Group, LLC, and Silver Point Finance, LLC, as the Lender Agent (collectively, the “Silver Point Entities”), Pacific Coast Holdings Investment, LLC (“PCHI”) and Ganesha Realty, llc (“Ganesha”).

Under the Amendment, the $80,000,000 Credit Agreement, dated as of October 9, 2007, as amended, to which IHHI and the Silver Point Entities are parties (the “Credit Agreement”) was amended and restated in its entirety in the form of the “Amended and Restated Credit Agreement ($47,277,000 Term Loan)” attached as Exhibit A to the Amendment (the “Restated Credit Agreement”). The Restated Credit Agreement reflects changes to the terms of the Credit Agreement that were previously made under various amendments entered into by the Company since inception of the Credit Agreement in October 2007.

In addition, the following new amendments were made to the Credit Agreement and reflected in the Restated Credit Agreement:

· The Stated Maturity Date was extended to April 13, 2016. The Credit Agreement was previously due to mature on April 13, 2013.

· The annual interest rate applicable to the loans under the Credit Agreement was modified from the previous fixed rate of 14.5% to LIBOR plus 10%, with the LIBOR floor set at 2% (the effective interest rate is currently 12%), except upon an Event of Default. The Company may elect from one, two or three months LIBOR interest periods, except in an Event of Default when the interest period may not exceed one month.

· The principal balance under the Credit Agreement was increased from $46,350,000 to $47,277,000 to reflect new borrowings by the Company under the Restated Credit Agreement.

· The Company repaid all amounts owing to SPCP Group IV, LLC under the Credit Agreement, consisting of a principal balance of $8,119,634 plus accrued interest of $19,622, and increased the principal amount owing to SPCP Group, LLC under the Credit Agreement by $9,046,634 to reflect the repayment to SPCP Group IV, LLC and other new borrowings.

· The financial covenants applicable to the Company under the Credit Agreement were amended, including the covenants requiring the Company to maintain minimum levels of EBITDA (as defined in the Restated Credit Agreement).

· Upon receipt by the Company of enhanced federal matching funds from Medi-Cal under the Quality Assurance Fee Program (defined as “Net QAF Funds” under the Restated Credit Agreement), the Company is required to make certain prepayments of principal under its Revolving Loan Agreement with MidCap Financial, LLC.

· A prepayment fee was established for voluntary prepayments under the Credit Agreement equal to 5% for prepayments made on or prior to December 31, 2013, and 2% for prepayments made after January 1, 2014 and before December 31, 2014.

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INTEGRATED HEALTHCARE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

(UNAUDITED) 

Warrant Transactions

In connection with the Amendment, on February 7, 2013, IHHI entered into the following transactions involving warrants:

IHHI entered into a Warrant Repurchase Agreement with SPCP Group IV, LLC pursuant to which IHHI repurchased the outstanding Common Stock Warrant issued to SPCP Group IV, LLC on or about April 13, 2010 (the “Cancelled Warrant”). The Cancelled Warrant entitled the holder to purchase an aggregate of 16,817,365 shares of IHHI Common Stock at an exercise price of $0.07 per share. The Cancelled Warrant was repurchased by IHHI for a purchase price of $0.12 per share minus the exercise price of $0.07 per share, or a net purchase price of $0.05 per share, multiplied by 16,817,365 shares exercisable under the Warrant, or an aggregate purchase price of $840,868.25.

Immediately following the warrant repurchase, IHHI issued a new Common Stock Warrant to SPCP Group, LLC for a price of $0.05 per share, on the same terms as the Cancelled Warrant entitling the holder to purchase an aggregate of 16,817,365 shares of Common Stock at an exercise price of $0.07 per share, except that the new warrant expires on April 13, 2016.

Also simultaneous with the transactions described above, IHHI extended the expiration date from April 13, 2013 to April 13, 2016 for (i) the warrant held by SPCP Group, LLC to purchase 79,182,635 shares at an exercise price of $0.07 per share, (ii) the warrant held by Dr. Kali P. Chaudhuri, M.D. to purchase 170,000,000 shares at an exercise price of $0.07 per share, and (iii) the warrant held by KPC Resolution Company, LLC to purchase 139,000,000 shares at an exercise price of $0.07 per share. The extension of the warrant expiration date was intended to conform the term of the warrants to that of the Restated Credit.

Amendment to Revolving Loan Facility with MidCap

On February 7, 2013, the Company entered into “Amendment No. 4 to Credit and Security Agreement and Limited Consent” (the “Revolving Loan Amendment”) with MidCap Funding IV, LLC and Silicon Valley Bank, as lenders (the “Lenders”), and MidCap Financial, LLC, as agent (the “Agent”).

The Revolving Loan Amendment amends the Credit and Security Agreement, dated as of August 30, 2010, as amended, to which the Company, the Lenders and the Agent are parties (the “ Revolving Loan Agreement”), to reflect the following changes:

· The maximum face amount of the Letter of Credit Liabilities permitted under the Revolving Loan Agreement was increased to $760,755.39, and the Lenders consented to the issuance of a Letter of Credit in the same amount by Wells Fargo Bank, National Association.

· The Commitment Expiry Date under the Revolving Loan Agreement was amended to allow for an extension from August 30, 2013 to January 31, 2014 at Agent’s and Lenders’ sole option, which option can be exercised at any time prior to March 31, 2013.

· The period during which the Prepayment Fee of 1% is applicable was extended from three years from the original closing date to the Commitment Expiry Date (if it is extended by the Agent and Lenders).

· The Agent and Lenders consented to the Company’s entry into the Amendment with the Silver Point Entities and the Restated Credit Agreement thereunder.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q contains forward-looking statements, as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue,” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks discussed under the caption “Risk Factors” in our Annual Report on Form 10-K filed on June 22, 2012 that may cause our Company's or our industry's actual results, levels of activity, performance, or achievements to be materially different from those expressed or implied by these forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. Except as may be required by applicable law, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

As used in this report, the terms “we,” “us,” “our,” “the Company,” “Integrated Healthcare Holdings” or “IHHI” mean Integrated Healthcare Holdings, Inc., a Nevada corporation, unless otherwise indicated.

Unless otherwise indicated, all amounts included in this Item 2 are expressed in thousands (except percentages and per share amounts).

OVERVIEW

On March 8, 2005, we completed our acquisition (the "Acquisition") of four Orange County, California hospitals and associated real estate, including: (i) 282-bed Western Medical Center - Santa Ana, CA; (ii) 188-bed Western Medical Center - Anaheim, CA; (iii) 178-bed Coastal Communities Hospital in Santa Ana, CA; and (iv) 114-bed Chapman Medical Center in Orange, CA (collectively, the "Hospitals") from Tenet Healthcare Corporation. The Hospitals were assigned to four of our wholly owned subsidiaries formed for the purpose of completing the Acquisition. We also acquired the following real estate, leases and assets associated with the Hospitals: (i) a fee interest in the Western Medical Center at 1001 North Tustin Avenue, Santa Ana, CA, a fee interest in the administration building at 1301 North Tustin Avenue, Santa Ana, CA, certain rights to acquire condominium suites located in the medical office building at 999 North Tustin Avenue, Santa Ana, CA; (ii) a fee interest in the Western Medical Center at 1025 South Anaheim Blvd., Anaheim, CA; (iii) a fee interest in the Coastal Communities Hospital at 2701 South Bristol Street, Santa Ana, CA, and a fee interest in the medical office building at 1901 North College Avenue, Santa Ana, CA; (iv) a lease for the Chapman Medical Center at 2601 East Chapman Avenue, Orange, CA, and a fee interest in the medical office building at 2617 East Chapman Avenue, Orange, CA; and (v) equipment and contract rights. At the closing of the Acquisition, we transferred all of the fee interests in the acquired real estate to Pacific Coast Holdings Investment, LLC ("PCHI"), a company owned 51% by various physician investors and 49% by our largest shareholder.

SIGNIFICANT CHALLENGES

COMPANY - Our Acquisition involved significant cash expenditures, debt incurrence and integration expenses that has seriously strained our consolidated financial condition. If we are required to issue equity securities to raise additional capital or for any other reasons, existing stockholders will likely be substantially diluted, which could affect the market price of our stock. In April 2010 we issued equity securities to an existing shareholder and a lender (see “WARRANTS”).

INDUSTRY - Our Hospitals receive a substantial portion of their revenues from Medicare and Medicaid. The healthcare industry is experiencing a strong trend toward cost containment as the government seeks to impose lower reimbursement and resource utilization group rates, limit the scope of covered services and negotiate reduced payment schedules with providers. These cost containment measures generally have resulted in a reduced rate of growth in the reimbursement for the services that we provide relative to the increase in our cost to provide such services.

Changes to Medicare and Medicaid reimbursement programs have limited, and are expected to continue to have limited, payment increases. Also, the timing of payments made under the Medicare and Medicaid programs is subject to regulatory action and governmental budgetary constraints resulting in a risk that the time period between submission of claims and payment could increase. Further, within the statutory framework of the Medicare and Medicaid programs, a substantial number of areas are subject to administrative rulings and interpretations which may further affect payments.

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Our business is subject to extensive federal, state and, in some cases, local regulation with respect to, among other things, participation in the Medicare and Medicaid programs, licensure and certification of facilities, and reimbursement. These regulations relate to the adequacy of physical property and equipment, qualifications of personnel, standards of care, government reimbursement, operational requirements and the like. Compliance with these regulatory requirements, as interpreted and amended from time to time, can increase operating costs and thereby adversely affect the financial viability of our business. Since these regulations are amended from time to time and are subject to interpretation, we cannot predict when and to what extent liability may arise. Failure to comply with current or future regulatory requirements could also result in the imposition of various remedies including (with respect to inpatient care) fines, restrictions on admission, denial of payment for all or new admissions, the revocation of licensure, decertification, imposition of temporary management or the closure of a facility or site of service.

We are subject to periodic audits by the Medicare and Medicaid programs, which have various rights and remedies against us if they assert that we have overcharged the programs or failed to comply with program requirements. Rights and remedies available to these programs include repayment of any amounts alleged to be overpayments or in violation of program requirements, or making deductions from future amounts due to us. These programs may also impose fines, criminal penalties or program exclusions. Other third-party payer sources also reserve rights to conduct audits and make monetary adjustments in connection with or exclusive of audit activities.

The healthcare industry is highly competitive. We compete with a variety of other organizations in providing medical services, many of which have greater financial and other resources and may be more established in their respective communities than we are. Competing companies may offer newer or different centers or services than we do and may thereby attract patients or customers who are presently our patients or customers or are otherwise receiving our services.

An increasing trend in malpractice litigation claims, rising costs of malpractice litigation, losses associated with these malpractice lawsuits and a constriction of insurers have caused many insurance carriers to raise the cost of insurance premiums or refuse to write insurance policies for hospital facilities. Also, a tightening of the reinsurance market has affected property, vehicle, and excess liability insurance carriers.

We receive all of our inpatient service revenues from operations in Orange County, California. The economic condition of this market could affect the ability of our patients and third-party payers to reimburse us for our services, through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs. An economic downturn, or changes in the laws affecting our business in our market and in surrounding markets, could have a material adverse effect on our financial position, results of operations, and cash flows.

LIQUIDITY AND CAPITAL RESOURCES

The accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of obligations in the normal course of business. As of December 31, 2012, the Company had a total stockholders’ deficiency of $28 million and a working capital deficit of $33 million.  For the three and nine months ended December 31, 2012, the Company had net loss of $13 million and $14 million, respectively.

Key items for the nine months ended December 31, 2012 included:

1.        Net patient service revenues (patient service revenues, net of contractual allowances and discounts, less provision for bad debts) for the nine months ended December 31, 2012 and 2011 were $296.5 million and $280.5 million, respectively, representing an increase of $16.0 million, or 5.7%. The Hospitals serve a disproportionate number of indigent patients and receive governmental revenues and subsidies in support of care for these patients. Governmental revenues include payments from Medicaid, Medicaid DSH, and Orange County, CA (CalOptima). Governmental net revenues increased $19.2 million for the nine months ended December 31, 2012 compared to the nine months ended December 31, 2011. The increase was primarily related to QAF revenues of $46.5 million recognized during the nine months ended December 31, 2012 compared to $31.9 million during the same period in fiscal 2012 (see “HOSPITAL QUALITY ASSURANCE FEES”). 

Inpatient admissions decreased by 3.5% to 15.3 for the nine months ended December 31, 2012 compared to 15.9 for the nine months ended December 31, 2011. The decline in admissions is primarily related to reductions in managed care, shifts from inpatient to outpatient observation, and obstetrics admissions.

Uninsured patients, as a percentage of gross charges (retail charges), were 5.8% for the nine months ended December 31, 2012 compared to 5.3% for the nine months ended December 31, 2011.

2.        Operating expenses: Management is working aggressively to reduce costs without reduction in service levels. These efforts have in large part been offset by inflationary pressures. Operating expenses before interest and warrant loss for the nine months ended December 31, 2012 were $302.7 million, representing an increase of $35.6 million, or 13.3%, compared to the nine months ended December 31, 2011. The increase is primarily related to QAF expenses of $45.3 million incurred during the nine months ended December 31, 2012 compared to $15.9 million during the same period in fiscal year 2012.

24

DEBT - On August 1, 2012, we entered into Amendment No. 4 to Credit Agreement and Consent (the “Credit Agreement Amendment”), which amends the Term Loan Credit Agreement.  Under the Credit Agreement Amendment, Silver Point consented to and waived certain provisions under the Term Loan Credit Agreement in connection with our execution of the Revolving Loan Amendment. In addition, the provisions in the Term Loan Credit Agreement that provide for mandatory prepayment of our outstanding “A/R Financing,” as defined, upon receipt of certain federal matching funds under the QAF program were amended to replace 65% with 80%. In connection with the Credit Agreement Amendment, we agreed to pay Silver Point a one-time consent and amendment fee in an aggregate amount equal to $1.8 million, of which $450 was paid upon execution of the Credit Agreement Amendment and the balance was added to the principal amount of the Term Loan Credit Agreement.

Also on August 1, 2012, we entered into Amendment No. 3 to Credit and Security Agreement (the “Revolving Loan Amendment”), which amends the Revolving Loan Agreement. Under the Revolving Loan Amendment, the minimum Revolving Loan Commitment Amount under the Revolving Loan Agreement was increased from $14.0 million to $30.0 million, and we agreed to pay to MidCap Funding IV, LLC, as assigned to it from MidCap Financial, LLC, as administrative agent and a lender, and Silicon Valley Bank, as a lender (collectively, the “Lenders”) an origination fee of 1.0% of the Lenders’ increased commitment under the Revolving Loan Amendment, or $160.

In addition, pursuant to the Revolving Loan Amendment, the lockbox requirements under the Revolving Loan Agreement were amended to provide that in the event the Revolving Loan Commitment Amounts are $30.0 million or less during any period prior to March 31, 2013, or $20.0 million or less thereafter (and assuming there is no Event of Default at the time), we would be permitted to transfer funds that are deposited into any Lockbox Account, as defined, to a different bank account designated by us, subject to the other terms and conditions contained in the Revolving Loan Agreement.

As of December 31, 2012, we had the following credit facilities:

● $46.35 million term loan under the Credit Agreement, dated as of October 9, 2007, as amended (the “Term Loan Credit Agreement”), by and among us, Silver Point, and PCHI and Ganesha Realty LLC (“Ganesha”), as Credit Parties, bearing a fixed interest rate of 14.5% per year ($46.35 million outstanding balance at December 31, 2012).

● $30.0 million revolving line of credit under the Credit and Security Agreement, dated as of August 30, 2010, as amended (the “Revolving Loan Agreement”), by and among us, and the Lenders, bearing an interest rate of 5.0% plus LIBOR, with a 2.5% floor, per year (7.5% at December 31, 2012) and an unused commitment fee of 0.625% per year ($28.8 million outstanding balance at December 31, 2012).  For purposes of calculating interest, all payments we make on the revolving line of credit are subject to a six business day clearance period.  At December 31, 2012, we had $1.2 million in additional availability under our revolving credit facility.

The Company’s credit facilities contain various affirmative and negative covenants and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, and the occurrence of events which have a material adverse effect on the Company.

The Company entered into an Amendment on February 7, 2013, which changed the measurement period for the term loan facility. The next assessment date for which the Company is required to comply with the term loan financial covenants will be for the period ended June 30, 2013.

The Company did not meet the financial covenants for its revolving line of credit for the period ended December 31, 2012. Although the Company is not required to report compliance with the financial covenant for its revolving line of credit until 50 days after the fiscal quarter end, the Company is seeking the lenders’ consent to a potential non-compliance with this financial covenant.

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Our outstanding debt consists of the following:

	December 31,		March 31,
	2012		2012
Current:
Revolving line of credit	$	28,806	$	14,000
Noncurrent:
Term loan	$	46,350	$	45,000

On February 7, 2013, the Company amended its $46.35 million term loan which included, among other changes, an extension of the maturity date to April 16, 2016.

WARRANTS - On April 13, 2010, the Company issued warrants (the “Omnibus Warrants”) to purchase its common stock for a period of three years at an exercise price of $0.07 per share in the following denominations: 139.0 million shares to KPC Resolution Company (a company owned and controlled by Kali P. Chaudhuri, M.D., the Company’s majority shareholder) or its designees and 96.0 million shares to the $46.35 million term loan lender or its designees. The Omnibus Warrants also provide the holders with certain pre-emptive, information and registration rights. On April 13, 2010, the Company recorded warrant expense and the related warrant liability of $2.9 million, representing fair value.  As of December 31, 2012, the fair value of the Omnibus Warrants was $1.9 million.

In addition, on April 13, 2010, the Company issued a three-year warrant (the “Release Warrant”) to acquire up to 170.0 million shares of its common stock at $0.07 per share to Dr. Chaudhuri who facilitated a release enabling the Company to recover amounts due from the Company’s prior lender and a $1.0 million reduction in principal of its outstanding debt, among other benefits to the Company. As a result, the Company recorded the fair value of the Release Warrant ($2.1 million) as an offsetting cost of the recovery of amounts due from the Company’s prior lender. The Release Warrant also provides the holder with certain pre-emptive, information and registration rights. As of December 31, 2012, the fair value of the Release Warrant was $1.3 million.

The Omnibus Warrants and the Release Warrant are collectively referred to as the “April Warrants.” The net gain (loss) recorded related to the April Warrants for the three months ended December 31, 2012 and 2011 was $(1,182) and $256, respectively, and $(1,577) and $39 for the nine months ended December 31, 2012 and 2011, respectively.

In connection with the change in maturity of the term loan discussed above, the April Warrants maturity date was revised to April 13, 2016.

HOSPITAL QUALITY ASSURANCE FEES - In October 2009, the Governor of California signed legislation supported by the hospital industry to impose a provider fee on general acute care hospitals that, combined with federal matching funds, would be used to provide supplemental Medi-Cal payments to hospitals. The state submitted the plan to the Centers for Medicare and Medicaid Services (“CMS”) for a required review and approval process, and certain changes in the plan were required by CMS. Legislation amending the fee program to reflect the required changes was passed by the legislature and signed by the Governor on September 8, 2010. Among other changes, the legislation leaves distribution of “pass-through” payments received by Medi-Cal managed care plans that will be paid to hospitals under the program to the discretion of the plans.  The hospital quality assurance fee program (“QAF”) created by this legislation initially provided payments for up to 21 months retroactive to April 2009 and expiring on December 31, 2010 (“2010 QAF”).  In February 2011, CMS gave final approval for the 2010 QAF. During fiscal year 2011, we recognized $87.2 million in revenue and recorded expenses of $47.8 million relating to the 2010 QAF.

In December 2011, CMS gave final approval for the extension of the QAF for the nine month period from January 1 through June 30, 2011 (“2011 QAF”).  Accordingly, for the three and nine months ended December 31, 2011 the Company recognized $31.9 million in revenue and recorded expenses of $15.9 million relating to the 2011 QAF.

In June 2012, CMS conditionally approved the extension of the QAF for the thirty month period from July 1, 2011 through December 31, 2013 (“2013 QAF”).  In June 2012, the California State Legislature amended the hospital fee statute to recognize separate CMS approval of the fee-for-service portion and managed care portion of the 2013 QAF, which was further clarified in legislation approved by the governor of California in September 2012.  As a result, during the three and nine months ended December 31, 2012, the Company recognized revenue of $7.8 million and $46.5 million and expenses of $6.9 million and $45.3 million relating to the fee-for-service portion of the 2013 QAF for the periods from October 1, 2012 through December 31, 2012 and July 1, 2011 through December 31, 2012, respectively.

Based on the most recent modeling prepared by the California Hospital Association, we anticipate making payments for provider fees and other expenses relating to the 2013 QAF of approximately $105.8 million and receiving approximately $235.5 million in revenues from the State ($79.4 million from the fee-for-service portion and $156.1 million from the managed care portion).

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We cannot provide any assurances or estimates in connection with CMS’s final approval of the 2013 QAF or a possible continuation of the QAF program beyond December 31, 2013.

ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM - Provisions of the American Recovery and Reinvestment Act of 2009 provide incentive payments for the adoption and meaningful use of certified electronic health record (EHR) technology. The Medicare EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) that are meaningful users of certified EHRs. The Medicaid EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) for efforts to adopt, implement, upgrade, or meaningfully use of certified EHR technology.

CMS has established the final rule which requires eligible providers in their first year of participation in the Medicaid incentive payment program to demonstrate that they have adopted (acquired, purchased, or secured access to), or implemented, or upgraded to certified EHR technology in order to qualify for an incentive payment. During the second and subsequent years of the program, eligible providers are required to meet other criteria, including meaningful use, to receive additional funds. We have been awarded a total amount of $13.6 million under the Medicaid EHR incentive program, which will be earned and received over a four year period. We adopted certified EHR technology and recognized other income of $6.8 million relative to the first year under the Medicaid EHR incentive program during fiscal year 2012.

LONG TERM LEASE COMMITMENT WITH VARIABLE INTEREST ENTITY - On April 13, 2010, we and PCHI entered into a Second Amendment to Amended and Restated Triple Net Hospital Building Lease (the “2010 Lease Amendment”).  Under the 2010 Lease Amendment, the annual base rent to be paid by us to PCHI was increased from $5.4 million to $7.3 million. The base rent is subject to an annual Consumer Price Index increase on January 1 of each year; such increase shall not be less than 2% or more than 6% per year. As a result, the annual base rent as of January 1, 2012 is $7.7 million. If PCHI refinances the $46.35 million term loan, the annual base rent will increase to $8.3 million. This lease commitment with PCHI is eliminated in consolidation.

COMMITMENTS AND CONTINGENCIES - The State of California has imposed hospital seismic safety requirements. Under these requirements, the Hospitals must meet stringent seismic safety criteria in the future. In addition, there could be other remediation costs pursuant to this seismic retrofit.

The State of California has a seismic review methodology known as HAZUS. The HAZUS methodology may preclude the need for some structural modifications. All four Hospitals requested HAZUS review and received a favorable notice pertaining to structural reclassification. All Hospital buildings, with the exception of one (an administrative building), have been deemed compliant until January 1, 2030 for both structural and nonstructural retrofit. We do not have an estimate of the cost to remediate the seismic requirements for the administrative building as of December 31, 2012.

There are additional requirements that must be complied with by 2030. The costs of meeting these requirements have not yet been determined. Compliance with seismic ordinances will be costly and could have a material adverse effect on our cash flow.  In addition, remediation could possibly result in certain environmental liabilities, such as asbestos abatement.

On July 1, 2011, we entered into software and services agreements with McKesson Technologies Inc. (“McKesson”) to upgrade our information technology systems.

Under the agreements, McKesson will provide us with a variety of services, including new software implementation and education/training services for our personnel, software maintenance services and professional services related to movement and migration of data from legacy systems.  McKesson will also furnish to us and maintain new hardware to accommodate the upgraded software and systems.  The new hardware will include computers and servers, among other things, and will include installation, testing, and ongoing maintenance.  We have entered into the arrangement to enhance our clinical information systems and upgrade our billing and revenue management information systems.

The agreements will initially run for a period of five years, and the recurring services may be renewed by us for successive periods.  The agreements do not provide that they may be terminated by us prior to the initial expiration date.  The agreements provide for one-time fees and recurring fees which aggregate a total of $22.0 million.  Approximately 60% of the fees are for one-time charges, while the balance is for recurring services. During the three months ended December 31, 2012 the Company commenced conversion of one of its facilities to the McKesson system and is concurrently completing testing and developing system applications where necessary.

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CASH FLOW - Net cash used by operating activities for the nine months ended December 31, 2012 and 2011 was $6.2 million and $13.8 million, respectively. Net income (loss), adjusted for depreciation and other non-cash items, excluding the provision for bad debts and net income from non-controlling interests (not a measurement under accounting principles generally accepted in the United States of America (“GAAP”)), totaled ($8.8) million and $14.1 million for the nine months ended December 31, 2012 and 2011, respectively. Cash provided (used) was $2.7million and ($27.6) million (including $10.8 million for income taxes) in working capital for the nine months ended December 31, 2012 and 2011, respectively. Net cash provided (used) in payment of accounts payable, accrued compensation and benefits and other current liabilities was $8.5 million and ($3.1) million for the nine months ended December 31, 2012 and 2011, respectively. Cash provided (used) by accounts receivable, net of provision for bad debts, was ($5.4) million and $2.3 million for the nine months ended December 31, 2012 and 2011, respectively.

Net cash used in investing activities during the nine months ended December 31, 2012 and 2011 was $7.4 million and $1.7 million, respectively were for new property and equipment.

Net cash provided (used) in financing activities for the nine months ended December 31, 2012 and 2011 was $11.9 million and ($1.1) million, respectively.    The increase was incurred primarily to fund payment of the QAF fees to the State of California.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following table sets forth, for the three and nine months ended December 31, 2012 and 2011 our unaudited condensed consolidated statements of operations expressed as a percentage of net patient service revenues.

	Three months ended December 31,					Nine months ended December 31,
	2012		2011			2012		2011
Net patient service revenues		100.0%		100.0%			100.0%		100.0%
Operating expenses:
Salaries and benefits		61.1%		49.2%			54.2%		57.9%
Supplies		15.7%		12.3%			14.2%		14.3%
Other operating expenses		32.5%		28.1%			32.7%		21.8%
Depreciation and amortization		1.2%		0.9%			1.0%		1.1%
		110.5%		90.5%			102.1%		95.2%
Operating income (loss)		(10.5%)		9.5%			(2.1%)		4.8%
Other expense:
Interest expense, net		(3.8%)		(2.1%)			(3.0%)		(2.8%)
Income from electronic health records incentive program		0.0%		6.0%			0.0%		2.4%
Income (loss) on warrants		(1.3%)		0.2%			(0.5%)		0.0%
		(5.1%)		4.0%			(3.5%)		(0.3%)
Income (loss) before income tax provision (benefit)		(15.6%)		13.6%			(5.6%)		4.5%
Income tax provision (benefit)		(0.1%)		2.5%			(0.7%)		0.7%
Net income (loss)		(15.5%)		11.1%			(4.9%)		3.7%
Net (income) loss attributable to noncontrolling interests		0.5%		(0.1%)	)		0.1%		(0.1%)
Net income (loss) attributable to Integrated Healthcare Holdings, Inc.		(15.0%)		11.0%			(4.8%)		3.6%

THREE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO THREE MONTHS ENDED DECEMBER 31, 2011

NET PATIENT SERVICE REVENUES – Net patient service revenues for the three months ended December 31, 2012 decreased 21.9% compared to fiscal year 2012, from $114.0 million to $89.0 million. The decrease was primarily related to QAF revenues of $7.8 million recognized during the three months ended December 31, 2012 compared to $31.9 million during the same period in fiscal 2012. The provision for bad debts for the three months ended December 31, 2012 was $12.0 million compared to $9.0 million for the three months ended December 31, 2011, representing a 32.8% increase.  The primary reason for the increase in the provision for bad debts relates to the termination of Section 1011 of the Medicare Modernization Act of 2003 program in January 2012. Section 1011 provided federal funding of emergency health services for “eligible aliens.” During the three months ended December 31, 2011, patient service revenues recorded under Section 1011 were reduced by contractual allowances and discounts whereas patient service revenues related to the same type of services provided after the termination of Section 1011 are adjusted to net patient service revenues through the provision for bad debts.

Admissions for the three months ended December 31, 2012 decreased 6.4% compared to the same period in fiscal year 2012. The decline in admissions is the combined result of lower obstetrical deliveries, and psychiatric admissions. Net patient service revenues per admission decreased 16.6% during the three months ended December 31, 2012. This decrease was primarily due to the decrease in QAF revenues recognized during the three months ended December 31, 2012 compared to the same period in fiscal 2012.

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Essentially all patient service revenues come from external customers. The largest payers are the Medicare and Medicaid (including Medicare and Medicaid managed care plans) programs accounting for 59% and 64% of the patient service revenues for the three months ended December 31, 2012 and 2011, respectively.

Uninsured patients, as a percentage of gross charges, decreased to 5.2% from 5.3% for the three months ended December 31, 2012 compared to the three months ended December 31, 2011.

The Hospitals serve a disproportionate number of indigent patients and receive governmental revenues and subsidies in support of care for these patients. Governmental revenues include payments from Medicaid, Medicaid DSH, and Orange County, CA (CalOptima). Governmental net revenues, including QAF funds, decreased $23.6 million for the three months ended December 31, 2012 compared to the three months ended December 31, 2011.  $24.1 million of the decline in governmental revenue is the decrease in QAF revenues from the three months ended December 31, 2011.

OPERATING EXPENSES - Operating expenses for the three months ended December 31, 2012 decreased to $98.4 million from $103.2 million, a decrease of $4.8 million, or 4.6%, compared to the same period in fiscal year 2012. Operating expenses expressed as a percentage of net patient services revenues for the three months ended December 31, 2012 and 2011 were 110.5% and 90.5%, respectively. On a per admission basis, operating expenses increased 1.9%. The increase is the net result of QAF expenses of $6.9 million incurred during the three months ended December 31, 2012 compared to $15.9 million during the same period in fiscal year 2012 offset by loss reserves for potential legal settlements.

Salaries and benefits decreased $1.7 million (3.1%) for the three months ended December 31, 2012 compared to the same period in fiscal year 2012 due to lower admissions partially offset by wage increases.

Supplies decreased $35 (0.3%) for the three months ended December 31, 2012 compared to the same period in fiscal year 2012. The decrease primarily related to the decline in admissions.

Other operating expenses during the three months ended December 31, 2012 decreased to $29.0 million from $32.0 million, a decrease of $3.0 million, or 9.6%, compared to the same period in fiscal year 2012. The decrease is primarily related to QAF expenses of $6.9 million incurred during the three months ended December 31, 2012 compared to $15.9 million during the same period in fiscal year 2012 offset by loss reserves for potential legal settlements.

OPERATING INCOME - The operating income (loss) for the three months ended December 31, 2012 and 2011 was ($9.3) million and $10.9 million, respectively.

OTHER INCOME (EXPENSE) - We adopted certified EHR technology and recognized other income of $0 and $6.8 million under the Medicaid EHR incentive program during the three months ended December 31, 2012 and 2011.

Interest expense for the three months ended December 31, 2012 was $3.4 million compared to $2.4 million for the same period in fiscal year 2012. The increase primarily related to increased drawdowns on our revolving line of credit.

As of December 31, 2012, the fair value of our April Warrants aggregated $3.2 million.  A gain (loss) relating to the change in fair value of the April Warrants of ($1.2) million and $0.3 million was recorded during the three months ended December 31, 2012 and 2011, respectively. See “WARRANTS.”

NET INCOME - Net income (loss) for the three months ended December 31, 2012 and 2011 was ($13.4) million and $12.5 million, respectively.

NINE MONTHS ENDED DECEMBER 31, 2012 COMPARED TO NINE MONTHS ENDED DECEMBER 31, 2011

NET PATIENT SERVICE REVENUES - Net patient service revenues for the nine months ended December 31, 2012 increased 5.7% compared to fiscal year 2012, from $280.5 million to $296.6 million. The increase was primarily related to QAF revenues of $46.5 million recognized during the nine months ended December 31, 2012 compared to $31.9 million during the same period in fiscal 2012. The provision for bad debts for the nine months ended December 31, 2012 was $35.4 million compared to $25.9 million for the nine months ended December 31, 2011, representing a 37.1% increase. The primary reason for the increase in the provision for bad debts relates to the termination of Section 1011 of the Medicare Modernization Act of 2003 program in January 2012. Section 1011 provided federal funding of emergency health services for “eligible aliens.” During the nine months ended December 31, 2011, patient service revenues recorded under Section 1011 were reduced by contractual allowances and discounts whereas patient service revenues related to the same type of services provided after the termination of Section 1011 are adjusted to net patient service revenues through the provision for bad debts.

Admissions for the nine months ended December 31, 2012 decreased 3.5% compared to the same period in fiscal year 2012. The decline in admissions is the combined result of lower obstetrical deliveries, and psychiatric admissions. Net patient service revenues per admission increased 9.5% during the nine months ended December 31, 2012. This increase was primarily due to an increase orthopedic surgeries and an increase in QAF revenue.

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Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 61% and 59% for the nine months ended December 31, 2012 and 2011, respectively.

Uninsured patients, as a percentage of gross charges, increased to 5.8% from 5.3% for the nine months ended December 31, 2012 compared to the nine months ended December 31, 2011.

The Hospitals serve a disproportionate number of indigent patients and receive governmental revenues and subsidies in support of care for these patients. Governmental revenues include payments from Medicaid, Medicaid DSH, and Orange County, CA (CalOptima). Governmental net revenues, including QAF funds, increased $19.2 million for the nine months ended December 31, 2012 compared to the nine months ended December 31, 2011.  

OPERATING EXPENSES - Operating expenses for the nine months ended December 31, 2012 increased to $302.7 million from $267.1 million, an increase of $35.6 million, or 13.3%, compared to the same period in fiscal year 2012. Operating expenses expressed as a percentage of net patient services revenues for the nine months ended December 31, 2012 and 2011 were 102.1% and 95.2%, respectively. On a per admission basis, operating expenses increased 17.4%. The increase is primarily related to QAF expenses of $45.3 million incurred during the nine months ended December 31, 2012 compared to $15.9 million during the same period in fiscal year 2012.

Salaries and benefits decreased $1.8 million (1.1%) for the nine months ended December 31, 2012 compared to the same period in fiscal year 2012 due to lower admissions partially offset by wage increases.

Supplies increased $1.8 million (4.4%) for the nine months ended December 31, 2012 compared to the same period in fiscal year 2012. The increase primarily related to increases in orthopedic supplies and pacemakers.

Other operating expenses during the nine months ended December 31, 2012 increased to $97.1 million from $61.2 million, an increase of $35.9 million, or 58.6%, compared to the same period in fiscal year 2012. The increase is primarily related to QAF expenses of $45.3 million incurred during the nine months ended December 31, 2012 compared to $15.9 million during the same period in fiscal year 2012 and loss reserves for potential legal settlements.

OPERATING INCOME - The operating income (loss) for the nine months ended December 31, 2012 and 2011 was ($6.1) million and $13.5 million, respectively.

OTHER INCOME (EXPENSE) - We adopted certified EHR technology and recognized other income of $0 and $6.8 million under the Medicaid EHR incentive program during the nine months ended December 31, 2012 and 2011.

Interest expense for the nine months ended December 31, 2012 was $8.8 million compared to $7.8 million for the same period in fiscal year 2012. The increase primarily related to increased drawdowns on our revolving line of credit. 

As of December 31, 2012, the fair value of our April Warrants aggregated $3.2 million.  A gain (loss) relating to the change in fair value of the April Warrants of ($1,577) and $39 was recorded during the nine months ended December 31, 2012 and 2011, respectively. See “WARRANTS.”

NET INCOME (LOSS) - Net income (loss) for the nine months ended December 31, 2012 and 2011 was ($14.3) million and $10.2 million, respectively.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances.

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Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement (payables) receivables of ($414) and $190 as of December 31 and March 31, 2012, respectively.

The Hospitals receive supplemental payments from the State of California to support indigent care (Medi-Cal Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received supplemental payments of $5.5 million and $4.0 million during the three months ended December 31, 2012 and 2011, respectively, and $9.6 million and $9.9 million during the nine months ended December 31, 2012 and 2011, respectively. The related revenue recorded for the three months ended December 31, 2012 and 2011, was $4.4 million and $3.1 million, respectively, and $11.3 million and $10.5 million for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, estimated DSH receivables were $6.7 million and $5.0 million, respectively, which are included as due from government payers in the accompanying unaudited condensed consolidated balance sheets.

Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $24.4 million and $26.2 million for the three months ended December 31, 2012 and 2011, respectively, and $79.8 million and $72.3 million for the nine months ended December 31, 2012 and 2011, respectively), are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues.

The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended December 31, 2012 and 2011 were approximately $1.9 million and $2.5 million, respectively, and $6.5 million and $6.3 million for the nine months ended December 31, 2012 and 2011, respectively.

The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements.

PROVISION FOR BAD DEBTS - The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.

The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated.

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Effective March 31, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which requires health care entities to present the provision for bad debts relating to patient service revenues as a deduction from patient service revenues in the statement of operations rather than as an operating expense. All periods presented have been reclassified in accordance with the provisions of ASU 2011-07.

INCOME TAXES - Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. We assess the realization of deferred tax assets to determine whether an income tax valuation allowance is required. We have recorded a 100% valuation allowance on its deferred tax assets.

There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

We and our subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of our income tax provision.

INSURANCE - The Company accrues for estimated general and professional liability claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The Company has purchased as primary coverage a claims-made form insurance policy for general and professional liability risks. Estimated losses within general and professional liability retentions from claims incurred and reported, along with incurred but not reported (“IBNR”) claims, are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available.

As of December 31 and March 31, 2012, the Company had accrued $9.3 million and $11.5 million, respectively, which is comprised of $4.2 million and $4.5 million, respectively, in incurred and reported claims, along with $5.1 million and $7.0 million, respectively, in estimated IBNR. Estimated insurance recoveries of $2.7 million and $3.0 million are included in other prepaid expenses and current assets as of December 31 and March 31, 2012, respectively.

The Company has also purchased occurrence coverage insurance to fund its obligations under its workers compensation program. The Company has a "paid loss plan" policy, under which the carrier pays all workers compensation claims, with no deductible or reimbursement required of the Company. The Company accrues for estimated workers compensation claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The ultimate costs related to this program include expenses for deductible amounts associated with claims incurred and reported in addition to an accrual for the estimated expenses incurred in connection with IBNR claims. Claims are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of December 31 and March 31, 2012, the Company had accrued $593 and $673, respectively, comprised of $282 and $338, respectively, in incurred and reported claims, along with $311 and $335, respectively, in estimated IBNR.

In addition, the Company has a self-insured health benefits plan for its employees. As a result, the Company has established and maintains an accrual for IBNR claims arising from self-insured health benefits provided to employees. The Company's IBNR accruals at December 31 and March 31, 2012 were based upon projections. The Company determines the adequacy of this accrual by evaluating its limited historical experience and trends related to both health insurance claims and payments, information provided by its insurance broker and third party administrator, and industry experience and trends. The accrual is an estimate and is subject to change. Such change could be material to the Company's unaudited condensed consolidated financial statements. As of December 31 and March 31, 2012, the Company had accrued $2.0 million and $2.2 million, respectively, in estimated IBNR.

The Company has also purchased umbrella liability policies with aggregate limits of $25 million. The umbrella policies provide coverage in excess of the primary layer and applicable retentions for insured liability risks such as general and professional liability, auto liability, and workers compensation (employers liability).

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As of December 31, 2012, the Company did not have any investment in, or outstanding liabilities under, market rate sensitive instruments. The Company does not enter into hedging instrument arrangements.

ITEM 4. CONTROLS AND PROCEDURES.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company's reports under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure based closely on the definition of "disclosure controls and procedures" in Rule 15d-15(e) under the Exchange Act. The Company's disclosure controls and procedures are designed to provide a reasonable level of assurance of reaching the Company's desired disclosure control objectives. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As of December 31, 2012, the end of the period of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and the Company's Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures. Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that as of December 31, 2012 the Company's disclosure controls and procedures were effective to ensure that the information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

During the three months ended December 31, 2012, there were no changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company and the Hospitals are subject to various legal proceedings, most of which relate to routine matters incidental to operations. The results of these claims cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on the Company's business (both in the near and long term), financial position, results of operations, or cash flows. Although the Company defends itself vigorously against claims and lawsuits and cooperates with investigations, these matters (1) could require payment of substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under insurance policies where coverage applies and is available, (2) cause substantial expenses to be incurred, (3) require significant time and attention from the Company's management, and (4) could cause the Company to close or sell the Hospitals or otherwise modify the way its business is conducted. The Company accrues for claims and lawsuits when an unfavorable outcome is probable and the amount is reasonably estimable.

Fitzgibbons v. IHHI

The second phase of trial before a jury commenced on January 22, 2013. When submitted to the jury, three of Dr. Fitzgibbons’ four original causes of action had been dismissed, leaving the jury to decide Dr. Fitzgibbons’ claim for intentional infliction of emotional distress. On February 8, 2013 the jury returned a verdict in Dr. Fitzgibbons’ favor for $5.2 million. The jury is scheduled to consider whether to award any additional sum as punitive damages on February 13, 2013. The Company has reserved the contingent loss as of December 31, 2012. Management currently is unable to estimate unfavorable outcomes of the punitive damages hearing beyond the amount accrued. Accordingly, management cannot express an opinion as to the ultimate amount, if any, of the Company’s liability, nor is it possible to estimate what litigation-related costs will be in future periods.

There have been no other material developments in the matters identified in the Company’s Form 10-K filed with the SEC on June 22, 2012.

ITEM 1A. RISK FACTORS

There are no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2012.

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ITEM 6. EXHIBITS

Exhibit Number	Description
10.10	Amendment No. 3 to Credit and Security Agreement, dated August 1, 2012, by and among the Company, MidCap Funding IV, LLC, as Agent and lender, and Silicon Valley Bank, as lender (incorporated by reference to Exhibit 99.1 to the Registrant's Report on Form 8-K filed on August 6, 2012).
10.11	Amendment No. 4 to Credit Agreement and Consent, dated August 1, 2012, by and among the Company, Pacific Coast Holdings Investment, LLC, Ganesha Realty, LLC, SPCP Group IV, LLC, SPCP Group, LLC and Silver Point Finance, LLC (incorporated by reference to Exhibit 99.2 to the Registrant's Report on Form 8-K filed on August 6, 2012).
10.12	Amendment and Restatement to the Credit Agreement, dated February 7, 2013, by and among the Company, the Silver Point Entities, PCHI and Ganesha * **
10.13	Warrant Repurchase Agreement, dated February 7, 2013, by and between IHHI and SPCP Group IV, LLC * **
10.14	Warrant to purchase 16,817,365 shares of common stock, dated February 7, 2013, issued to SPCP Group, LLC **
10.15	Amendment No. 1 to Common Stock Warrant (139,000,000 shares), dated February 7, 2013, by and between IHHI and KPC Resolution Company, LLC **
10.16	Amendment No. 1 to Common Stock Warrant (170,000,000 shares), dated February 7, 2013, by and between IHHI and Dr. Kali P. Chaudhuri, M.D. **
10.17	Amendment No. 1 to Common Stock Warrant (79,182,635 shares), dated February 7, 2013, by and between IHHI and SPCP Group, LLC **
10.18	Amendment No. 4 to Credit and Security Agreement and Limited Consent, by and among the Company, MidCap Funding IV, LLC and Silicon Valley Bank, as lenders, and MidCap Financial, LLC, as agent * **
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Labels Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Certain exhibits, schedules and/or annexes have been omitted. A copy of any omitted exhibit, schedule or annex will be furnished supplementally to the Securities and Exchange Commission upon request.

** Each document filed with this report is marked with two asterisks (**).

35

SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	INTEGRATED HEALTHCARE HOLDINGS, INC.
Dated: February 12, 2013	By:	/s/ Steven R. Blake
		Steven R. Blake
		Chief Financial Officer (Principal Financial Officer)

36

EX-10.12

Exhibit 10.12 

AMENDMENT AND RESTATEMENT TO THE CREDIT AGREEMENT

This AMENDMENT AND RESTATEMENT TO THE CREDIT AGREEMENT (this “Agreement”) is made as of February 7, 2013, by and among (i) INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation (“IHHI”), WMC-SA, INC., a California corporation (“WMC-SA”), WMC-A, INC., a California corporation (“WMC-A”), CHAPMAN MEDICAL CENTER, INC., a California corporation (“Chapman”), COASTAL COMMUNITIES HOSPITAL, INC., a California corporation (“Coastal” and together with IHHI, WMC-SA, WMC-A and Chapman, the “Borrowers”), PACIFIC COAST HOLDINGS INVESTMENT, LLC, a California limited liability company (“PCHI”), and GANESHA REALTY, LLC, a California limited liability company (“Ganesha”, and together with PCHI, the “Amendment Parties”) (ii) SPCP GROUP IV, LLC, a Delaware limited liability company (“SP 1”), and SPCP Group, LLC, a Delaware limited liability company (“SP 2”), and (iii) SILVER POINT FINANCE, LLC, a Delaware limited liability company (“Silver Point”).

RECITALS

WHEREAS, (i) the Borrowers, (ii) PCHI, ORANGE COUNTY PHYSICIANS INVESTMENT NETWORK, LLC, a Nevada limited liability company (“OC-PIN”) and Ganesha (collectively, the “Credit Parties”; and OC-PIN may be referred to herein as the “Guarantor”), (iii) SP 1 and SP 2 (each, an “Existing Lender” and collectively, the “Existing Lenders”) and (iv) Silver Point (the “Lender Agent”) are parties to that certain Credit Agreement dated as of October 9, 2007 (as amended by Amendment No. 1 to Credit Agreement dated April 2, 2009 and the Acknowledgment, Waiver and Consent and Amendment to Credit Agreements dated April 2, 2009, the Omnibus Credit Agreement Amendment dated as of April 13, 2010, Amendment to $80,000,000 Credit Agreement dated August 30, 2010, and Amendment No. 4 to Credit Agreement and Consent dated as of August 1, 2012, the “Existing Credit Agreement”), providing, subject to the terms and conditions thereof, for extensions of credit (by means of loans) to be made, by the Existing Lenders to the Borrowers;

WHEREAS, the Borrowers have advised the Lender Agent and the Existing Lenders that the Borrowers intend to repay in full all amounts outstanding under the Existing Credit Agreement due solely to SP 1 on February 7, 2013 (the “SP 1 Payoff Date”) in connection with the execution and delivery of this Agreement and the Restated Credit Agreement (as defined below), with the proceeds of additional loans to be disbursed by SP 2 pursuant to the Restated Credit Agreement, and the Amendment Parties, the Lender Agent and the Existing Lenders consent to such repayment;

WHEREAS, the Borrowers, the Amendment Parties, the Lender Agent and SP 2 (the “Lender”) desire to amend the Existing Credit Agreement in certain respects, including without limitation to extend the Maturity Date, modify the interest rate and increase the original principal amount of the $45,000,000 Real Estate Term Loan (as defined in the Existing Credit Agreement) on the terms and conditions set forth below;

WHEREAS, the Borrowers, the Amendment Parties, the Lender Agent and the Lender have agreed that the Existing Credit Agreement shall, on the Restatement Effective Date (as defined below), be amended and restated in the form attached hereto as Exhibit A (the “Restated Credit Agreement”);

Accordingly, in consideration of the mutual agreements herein contained and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, and subject to the conditions set forth herein, the parties hereto hereby agree as follows:

SECTION 1. Defined Terms; Interpretation. Unless otherwise specified, capitalized terms used but not defined herein have the meanings assigned to such terms in the Restated Credit Agreement. The rules of construction set forth in Annex A of the Restated Credit Agreement are hereby incorporated by reference herein, mutatis mutandis.

SECTION 2. SP 1 Payoff.

(a) Each of the Lender Agent and SP 1 confirms that the aggregate amount (the “SP 1 Payoff Amount”) as of the SP 1 Payoff Date necessary to pay in full all amounts owing by the Borrowers to SP 1 under the Existing Credit Agreement and the other Loan Documents (as defined in the Existing Credit Agreement) is $8,139,256.35 (consisting of (i) the principal amount of $8,119,633.90 and (ii) the interest amount of $19,622.45), subject to the same being paid by wire to, and confirmed received not later than 5:00 p.m. (New York time) on the SP 1 Payoff Date by, the Lender Agent in U.S. Dollars in immediately available funds to the account of the Lender Agent. In the event the SP 1 Payoff Amount is not received by the time specified above on the SP 1 Payoff Date in accordance with the terms of this Agreement the SP 1 Payoff Amount will be subject to adjustment.

(b) The Borrowers and the Amendment Parties acknowledge and agree that (i) as of the Effective Time, SP 1 shall have no further obligation, duty, liability or responsibility under the Existing Credit Agreement, any other Loan Document or any other document or agreement executed and/or delivered in connection therewith (except as otherwise expressly provided herein and except for such obligations, duties, liabilities or responsibilities that are otherwise expressly stated in the Existing Credit Agreement or any such Loan Document as surviving that agreement’s or document’s termination, which in any such case shall, as so specified, survive without prejudice and remain in full force and effect), (ii) if any payment at any time made to the Lender Agent or SP 1 on account of the SP 1 Payoff Amount is ever avoided, rescinded, set aside or must otherwise be returned or repaid by the Lender Agent or SP 1, whether in bankruptcy, reorganization, insolvency or similar proceedings involving the Borrowers or the Amendment Parties or otherwise, then such amount and the obligations and liability of the Borrowers and the Amendment Parties under the Existing Credit Agreement and the other Loan Documents intended to be paid shall immediately be reinstated with full force and effect, without need for any action by any person, and shall be enforceable against the Borrowers and the Amendment Parties and their successors and assigns as if such payment had never been made, and (iii) forever releases and discharges SP 1 and its agents, officers, and directors from any and all claims, suits or causes of action the Borrowers and the Amendment Parties may have against SP 1 or its agents, officers and directors arising out of or relating to the Loan Documents.

(c) The Existing Lenders and Lender Agent (i) acknowledge and agree that, as of the Effective Time, all indebtedness of the Borrowers and the Amendment Parties to the SP 1 in respect of the Existing Credit Agreement and the other Loan Documents (as defined in the Existing Credit Agreement) shall be fully paid and discharged; and (ii) consent to the repayment of the SP 1 Payoff Amount solely to SP 1 notwithstanding anything to the contrary in the Existing Credit Agreement or any other Loan Document.

2

SECTION 3. Amendment and Restatement of the Existing Credit Agreement. Effective on the Restatement Effective Date (as defined below), the Existing Credit Agreement is hereby amended and restated to read in its entirety in the form of the Restated Credit Agreement attached as Exhibit A hereto. From and after the effectiveness of such amendment and restatement, the terms “Agreement”, “this Agreement”, “herein”, “hereinafter”, “hereto”, “hereof” and words of similar import, as used in the Restated Credit Agreement, shall, unless the context otherwise requires, refer to the Restated Credit Agreement, and the term “Credit Agreement”, as used in the other Loan Documents, shall mean the Restated Credit Agreement, as may be further amended, supplemented or otherwise modified from time to time. This Agreement shall constitute a “Loan Document” under the Restated Credit Agreement.

SECTION 4. MidCap Consent. Subject to the satisfaction of the conditions precedent specified in Section 6 below, but effective as of the date hereof, Lender Agent, the Existing Lenders and the Lender consent, under the Existing Credit Agreement, the Restated Credit Agreement and all other Loan Documents, to the increase in the aggregate available revolving commitments from $30,000,000 to $35,000,000 under the Credit and Security Agreement, dated as of August 30, 2010, among the Borrowers, MidCap Financial, LLC, as agent for lenders, and lenders party thereto (the “MidCap Facility”), including without limitation Section 1.17 of the Existing Credit Agreement and Section 1.17 of the Restated Credit Agreement, and waive compliance by the Borrowers, PCHI and Ganesha with the provisions of Section 1.4(b) of the Existing Credit Agreement and Section 1.4(b) of the Restated Credit Agreement solely with respect to, and to effectuate, the increase in the aggregate available revolving commitments from $30,000,000 to $35,000,000 under the MidCap Facility. For the avoidance of doubt, the consent hereunder is limited solely to increasing the aggregate available revolving commitments from $30,000,000 to $35,000,000 and not to any other amendment of the MidCap Facility that may require consent of Lender Agent and/or the Lender under the A/R Facility Intercreditor Agreement and the Loan Documents.

SECTION 5. Representations and Warranties. To induce the other parties hereto to enter into this Agreement, each Borrower and each Amendment Party hereby represents and warrants with respect to itself to each Existing Lender and the Lender Agent that:

(a) The execution, delivery and performance by the Borrowers and Amendment Parties of this Agreement: (i) are within such Person’s power; (ii) have been duly authorized by all necessary corporate or limited liability company action; (iii) do not contravene any provision of such Person’s bylaws or operating agreement; (iv) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (v) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument, including without limitation the A/R Facility, to which such Person is a party or by which such Person or any of its property is bound; and (vi) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Lender Agent for the benefit of the Existing Lenders pursuant to the Loan Documents. Each Borrower and each Amendment Party has obtained all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement. This Agreement has been duly executed and delivered by each Borrower and each Amendment Party and constitutes a legal, valid and binding obligation of each Borrower and Amendment Party enforceable against it in accordance with its terms, except as the enforceability of this Agreement may be limited by bankruptcy, insolvency or other similar laws relating to the enforcement of creditors’ rights generally and by general equitable principles.

3

(b) Except as set forth on Schedule 5(b) hereto, each of the representations and warranties made by each Borrower and each Amendment Party set forth in Section 3 of the Restated Credit Agreement is true and correct in all material respects (or if already qualified by materiality, in all respects) on and as of the Restatement Effective Date as if made on and as of the Restatement Effective Date (or, if any such representation or warranty is expressly stated to have been made as of a specific date, such representation or warranty shall be true and correct in all material respects (or if already qualified by materiality, in all respects) as of such specific date).

(c) No Default or Event of Default has occurred and is continuing as of the date hereof and as of the Restatement Effective Date.

SECTION 6. Conditions Precedent; Effectiveness. As provided in Section 3 above, the amendment and restatement of the Existing Credit Agreement contemplated hereby shall become effective, as of the date (the “Restatement Effective Date”) and effective simultaneously with and as of the time of receipt by the Lender Agent of the SP 1 Payoff Amount in the manner described above in Section 2 (“Effective Time”), upon which the following conditions precedent have been satisfied (or waived by the Existing Lenders):

(a) Existing Lenders shall have received reasonably satisfactory evidence that there shall have been no material adverse change in the business, assets, properties, liabilities (actual or contingent), operations, condition (financial or otherwise) or prospects of IHHI and its Subsidiaries, taken as a whole, since September 30, 2012.

(b) On the Restatement Effective Date, the following statements shall be true and the Lender Agent shall have received a certificate signed by a duly authorized officer of the Borrowers and the Amendment Parties, dated the Restatement Effective Date, setting forth the following:

(i) Except as set forth on Schedule 3.12A to the Restated Credit Agreement, there is no pending or (to the knowledge of the Borrowers or the Amendment Parties) threatened action or proceeding affecting the Borrowers or the Amendment Parties or any of their respective Subsidiaries before any court, governmental agency or arbitrator that is reasonably likely to have a Material Adverse Effect.

(ii) Each of the representations and warranties set forth in Sections 5(b) and (c) hereof.

(iii) No event or circumstance shall have occurred that has or reasonably could be expected to have a Material Adverse Effect as to the Borrowers and the Amendment Parties.

(c) The Borrowers shall have paid to the Lender Agent on the Restatement Effective Date:

(i) the SP 1 Payoff Amount for the benefit of SP 1 from the proceeds of the Loans to be disbursed under the Restated Credit Agreement,

(ii) the repurchase price in an aggregate amount equal to $840,868.25, to SP 1 pursuant to the Repurchase Agreement (as defined below) from the proceeds of the Loans to be disbursed under the Restated Credit Agreement, and

4

(iii)  all reasonable and documented invoiced fees and expenses of the Lender Agent and the Existing Lenders (including the reasonable and documented invoiced fees and expenses of counsel to the Lender Agent).

(d) The Lender Agent shall have received on or before the Restatement Effective Date the following in form and substance reasonably satisfactory to the Lender Agent and in sufficient copies for the Lender:

(i) A copy of the articles of incorporation for each Borrower and a copy of the articles of organization for each Amendment Party, certified by the Secretary of State for the state of incorporation or organization dated as of a recent date reasonably satisfactory to the Lender Agent prior to the Restatement Effective Date.

(ii) A certificate of good standing issued by the applicable state of incorporation or organization for each Borrower and each Amendment Party, certified by the Secretary of State for the state of incorporation or organization dated as of a recent date reasonably satisfactory to the Lender Agent prior to the Restatement Effective Date.

(iii) The bylaws or operating agreement for each Borrower and each Amendment Party, certified to be true and accurate by the corporate secretary of each Borrower and by the manager of each Amendment Party.

(iv) An incumbency certificate (officers and directors, or managers and members) for each Borrower and each Amendment Party, certified to be true and accurate by the corporate secretary of each Borrower and by the manager of each Amendment Party.

(v) The resolutions duly adopted by the board of directors of each Borrower and the resolutions duly adopted by all managers of each Amendment Party, authorizing the transactions set forth in this Agreement.

(vi) A favorable opinion of counsel licensed to practice law and in good standing in the State of California for PCHI, Ganesha, WMC-A, WMC-SA, Coastal and Chapman, addressed to the Lender Agent and the Existing Lenders, dated as of the Restatement Effective Date and in form and substance reasonably satisfactory to the Lender Agent.

(vii) A favorable opinion of counsel licensed to practice law and in good standing in the State of Nevada for IHHI, addressed to the Lender Agent and the Existing Lenders, dated as of the Restatement Effective Date and in form and substance reasonably satisfactory to the Lender Agent.

(viii) The Lender Agent shall have received from each Borrower and each Amendment Party the results of recent UCC searches with respect to each Borrower and each Amendment Party, which are reasonably satisfactory to the Lender Agent.

(e) The Lender Agent (and its counsel) shall have received from each Borrower and each Amendment Party either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Lender Agent (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement.

5

(f) The Lender Agent (and its counsel) shall have received from each Borrower and each Amendment Party (i) a counterpart of the Confirmation attached as Exhibit B hereto (the “Confirmation”) signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Lender Agent (which may include telecopy transmission of a signed signature page of the Confirmation) that such party has signed a counterpart of the Confirmation.

(g) The Lender Agent (and its counsel) shall have received from IHHI (i)  Amendment No. 1 to the Common Stock Warrant for SPCP Group, LLC attached as Exhibit C-1 hereto, Amendment No. 1 to the Common Stock Warrant for KPC Resolution Company, LLC attached as Exhibit C-2 hereto and Amendment No. 1 to the Common Stock Warrant for Kali P. Chaudhuri, M.D. attached as Exhibit C-3 hereto (together, the “Warrant Amendments”) signed on behalf of such party or (ii) written evidence reasonably satisfactory to the Lender Agent (which may include telecopy transmission of a signed signature page of each Warrant Amendment) that such party has signed a counterpart of each of the Warrant Amendments.

(h) Contemporaneously herewith, IHHI shall have purchased the Common Stock Warrant from SPCP Group IV, LLC pursuant to the terms of the Warrant Repurchase Agreement attached as Exhibit D hereto (the “Repurchase Agreement”).

(i) Upon consummation of the repurchase of the Common Stock Warrant pursuant to the Repurchase Agreement, the Lender Agent (and its counsel) shall have received from IHHI the Common Stock Warrant for SPCP Group, LLC attached as Exhibit E hereto signed on behalf of such party.

SECTION 7. Amendments; Waivers. This Agreement may be amended, waived, modified or supplemented only by written agreement signed by each Borrower, each Amendment Party, the Lender and the Lender Agent.

SECTION 8. Notices. All notices hereunder shall be given in accordance with the provisions of Section 11.12 of the Restated Credit Agreement.

SECTION 9. Headings. The Section headings used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement.

SECTION 10. Effect of Amendment. Except as expressly set forth in this Agreement, this Agreement shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect, the rights, remedies, powers or privileges of Lender Agent or any Lender under the Existing Credit Agreement or any other Loan Documents, and shall not alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Existing Credit Agreement or any other Loan Documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing contained in this Agreement shall be deemed to entitle the Borrowers or the Amendment Parties to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Existing Credit Agreement or any other Loan Documents in similar or different circumstances.

6

SECTION 11. Release. Each Borrower and each Amendment Party voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees (collectively, “Releasing Parties”), does hereby fully and completely release, acquit and forever discharge the Lender Agent, each Existing Lender, their respective successors and assigns and each of their respective affiliates, subsidiaries, predecessors, directors, officers, partners, attorneys, employees, agents and representatives (collectively referred to as the “Releasees”) of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Releasees or any of them (whether directly or indirectly). Each Borrower and each Amendment Party acknowledges that the foregoing release is a material inducement to Lender Agent’s and Existing Lenders’ decision to enter into this Agreement and to agree to the modification made contemplated hereunder.

SECTION 12. Miscellaneous. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument and any of the parties to this Agreement may execute this Agreement by signing any such counterpart. Facsimile and electronically copied signatures on this Agreement shall be deemed the equivalent of original signatures. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns. This Agreement shall be governed by, and construed in accordance with, the law of the State of Nevada.

[Remainder of this page intentionally left blank]

7

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first written above.

EXISTING LENDER: SPCP Group IV, LLC, a Delaware limited liability company By: Silver Point C&I Opportunity GP, LLC,
By:	/s/ Michael A. Gatto
Name:	Michael A. Gatto
Title:	Authorized Signatory

EXISTING LENDER AND LENDER: SPCP Group, LLC, a Delaware limited liability company
By:	/s/ Michael A. Gatto
Name:	Michael A. Gatto
Title:	Authorized Signatory

LENDER AGENT: SILVER POINT FINANCE, LLC, a Delaware limited liability company
By:	/s/ Michael A. Gatto
Name:	Michael A. Gatto
Title:	Authorized Signatory

[Signature Page to Amendment and Restatement to Credit Agreement]

8

BORROWERS: INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

WMC-A, INC., a California corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

WMC-SA, INC., a California corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

COASTAL COMMUNITIES HOSPITAL, INC., a California corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

CHAPMAN MEDICAL CENTER, INC., a California corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

[Signature Page to Amendment and Restatement to Credit Agreement]

9

AMENDMENT PARTIES: PACIFIC COAST HOLDINGS INVESTMENT, LLC, a California limited liability company
By:	/s/ Jacob Sweidan
Name:	Jacob Sweidan, M.D.
Title:	Co-Manager
By:	/s/ Kali P. Chaudhuri
Name:	Kali M. Chaudhuri, M.D.
Title:	Co-Manager

ganesha realty, llc, a California limited liability company
By:	/s/ Kali P. Chaudhuri
Name:	Kali M. Chaudhuri, M.D.
Title:	Manager

[Signature Page to Amendment and Restatement to Credit Agreement]

10

Exhibit A

Restated Credit Agreement

[See attached.]

i

AMENDED AND RESTATED CREDIT AGREEMENT
($47,277,000 TERM LOAN)

Originally dated as of October 9, 2007 and
Amended and Restated on February 7, 2013

among

INTEGRATED HEALTHCARE HOLDINGS, INC.,

WMC-A, INC.,

WMC-SA, INC.,

CHAPMAN MEDICAL CENTER, INC., and

COASTAL COMMUNITIES HOSPITAL, INC.,

as Borrowers,

THE CREDIT PARTIES SIGNATORY HERETO,

as Credit Parties,

THE GUARANTORS SIGNATORY HERETO,

as Guarantors,

and

SPCP GROUP LLC,

as Lender

and

SILVER POINT FINANCE, LLC

as Lender Agent.

ii

TABLE OF CONTENTS

			Page
1.	AMOUNT AND TERMS OF CREDIT FACILITIES		3
	1.1	Term Loan.	3
	1.2	Use of Proceeds	3
	1.3	[Intentionally Omitted.]	3
	1.4	Prepayments	3
	1.5	Interest; Payments	6
	1.6	Maximum Lawful Rate of Interest	7
	1.7	Cash Management System	7
	1.8	[Intentionally Omitted.]	7
	1.9	[Intentionally Omitted.]	7
	1.10	Certain Notices	7
	1.11	Receipt of Payments	7
	1.12	Loan Account	8
	1.13	Access	8
	1.14	Taxes	9
	1.15	Capital Adequacy; Increased Costs; Illegality	9
	1.16	Single Loan	10
	1.17	A/R Financing	10
2.	CONDITIONS PRECEDENT		10
	2.1	Conditions Precedent to the Closing Date	10
	2.2	Further Conditions Precedent to Making Loans; Further Conditions Precedent to Funding Advances	18
	2.3	Place of Closing; Delivery of Loan Documents to Closing Date Lender; Deposits Into Escrow; Close of Escrow; Distribution of Funds and Documents	20
3.	REPRESENTATIONS AND WARRANTIES		27
	3.1	Borrowers and Credit Parties.	28
	3.2	Power, Authorization, Enforceable Obligations	30
	3.3	Financial Statements and Projections	30
	3.4	Material Adverse Effect.	31
	3.5	Ownership of Collateral; Liens	32
	3.6	Labor Matters	32
	3.7	Ventures, Subsidiaries and Affiliates; Outstanding Stock	33
	3.8	Government Regulation	33
	3.9	Margin Regulations	33
	3.10	Taxes	34
	3.11	ERISA	34
	3.12	No Litigation	35
	3.13	Brokers	35
	3.14	Intellectual Property	35
	3.15	Full Disclosure	35
	3.16	Environmental Matters	36
	3.17	Insurance	37
	3.18	Deposit and Disbursement Accounts	37
	3.19	Vendor Relations	37
	3.20	Bonding; Licenses; Permits	37
	3.21	Solvency	37

iii

4.	FINANCIAL STATEMENTS AND INFORMATION		38
	4.1	Reports and Notices	38
	4.2	Communication with Accountants	38
5.	AFFIRMATIVE COVENANTS		38
	5.1	Maintenance of Existence and Conduct of Business	38
	5.2	Payment of Charges.	38
	5.3	Books and Records	39
	5.4	Insurance; Damage to or Destruction of Collateral.	39
	5.5	Compliance with Applicable Laws	40
	5.6	Supplemental Disclosure	40
	5.7	Intellectual Property	41
	5.8	Environmental Matters	41
	5.9	Landlord Agreements	42
	5.10	Further Assurances	42
	5.11	Qualified Cash	42
	5.12	Operation of Business	42
	5.13	After-Acquired Property; Acquisition of other Real Property Interests	42
	5.14	Observer Status on Borrower’s Board of Directors	42
	5.15	Independent Directors	43
	5.16	Financial Reports, Notices and Other Information	43
6.	NEGATIVE COVENANTS		45
	6.1	Mergers, Subsidiaries, Etc	45
	6.2	Investments; Line of Credit Loan and Advances	45
	6.3	Indebtedness	45
	6.4	Employee Loans and Affiliate Transactions	46
	6.5	Capital Structure and Business	46
	6.6	Guaranteed Indebtedness	46
	6.7	Liens	46
	6.8	Sale of Collateral and Intellectual Property	46
	6.9	ERISA	46
	6.10	Hazardous Materials	47
	6.11	Restricted Payments.	47
	6.12	Change of Corporate Name, State of Organization or Location; Change of Fiscal Year	47
	6.13	No Impairment of Intercompany Transfers	47
	6.14	[Intentionally Omitted.]	47
	6.15	Dr. Shah	47
	6.16	Shareholder Blocking Rights	48
	6.17	Financial Covenants.	48

iv

7.	TERM		50
	7.1	Termination	50
	7.2	Survival of Obligations Upon Termination of Financing Arrangements	51
8.	EVENTS OF DEFAULT; REMEDIES		51
	8.1	Events of Default	51
	8.2	Remedies	55
	8.3	Waivers	56
9.	ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF LENDER		56
	9.1	Assignment and Participations.	56
	9.2	Reliance, Etc	57
10.	SUCCESSORS AND ASSIGNS		58
11.	MISCELLANEOUS		58
	11.1	Complete Agreement; Modification of Agreement	58
	11.2	Amendments and Waivers.	58
	11.3	Fees and Expenses	59
	11.4	No Waiver	60
	11.5	Remedies	61
	11.6	Severability	61
	11.7	Conflict of Terms	61
	11.8	Attorneys’ Fees; Indemnification	61
	11.9	Time of the Essence	61
	11.10	Confidentiality	62
	11.11	GOVERNING LAW.	62
	11.12	Notices	63
	11.13	Section Titles	63
	11.14	Counterparts	63
	11.15	WAIVER OF JURY TRIAL	64
	11.16	Press Releases and Related Matters	64
	11.17	Reinstatement	64
	11.18	Advice of Counsel	65
	11.19	No Strict Construction	65
	11.20	Limitation on Each Borrower’s and Each Credit Party’s Liability	65
	11.21	Lender Agent	65
12.	[Intentionally Omitted.]		66
13.	SURETYSHIP WAIVERS		66
	13.1	Suretyship Waivers	66
	13.2	Election of Remedies	69

v

INDEX OF ANNEXES, EXHIBITS AND DISCLOSURE SCHEDULES

ANNEXES
Annex A	Definitions
Annex B	Cash Management System
Annex C	Collateral Reports
Annex D	Notice Addresses
Annex E	Fixed Charge Coverage Ratio Worksheet
EXHIBITS
Exhibit “A”	Form of Term Note
Exhibit “B”	[Intentionally Omitted]
Exhibit “C”	[Intentionally Omitted]
Exhibit “D”	Form of Notice of Request for Advance
Exhibit “E”	Form of Deed of Trust
Exhibit “F”	Form of Absolute Assignment
Exhibit “G”	Form of Security Agreement
Exhibit “H”	Form of Collateral Assignment of Contracts
Exhibit “I”	Form of Deposit Account Security Agreement
Exhibit “J”	Form of Control Agreement
Exhibit “K”	Form of Post-Closing Agreement
Exhibit “L”	Form of Intellectual Property Security Agreement
Exhibit “M”	Form of Environmental Indemnity Agreement
Exhibit “N”	Form of Guaranty Agreement
Exhibit “O”	Form of Intercreditor Agreement
Exhibit “P”	Form of Pledge Agreement
Exhibit “Q”	Form of Stock Power
Exhibit “R”	Form of Membership Power
Exhibit “S”	Form of Landlord’s Consent and Estoppel Certificate (Chapman Leases)
Exhibit “T”	Form of Landlord’s Consent and Estoppel Certificate (Triple Net Lease)
Exhibit “U”	Form of Warrant

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DISCLOSURE SCHEDULES
Disclosure Schedule 2.1(b)	Required Consents and Approvals
Disclosure Schedule 2.1(c)	Capital Structure of Each Borrower
Disclosure Schedule 3.1	Executive Office, Collateral Locations, FEIN
Disclosure Schedule 3.5	Schedule of Real Estate Owned and Leased
Disclosure Schedule 3.6	Labor Matters
Disclosure Schedule 3.7	Ventures, Subsidiaries and Affiliates; Outstanding Stock
Disclosure Schedule 3.10	Taxes
Disclosure Schedule 3.11	ERISA Plans
Disclosure Schedule 3.12	Litigation
Disclosure Schedule 3.13	Brokers
Disclosure Schedule 3.14	Intellectual Property
Disclosure Schedule 3.16	Environmental Matters
Disclosure Schedule 3.17	Insurance (With Copies of All Certificates of Insurance)
Disclosure Schedule 3.18	Deposit and Disbursement Accounts
Disclosure Schedule 3.20	Bonding; Licenses; Permits
Disclosure Schedule 6.3	Indebtedness
Disclosure Schedule 6.4	Transactions with Affiliates and Employees
Disclosure Schedule 6.7	Existing Liens.

vii

AMENDED AND RESTATED CREDIT AGREEMENT
($47,277,000 Term Loan)

This AMENDED AND RESTATED CREDIT AGREEMENT (“Agreement”), dated as of February 7, 2013, is made by and among INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation (“IHHI”), WMC-A, INC., a California corporation (“WMC-A”), WMC-SA, INC., a California corporation (“WMC-SA”), CHAPMAN MEDICAL CENTER, INC., a California corporation (“Chapman”), and COASTAL COMMUNITIES HOSPITAL, INC., a California corporation (“Coastal”) (IHHI, WMC-A, WMC-SA, Chapman and Coastal are hereinafter together referred to as “Borrowers” and individually as a “Borrower”); PACIFIC COAST HOLDINGS INVESTMENT, LLC, a California limited liability company (“PCHI”); ORANGE COUNTY PHYSICIANS INVESTMENT NETWORK, LLC, a Nevada limited liability company (“OC-PIN”); GANESHA REALTY, LLC, a California limited liability company (“Ganesha”, and together with PCHI and OC-PIN, the “Credit Parties” and individually as a “Credit Party”; and OC-PIN and PCHI are hereinafter together referred to as the “Guarantors” and individually as a “Guarantor”); and SPCP GROUP, LLC, a Delaware limited liability company (together with its permitted successors and assigns, the “Lenders”), and SILVER POINT FINANCE, LLC, a Delaware limited liability company, as Lender Agent (“Silver Point” or “Lender Agent”). Initially capitalized terms used in this Agreement but not otherwise defined herein shall have the meanings ascribed to them in Annex A.

RECITALS

PCHI owns the fee simple title in the Western Medical Center - Anaheim, in the Western Medical Center - Santa Ana, and in the Coastal Communities Hospital (including the medical office buildings located thereon). PCHI leases the Western Medical Center — Anaheim, the Western Medical Center – Santa Ana, and the Coastal Communities Hospital (including the medical office buildings located thereon) to IHHI pursuant to the Triple Net Lease. IHHI subleased the Western Medical Center - Anaheim to WMC-A; IHHI subleased the Western Medical Center - Santa Ana to WMC-SA; and IHHI subleased the Coastal Communities Hospital (including the medical office buildings located thereon) to Coastal. IHHI owns all (100%) of the Stock of WMC-A, WMC-SA and Coastal.

IHHI leases the Hospital Facility and the related medical office buildings located at the Chapman Medical Center from the Hospital Landlord and from the MOB Landlord pursuant to the Chapman Leases. IHHI subleased the Hospital Facility and the related medical office buildings to Chapman. IHHI owns all (100%) of the Stock of Chapman.

OC-PIN is a Shareholder of IHHI.

IHHI, WMC-A, WMC-SA, Coastal and Chapman are in the business of delivering acute care services to the public through the acute care Hospital Facilities; incident thereto, IHHI, WMC-A, WMC-SA, Coastal and Chapman are in the business of owning, operating and/or leasing medical office buildings and other healthcare businesses related thereto.

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IHHI, WMC-A, WMC-SA, Chapman, and Coastal, as borrowers, PCHI, Ganesha, West Coast, and OC-PIN, as the credit parties, the several lenders from time to time party thereto and Medical Provider Financial Corporation III, as lender agent were parties to that certain Credit Agreement dated as of October 9, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “$10,700,000 Credit Agreement”) that provided, subject to the terms and conditions thereof, for loans made by the lenders party thereto to the borrowers party thereto in an aggregate principal of $10,700,000.

IHHI, WMC-A, WMC-SA, Chapman, and Coastal, as borrowers, PCHI, Ganesha, West Coast, and OC-PIN, as the credit parties, the several lenders from time to time party thereto and Medical Provider Financial Corporation I, as lender agent were parties to that certain Credit Agreement dated as of October 9, 2007 (as amended, restated, supplemented or otherwise modified from time to time, the “$50,000,000 Credit Agreement”), that provided, subject to the terms and conditions thereof, for extensions of credit (by means of loans) made by the lenders party thereto to the borrowers party thereto in an aggregate principal or face amount not exceeding $50,000,000.

Pursuant to the payoff letter dated as of August 30, 2010 among Silver Point, as successor lender agent, IHHI, WMC-A, WMC-SA, Chapman, and Coastal, as borrowers, PCHI, and Ganesha, the loans and all other obligations of the borrowers and the credit parties under the $10,700,000 Credit Agreement, the $50,000,000 Credit Agreement, and the $35,000,000 Non-Revolving Line of Credit Loan have each been paid in full and all unfunded commitments thereunder terminated, and the $10,700,000 Credit Agreement, the $50,000,000 Credit Agreement, all provisions relating to the $35,000,000 Non-Revolving Line of Credit Loan in this Agreement and the Intercreditor Agreement were terminated. The references to such loans, obligations, agreements and provisions set forth in this Agreement and the other Loan Documents are historic and have no binding force or effect on the Borrowers or the Credit Parties.

The parties hereto desire to amend the Original Credit Agreement in certain respects (including, without limitation, to extend the Maturity Date (as defined in the Original Credit Agreement) and increase the facility amount) by restating the Original Credit Agreement in its entirety.

All Annexes, Disclosure Schedules, Exhibits and other attachments, or documents expressly identified to this Agreement, are incorporated herein by reference, and taken together with this Agreement, shall constitute but a single agreement. These Recitals shall be construed as part of the Agreement.

AGREEMENT

NOW, THEREFORE, in consideration of the covenants and conditions hereinafter contained, and for other good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, Borrowers, Lenders, Lender Agent, Credit Parties and Guarantors agree as follows:

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1. AMOUNT AND TERMS OF CREDIT FACILITIES

1.1 Term Loan. (a) Lenders made the aggregate principal amount of $45,000,000 available to Borrowers on the Closing Date. Pursuant to Amendment No. 4 to Credit Agreement and Consent dated as of August 1, 2012, the aggregate principal amount of the Loans was increased to $46,350,000. SPCP Group IV, LLC, as Lender under the Original Credit Agreement, simultaneously with the effectiveness of this Agreement, is being repaid in full in the aggregate amount of $8,139,256.35 as of the Restatement Effective Date ($8,119,633.90 on account of principal and $19,622.45 on account of interest), and SPCP Group, LLC’s aggregate commitment to make Loans, simultaneously with the effectiveness of this Agreement, is being increased by an amount of $9,046,633.90 (the “Restatement Increase Amount”), such increase being made available as of the Restatement Effective Date. After the borrowing of the Restatement Increase Amount, as of the Restatement Effective Date, the aggregate principal amount of the Existing Real Estate Term Loans is $47,277,000. All Existing Real Estate Term Loans shall remain outstanding as of the Restatement Effective Date and shall be “Loans” for all purposes of this Agreement and the other Loan Documents.

(b) On the Restatement Effective Date, SPCP Group, LLC, as Lender, which holds an Existing Real Estate Term Note shall be entitled to continue such Existing Real Estate Term Note; provided that at the Lender’s option such Lender’s Existing Real Estate Term Note may be exchanged for a new Term Note in the form ofExhibit “A” attached hereto. The Term Note represents the obligation of Borrowers, jointly and severally, individually and collectively, to repay the Loan to Lenders. During the term of the Term Note, Borrowers shall not be required to make any payments of principal, however, Borrowers shall pay interest to Lenders on the entire principal balance outstanding from time to time, in arrears, on each applicable Interest Payment Date, at the Interest Rate applicable to the Loan, and the entire balance of unpaid principal, plus all accrued but unpaid interest thereon and all other non-contingent Obligations due and owing thereunder, shall be due and payable in full in a single payment in immediately available funds, on the Maturity Date.

1.2 Use of Proceeds. Borrowers shall utilize the proceeds of the Restatement Increase Amount (a) to repay the amounts owing by the Borrowers to SPCP Group IV, LLC under the Original Credit Agreement, (b) to repurchase the warrant previously issued by IHHI to SPCP Group IV, LLC pursuant to the Repurchase Agreement, and (c) for working capital and general corporate purposes of Borrowers.

1.3 [Intentionally Omitted.]

1.4 Prepayments.

(a) Voluntary Prepayments. Borrowers may prepay all, but not less than all, Loan at any time; provided that the Borrowers shall pay to the Lender Agent, for the ratable account of each Lender, (A) a prepayment premium of 5.0% of the principal amount of the Loan being prepaid in the case of a voluntary prepayment made on or prior to December 31, 2013 and (B) a prepayment premium of 2.0% of the principal amount of the Loan being prepaid in the case of a voluntary prepayment made on or after January 1, 2014 and on or prior to December 31, 2014.

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(b) Mandatory Prepayments. Notwithstanding the foregoing, (i) immediately upon receipt by Borrowers or Credit Parties of any cash proceeds of any sale or other disposition of any Collateral, Borrowers shall (or, without limiting the obligation of the Borrowers to make such payment, may cause the Credit Party receiving such cash proceeds to) prepay the Loans in an amount equal to all such proceeds, net of (A) commissions and other reasonable and customary transaction costs, fees and expenses properly attributable to such transaction and payable by Borrowers in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, and (C) an appropriate reserve for income taxes; and (ii) immediately upon receipt by Borrowers or Credit Parties of any payment or reimbursement of enhanced federal matching funds, net of: provider fees, pledged funds due to the California Health Foundation & Trust and estimated federal and state taxes on such net funds (assuming a marginal blended tax rate of 40%) received from Medi-Cal upon implementation of California AB1383 (or any substitute, replacement or successor legislation or payments) (“Net QAF Funds”), Borrowers shall prepay any outstanding principal amounts under the A/R Facility in an amount equal to 80% of such Net QAF Funds; provided Borrowers shall not be required to prepay such amounts below the aggregate principal amount of $10,000,000 and provided, further, that in the case of a prepayment under the A/R Facility, any commitments which remain outstanding in excess of such $10,000,000 may not be reborrowed, without the prior written consent of Lender Agent unless the proceeds of such borrowing are used by Borrower solely for the purpose of making quality assurance or enhanced funds payments relating to federal matching funds and related payments of taxes and pledged funds due to the California Health Foundation & Trust so long as the Borrowers deliver to the Lender Agent an officer’s certificate certifying to the amount of such borrowing and the use of the proceeds thereof solely for such purpose (for the avoidance of doubt, the Borrowers shall not be restricted in their use of proceeds with respect to all or any portion of the aggregate commitment amount of $10,000,000 under the A/R Facility). Any prepayment pursuant to clause (i) of the immediately foregoing sentence shall be applied in accordance with Section 1.4(c) (Application of Prepayments). The following shall not be subject to mandatory prepayment under this subsection: (1) proceeds of sales of Inventory in the ordinary course of business; (2) proceeds of collection of Accounts in the ordinary course of business (except as otherwise set forth herein); and (3) proceeds of sales of Equipment and other personal property in the ordinary course of business so long as such Equipment and other personal property is replaced (if necessary in the exercise of prudent business judgment) by Equipment and other personal property of equal or greater value or utility. Notwithstanding anything to the contrary set forth herein, this Section 1.4(b) shall not apply to the Borrowers or Credit Parties if the Borrowers or Credit Parties repay in full in cash all Obligations outstanding under this Agreement and the other Loan Documents with (x) the proceeds of such payments or reimbursement of enhanced federal matching funds, (y) any loans made under the A/R Facility, or (z) any combination of proceeds described in the preceding clause (x) or loans described in the preceding clause (y).

(c) Application of Prepayments. Any prepayments made pursuant to Section 1.4 (a) or (b) (Prepayments) above shall be applied as follows: first, to reimbursable expenses of Lenders then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on the Loans; third, and last, in such order as Lenders shall determine in their sole and absolute discretion, to the principal balance of the Loans until the same has been paid in full. If an Event of Default has occurred and is continuing, Lenders shall have the absolute right, in their sole discretion, to determine which of the Obligations shall be paid and in what order and amounts.

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(d) Application of Prepayments from Insurance and Condemnation Proceeds. Prepayments from insurance or condemnation proceeds in accordance with Section 5.4(a) (Insurance) shall be applied to the Loans in the manner described in Section 1.4(c) (Application of Prepayments) above.

(e) No Implied Consent. Nothing in this Section 1.4 (Prepayments) shall be construed to constitute a Lender’s consent to any transaction that is not permitted by other provisions of this Agreement or the other Loan Documents.

(f) [Intentionally Omitted.]

(g) Reliance on Notices; Appointment of Borrower’s Representative. Lenders or Lender Agent shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Request for Advance or other notice believed by Lenders or Lender Agent to be genuine. Lenders or Lender Agent may assume that each Person executing and delivering any notice in accordance herewith, including without limitation the Notice of Request for Advance, was duly authorized, unless the responsible individual acting thereon for Lenders or Lender Agent has actual knowledge to the contrary. Borrowers hereby designate each and any of Kenneth K. Westbrook, Steven R. Blake, and any other officer of IHHI appointed by the board of directors of IHHI to be a “Borrower’s Representative” hereunder, the written notice of which appointment has been given to Lender Agent (any such individual, an “Authorized Individual”), as Borrower’s Representative for the purposes of issuing Notices of Request for Advances, giving instructions with respect to the disbursement of the proceeds of the applicable Loan, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents and taking all other actions (including in respect of compliance with covenants) on behalf of Borrowers under the Loan Documents. Borrower’s Representative hereby accepts such appointment. Lenders or Lender Agent may regard any notice or other communication pursuant to any Loan Document from Borrower’s Representative as a notice or communication from Borrowers, and may give any notice or communication required or permitted to be given to Borrowers hereunder to Borrower’s Representative on behalf of Borrowers. Borrowers agree that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower’s Representative shall be deemed for all purposes to have been made by Borrowers and shall be binding upon and enforceable against Borrowers to the same extent as if the same had been made directly by Borrowers. Borrowers may, by written notice to Lender Agent, seek to terminate the appointment of an Authorized Individual if there is only one Authorized Individual at such time as Borrower’s Representative and propose appointment of replacement Borrower’s Representative; provided, however, said proposed replacement Borrower’s Representative (i) must be an officer or director of IHHI, and (ii) must be acceptable to Lender Agent in its sole discretion. Lender Agent shall within ten (10) Business Days from receipt of said notice deliver a written notice to Borrowers either approving, or disapproving, of said proposed replacement. If Lender Agent timely delivers a notice to Borrowers disapproving the proposed replacement(s), or fails to timely deliver any notice to Borrowers, then such Authorized Individual shall remain as Borrower’s Representative until an acceptable replacement(s) is proposed by Borrowers and approved by Lender Agent. If Lender Agent timely approves said proposed replacement, then from and after the date Lender Agent delivers written notice of approval of said proposed replacement to Borrowers, such Authorized Individual shall cease to be Borrower’s Representative and the proposed replacement shall become Borrower’s Representative.

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1.5 Interest; Payments.

(a) Interest on Loans. During the term of the Loans, Borrowers shall pay interest to the Lenders on all outstanding Advances, in arrears, on each applicable Interest Payment Date, at the Interest Rate.

(b) Principal on the Loans. The Borrowers hereby unconditionally promise to pay the unpaid principal amount of the Loans on the Maturity Date.

(c) Payment Date. If any payment on any Loan becomes due and payable on a day other than a Business Day, the due date thereof will be extended to the next succeeding Business Day, and, with respect to payments of principal, interest thereon shall be payable at the then applicable Interest Rate during such extension.

(d) Computation of Interest. All computations of interest shall be made by Lenders at the applicable Interest Rate and calculated on the basis of a three hundred sixty (360) day year comprised of twelve (12) months of thirty (30) days each.

(e) Default Rate. Notwithstanding the foregoing, so long as an Event of Default has occurred and is continuing under any Loan Document, the Interest Rate applicable to the Loans shall be increased to the Default Rate, and all outstanding Obligations shall bear interest at the Default Rate applicable to such Obligations. Interest at the Default Rate shall accrue from the initial date of such Event of Default until that Event of Default is cured or waived and shall be payable upon demand. All interest payments owing hereunder or under any of the other Loan Documents, including interest accruing at the Default Rate, shall constitute additional Obligations hereunder and shall be secured by the Collateral.

(f) Payment to Lenders’ Account. All payments by Borrowers to Lender Agent for the account of the Lenders hereunder shall be made to the following deposit account unless and until Lender Agent or any Lender directs otherwise:

Bankers Trust

ABA: 021-001-033

A/C Name: Global Loan Services

A/C #: 99907998

Ref: IHHI

(g) Interest Period. If on the third Business Day prior to the expiration of any Interest Period applicable to an Advance of the Loans, IHHI has failed to select, or is not permitted to select, a new Interest Period to be applicable to such Loans, IHHI shall be deemed to have selected an Interest Period of three months. Unless consented to by each Lender, no Interest Period longer than one month may be selected at any time when a Default or Event of Default has occurred and is continuing.

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1.6 Maximum Lawful Rate of Interest. Notwithstanding anything to the contrary set forth in Section 1.5 (Interest; Payments), if a court of competent jurisdiction determines in a final unappealable order that the rate of interest payable hereunder exceeds the Maximum Lawful Rate, then so long as the Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder shall be equal to the Maximum Lawful Rate. In no event shall the total interest received by Lenders pursuant to the terms hereof exceed the amount that such Lenders could lawfully have received had the interest due hereunder been calculated for the full term hereof at the Maximum Lawful Rate. Any payments made by Borrowers in excess of the Maximum Lawful Rate shall be considered voluntary prepayments of the Loans under Section 1.4(a) (Voluntary Prepayments); provided that no prepayment premium set forth therein shall be applicable to any such payments.

1.7 Cash Management System. On or prior to the Closing Date, Borrowers will establish and will maintain until the Termination Date, the Cash Management System described in Annex B (Cash Management System) attached hereto, including but not limited to the provisions of the Deposit Account Security Agreement and related Control Agreements. Notwithstanding anything to the contrary herein or in any other Loan Documents, the provisions relating to cash management, deposit account security agreements or control agreements, including, without limitation, this Section 1.7, shall be subject to the A/R Facility.

1.8 [Intentionally Omitted.]

1.9 [Intentionally Omitted.]

1.10 Certain Notices.

(a) At least three (3) Business Days prior to the Closing Date, Borrowers shall execute and deliver to Lenders and the Lender Agent a Notice of Request for Advance requesting that Lenders make initial Advances under the Loans.

(b) At least three (3) Business Days prior to (i) the Restatement Effective Date and (ii) the expiration of each Interest Period, IHHI shall execute and deliver to Lender Agent a Notice of Interest Period selecting the duration of the initial Interest Period, and if no such notice is delivered, the provisions of Section 1.5(g) shall apply.

1.11 Receipt of Payments. Borrowers shall make each payment under this Agreement and the Notes not later than 5:00 p.m. (New York time) on the day when due in immediately available funds in Dollars to Lender Agent for the account of the Lenders described in Section 1.5(f) (Payment to Lenders’ Account) above. For purposes of computing interest as of any date, all payments shall be deemed received on the Business Day on which immediately available funds therefore are received in Lender Agent’s deposit account prior to 5:00 p.m. (New York time). Payments received in good and immediate funds after 5:00 p.m. (New York time) on any Business Day or on a day that is not a Business Day shall be deemed to have been received on the following Business Day.

(a) Application and Allocation of Payments.

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(i) Application of Payments. So long as no Event of Default has occurred and is continuing, for each Loan, (1) scheduled monthly payments shall be applied first, to reimbursable expenses of Lenders then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on the Loan; third, and last, to the principal balance of the Loan until the same has been paid in full; and (2) voluntary prepayments and mandatory prepayments shall be applied as set forth in Section 1.4(c) (Application of Prepayments). As to any other payment, and as to all payments made when an Event of Default has occurred and is continuing, Borrowers and the Credit Parties hereby irrevocably waive the right to direct the application of any and all payments received from or on behalf of Borrowers, and Borrowers hereby irrevocably agree that Lenders shall have the continuing exclusive right to apply any and all such payments against the Obligations of Borrowers as Lenders may deem advisable notwithstanding any previous entry by Lenders in the Loan Account or any other books and records.

(ii) Charges to the Loans. Lenders are authorized to, and in their sole and absolute discretion may, charge to its respective Loans (which charges shall be deemed to be Advances requested by Borrowers) on behalf of Borrowers and cause to be paid all expenses, Charges, costs (including insurance premiums in accordance with Section 5.4 (Insurance)) and interest and principal, other than principal of the Loan, if and to the extent Borrowers fail to pay promptly any such amounts as and when due. Such charges to the Loan shall not waive any Event of Default due to Borrower’s non-payment, unless Lenders in their sole and absolute discretion, agrees in writing. At Lenders’ option and to the extent permitted by law, any charges so made shall constitute part of the Loan, and shall be secured by the Collateral.

1.12 Loan Account. Lenders shall maintain a Loan Account on its books to record all Advances, all payments made by Borrowers, and all other debits and credits as provided in this Agreement with respect to the Loan or any other Obligations. All entries in the Loan Account shall be made in accordance with Lenders’ customary accounting practices as in effect from time to time. The balance in the Loan Account, as recorded on Lenders’ most recent printout or other written statement, shall, absent demonstrable error, be presumptive evidence of the amounts due and owing to Lenders by Borrowers; provided that any failure to so record or any error in so recording shall not limit or otherwise affect Borrower’s duty to pay the Obligations. Lenders shall render to Borrower’s Representative a monthly accounting of transactions with respect to the Loans setting forth the balance of the Loan Account as to Borrowers for the immediately preceding month. Unless Borrower’s Representative notifies Lenders in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) calendar days after the date of Borrower’s Representative’s receipt thereof, each and every such accounting shall be presumptive evidence of all matters reflected therein. Only those items expressly objected to in such notice and explaining the basis for such objection(s) shall be deemed to be disputed by Borrowers.

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1.13 Access. Borrowers and Credit Parties (other than Ganesha) shall, during normal business hours, from time to time upon 24 hours prior notice as frequently as Lenders reasonably determines to be appropriate: (a) provide Lenders and any of its officers, employees and agents access to its properties, facilities, advisors, officers and employees of Borrowers and Credit Parties (other than Ganesha) and to the Collateral for purposes of exercising and enforcing Lenders’ rights and remedies under the Loan Documents, (b) permit Lenders and any of its officers, employees and agents, to inspect, audit and make extracts from Borrower’s and Credit Party’s (other than Ganesha’s) respective books and records pertaining to the Loans and the Collateral, and (c) permit Lenders and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Collateral of Borrowers and Credit Parties. If an Event of Default has occurred and is continuing, Borrowers and Credit Parties (other than Ganesha) shall provide such access to Lenders at all times and without advance notice. Furthermore, so long as any Event of Default has occurred and is continuing, Borrowers shall use commercially reasonable efforts to provide Lenders with access to their suppliers and customers. Borrowers and Credit Parties (other than Ganesha) shall make available to Lenders and its counsel reasonably promptly originals or copies of all books and records that Lenders may reasonably request. Borrowers and Credit Parties (other than Ganesha) shall deliver any document or instrument necessary for Lenders as it may from time to time request, to obtain records from any service bureau or other Person that maintains records for Borrowers and Credit Parties pertaining to the Loans or the Collateral.

1.14 Taxes.

(a) No Deduction for Taxes. Any and all payments by Borrowers hereunder (including any payments made pursuant to Section 13 (Suretyship Waivers) or under the Notes shall be made, in accordance with this Section 1.14 (Taxes), free and clear of and without deduction for any and all present or future Taxes. If Borrowers shall be required by law to deduct any Taxes from or in respect of any sum payable hereunder (including any sum payable pursuant to Section 13 (Suretyship Waivers)) or under such Notes, (i) the sum payable shall be increased as much as shall be necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 1.14 (Taxes)) Lenders receive an amount equal to the sum it would have received had no such deductions been made, (ii) Borrowers shall make such deductions, and (iii) Borrowers shall pay the full amount deducted to the relevant taxing or other authority in accordance with applicable law. Within thirty (30) days after the date of any payment of Taxes, Borrower’s Representative shall furnish to Lenders the original or a certified copy of a receipt evidencing payment thereof.

(b) Indemnity for Taxes. Borrowers hereby agree to indemnify, defend, protect and hold Lenders free and harmless from any claim or demand for payment of, and within ten (10) calendar days of receipt of demand therefor agrees to pay to Lenders, (i) any and all Taxes that Borrowers are obligated to pay pursuant to this Section 1.14 (Taxes) (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.14 (Taxes)), plus (ii) the full amount of any additional liability (including penalties, interest and expenses) payable or paid by Lenders arising therefrom or with respect thereto, whether or not the same were correctly or legally asserted. Notwithstanding the foregoing, Lenders remains ultimately responsible for paying any and all income taxes measured by Lenders’ own gross income.

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1.15 Capital Adequacy; Increased Costs; Illegality.

(a) Capital Adequacy. If any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by Lenders with any request or directive compliance regarding capital adequacy, reserve requirements or similar requirements (whether or not having the force of law), in each case, adopted after the Closing Date, from any Governmental Authority increases or would have the effect of increasing the amount of capital, reserves or other funds required to be maintained by Lenders and thereby reducing the rate of return on Lenders’ capital as a consequence of its obligations hereunder, then Borrowers shall from time to time upon demand by Lenders pay to Lenders additional amounts sufficient to compensate Lenders for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by Lenders to Borrower’s Representative shall be presumptive evidence of the matters set forth therein.

(b) Increased Costs. If, due to either (i) the introduction of or any change in any law or regulation (or any change in the interpretation thereof) or (ii) the compliance with any guideline or request from any Governmental Authority (whether or not having the force of law), in each case adopted after the Closing Date, there shall be any increase in the cost to Lenders of agreeing to make or making, funding or maintaining the Loans, then Borrowers shall from time to time, upon demand by Lenders pay to Lenders additional amounts sufficient to compensate Lenders for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower’s Representative by Lenders, shall be presumptive evidence of the matters set forth therein. Lenders agree that, as promptly as practicable after they become aware of any circumstances referred to above which would result in any such increased cost, Lenders shall, to the extent not inconsistent with Lenders’ internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrowers pursuant to this Section 1.15(b) (Increased Costs). Provided, however, the amounts due from Borrowers under Sections 1.15(a) and (b) (Capital Adequacy; Increased Costs) shall not include amounts attributable to Lenders’ non-compliance with any requirement of any Governmental Authority or to Lenders’ non-payment of its own income taxes or to any increase in Lenders’ income taxes.

1.16 Single Loan. The Loans to Borrowers and all of the other Obligations of Borrowers arising under this Agreement and the other Loan Documents shall constitute one general obligation of Borrowers secured by the Liens on all of the Collateral.

1.17 A/R Financing. If at any time the A/R Facility terminates, Lenders shall immediately and automatically have a first lien on the A/R Facility Collateral and the Borrowers shall execute any and all agreements or documents and make any and all filings as requested by Lenders in order to give effect thereto.

2. CONDITIONS PRECEDENT

2.1 Conditions Precedent to the Closing Date. Closing Date Lender shall not be obligated to take, fulfill, or perform any action hereunder, nor shall Closing Date Lender be obligated to fund any portion of the Loans, until the following conditions precedent have been satisfied or provided for in a manner satisfactory to Closing Date Lender, in its sole discretion, or waived in writing by Closing Date Lender:

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(a) Credit Agreement; Disclosure Schedules. Two (2) duplicate original counterparts of this Agreement shall have been duly executed by and delivered by each Borrower and each Credit Party and each Guarantor to Closing Date Lender; and Closing Date Lender shall have received original updated two (2) sets of Disclosure Schedules in form and substance satisfactory to Closing Date Lender, each dated and executed by each Borrower.

(b) Approvals. Closing Date Lender shall have received satisfactory evidence that each Borrower and each Credit Party have obtained, or in the case of necessary Governmental Authority approvals, have applied for, all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents. Disclosure Schedule 2.1(b) attached hereto lists all required consents and approvals of all Governmental Authorities and all other Persons.

(c) Capital Structure; Other Indebtedness. The capital structure of each Borrower and each Credit Party (other than Ganesha) as of the Closing Date, the ownership of each Borrower and each Credit Party (other than Ganesha) as of the Closing Date, and the terms and conditions of all Indebtedness of each Borrower and each Credit Party (other than Ganesha) as of the Closing Date, shall certified by each applicable Person to Closing Date Lender and must be acceptable to Closing Date Lender in its sole and absolute discretion. The capital structure of each Borrower as of the Effective Date is set forth in Disclosure Schedule 2.1(c) attached hereto.

(d) Charter Documents. Each Borrower and each Credit Party (including each Guarantor) shall have delivered the following documents to Closing Date Lender:

(i) A copy of the articles of incorporation for each Borrower and a copy of the or articles of organization for each Credit Party, certified by the Secretary of State for the state of incorporation or organization within the most recent 30 day period prior to the Closing Date of this Agreement.

(ii) A certificate of good standing issued by the applicable state of incorporation or organization for each Borrower and each Credit Party, certified by the Secretary of State for the state or incorporation or organization within the most recent 30 day period prior to the Closing Date of this Agreement.

(iii) The bylaws or operating agreement for each Borrower and each Credit Party, certified to be true and accurate by the corporate secretary of each Borrower and by the manager of each Credit Party within the most recent 30 day period prior to the Closing Date of this Agreement.

(iv) An incumbency certificate (officers and directors, or managers and members) for each Borrower and each Credit Party (including each Guarantor), certified to be true and accurate by the corporate secretary of each Borrower and by the manager of each Credit Party within the most recent 30 day period prior to the Closing Date of this Agreement.

(v) The unanimous written consent of the board of directors of each Borrower and the unanimous written consent of all managers of each Credit Party (including each Guarantor), authorizing the transactions set forth in this Agreement and the other Loan Documents, executed by each such director or manager within most recent 30 day period prior to the Closing Date of this Agreement.

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(e) Voluntary Resignation of Dr. Shah. Based on Closing Date Lender’s prior experience in connection with the Previous Loans, Closing Date Lender has determined in the exercise of its discretion that it is unable to work with Dr. Shah and that it will not make the Loans available to Borrowers unless Dr. Shah shall have voluntarily resigned as a director of and from all other management positions with or in IHHI prior to the Closing Date.

(f) Plan Regarding Engagement of Independent Directors. Closing Date Lender shall have received from IHHI and approved, in its sole discretion, a Plan Regarding Engagement of Independent Directors.

(g) Appraisal. Closing Date Lender shall have received from IHHI and approved, in its sole discretion, the Appraisal.

(h) Loan to Value Ratio. The sum of the Existing Real Estate Term Loan and the $35,000,000 Non-Revolving Line of Credit Loan shall not exceed seventy percent (70%) of the Appraised Value of the Properties as set forth in the Appraisal.

(i) Due Diligence. Closing Date Lender shall have completed its business and legal due diligence and shall have waived all objections thereto.

(j) Title Commitment. For each of the Properties, the Title Company shall have delivered a Title Commitment to Closing Date Lender in form and content acceptable to Closing Date Lender in its sole and absolute discretion.

(k) Notes. The Borrowers shall have each executed and delivered to Closing Date Lender one (1) original of each of the following Notes:

(i) To Closing Date Lender, the Existing Real Estate Term Note in the form of Exhibit “A” attached to the Original Credit Agreement; and

(ii) To Closing Date Lender, the promissory note evidencing the $35,000,000 Non-Revolving Line of Credit in the form of Exhibit “B” attached to the Original Credit Agreement.

(l) Notices of Request for Advance. Borrower’s Representative shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Notice of Request for Advance in the form of Exhibit “D” attached hereto, requesting initial Advances from each of the Loans in the minimum amounts required by this Agreement.

(m) $80,000,000 Deeds of Trust.

(i) With respect to the Western Medical Center - Anaheim, PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original $80,000,000 Deed of Trust in the form of Exhibit “E” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center – Anaheim;

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(ii) With respect to the Western Medical Center - Santa Ana, PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original $80,000,000 Deed of Trust in the form of Exhibit “E” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center – Santa Ana;

(iii) With respect to the Coastal Communities Hospital (and medical office buildings), PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original $80,000,000 Deed of Trust in the form of Exhibit “E” attached hereto, with the legal description describing the fee simple interest in the Coastal Communities Hospital;

(iv) With respect to the Chapman Medical Center:

(A) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original $80,000,000 Deed of Trust in the form of Exhibit “E” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; and

(B) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original $80,000,000 Deed of Trust in the form of Exhibit “E” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease.

(n) Absolute Assignment of Leases and Rents.

(i) With respect to the Western Medical Center - Anaheim, PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Absolute Assignment of Leases and Rents in the form of Exhibit “F” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center - Anaheim;

(ii) With respect to the Western Medical Center — Santa Ana, PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Absolute Assignment of Leases and Rents in the form of Exhibit “F” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center - Santa Ana;

(iii) With respect to the Coastal Communities Hospital, PCHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Absolute Assignment of Leases and Rents in the form of Exhibit “F” attached hereto, with the legal description describing the fee simple interest in the Coastal Communities Hospital;

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(iv) With respect to the Chapman Medical Center:

(A) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Absolute Assignment of Leases and Rents in the form of Exhibit “F” attached hereto, with the legal description describing (1) the fee simple interest Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; and

(B) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Absolute Assignment of Leases and Rents in the form of Exhibit “F” attached hereto, with the legal description describing (1) the fee simple interest Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease.

(o) Security Agreement. Borrowers shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Security Agreement in the form of Exhibit “G” attached hereto.

(p) Collateral Assignment of Contracts.

(i) With respect to the Western Medical Center - Anaheim, IHHI and WMC-A shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Collateral Assignment of Contracts in the form of Exhibit “H” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center - Anaheim;

(ii) With respect to the Western Medical Center - Santa Ana, IHHI and WMC-SA shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Collateral Assignment of Contracts in the form of Exhibit “H” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center — Santa Ana;

(iii) With respect to the Coastal Communities Hospital (and medical office buildings), IHHI and Coastal shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Collateral Assignment of Contracts in the form of Exhibit “H” attached hereto, with the legal description describing the fee simple interest in the Coastal Communities Hospital;

(iv) With respect to the Chapman Medical Center:

(A) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Collateral Assignment of Contracts in the form of Exhibit “H” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; and

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(B) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Collateral Assignment of Contracts in the form of Exhibit “H” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease.

(q) Deposit Account Security Agreement.

(i) With respect to the Western Medical Center — Anaheim, IHHI and WMC-A shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Deposit Account Security Agreement in the form of Exhibit “I” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center — Anaheim;

(ii) With respect to the Western Medical Center - Santa Ana, IHHI and WMC-SA shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Deposit Account Security Agreement in the form of Exhibit “I” attached hereto, with the legal description describing the fee simple interest in the Western Medical Center – Santa Ana;

(iii) With respect to the Coastal Communities Hospital (and medical office buildings), IHHI and Coastal shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Deposit Account Security Agreement in the form of Exhibit ”I” attached hereto, with the legal description describing the fee simple interest in the Coastal Communities Hospital;

(iv) With respect to the Chapman Medical Center:

(A) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Deposit Account Security Agreement in the form of Exhibit ”I” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; and

(B) IHHI shall have executed, acknowledged and delivered to Closing Date Lender (or shall have deposited the same into Escrow as, when and if required by Closing Date Lender) one (1) original Deposit Account Security Agreement in the form of Exhibit ”I” attached hereto, with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease.

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(r) Control Agreement. Borrowers and Bank shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Control Agreement in the form of Exhibit ”J” attached hereto.

(s) Post-Closing Agreement. Borrowers shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Post-Closing Agreement in the form of Exhibit ”K” attached hereto.

(t) Intellectual Property Security Agreement. Borrowers shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Intellectual Property Security Agreement in the form of Exhibit ”L” attached hereto.

(u) Environmental Indemnity Agreement. Borrowers and the Credit Parties (other than Ganesha) shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Environmental Indemnity Agreement in the form of Exhibit ”M” attached hereto.

(v) Guaranty Agreement. Guarantors shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Guaranty Agreement in the form of Exhibit ”N” attached hereto.

(w) Intercreditor Agreement. Borrowers shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Intercreditor Agreement in the form of Exhibit ”O” attached hereto.

(x) Pledge Agreement. IHHI, Ganesha and West Coast shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Pledge Agreement in the form of Exhibit ”P” attached hereto.

(y) Stock Power. IHHI shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Stock Power in the form of Exhibit “Q” attached hereto.

(z) Membership Power. Ganesha and West Coast shall have executed and delivered to Closing Date Lender two (2) duplicate original counterparts of the Membership Power in the form of Exhibit “R” attached hereto.

(aa) Landlord’s Consent and Estoppel Certificate (Chapman Hospital Lease). The Landlord under the Chapman Hospital Lease shall have executed and delivered to Closing Date Lender, for the benefit of Closing Date Lender, two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate in the form of Exhibit “S” attached hereto.

(bb) Landlord’s Consent and Estoppel Certificate (Chapman MOB Lease). The Landlord under the Chapman MOB Lease shall have executed and delivered to Closing Date Lender, for the benefit of Closing Date Lender, two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate in the form of Exhibit “S” attached hereto.

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(cc) Landlord’s Consent and Estoppel Certificate (Triple Net Lease). PCHI, landlord under the Triple Net Lease, shall have executed and delivered to Closing Date Lender, for the benefit of Closing Date Lender, two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate in the form of Exhibit “T” attached hereto.

(dd) Warrant. IHHI shall have executed and delivered to Closing Date Lender one (1) original Warrant in the form of Exhibit “U” attached hereto.

(ee) Legal Opinions.

(i) Legal Opinion of California Counsel. An original legal opinion (from counsel licensed to practice law and in good standing in the State of California) for PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman regarding the transactions contemplated by this Agreement and the other Loan Documents shall be delivered to Closing Date Lender, containing among other things legal opinions with respect to the following: (A) the valid existence of PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman in the State of California; (B) the good standing of PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman in the State of California; (C) the requisite power of PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman to execute this Agreement and the other Loan Documents; (D) that the execution of this Agreement and the other Loan Documents by PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman will not constitute a breach or default under any contracts or agreements executed by or to which PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman is a party; (E) that the choice of law provisions set forth in this Agreement and the other Loan Documents are enforceable; and (F) such other opinions that Closing Date Lender may require.

(ii) First Legal Opinion of Nevada Counsel. A first original legal opinion (from counsel licensed to practice law and in good standing in the State of Nevada) for IHHI and OC-PIN regarding the transactions contemplated by this Agreement and the other Loan Documents shall be delivered to Closing Date Lender, containing among other things legal opinions with respect to the following: (A) the valid existence of IHHI and OC-PIN in the State of Nevada; (B) the good standing of IHHI and OC-PIN in the State of Nevada; (C) the requisite power of IHHI and OC-PIN to execute this Agreement and the other Loan Documents; (D) that the execution of this Agreement and the other Loan Documents by IHHI and OC-PIN will not constitute a breach or default under any contracts or agreements executed by or to which IHHI and OC-PIN is a party; (E) that the choice of law provisions set forth in this Agreement and the other Loan Documents are enforceable; and (F) such other opinions that Closing Date Lender may require.

(iii) Second Legal Opinion of Nevada Counsel. A second original legal opinion from counsel (licensed to practice law and in good standing in the State of Nevada) for all Borrowers and all Credit Parties and all Guarantors regarding the transactions contemplated by this Agreement and the other Loan Documents shall be delivered to Closing Date Lender, containing among other things legal opinions with respect to the following: (A) that this Agreement and the other Loan Documents comply with Nevada law; (B) that this Agreement and the other Loan Documents are enforceable under Nevada law; (C) that the choice of Nevada law under this Agreement and the other Loan Documents is valid and enforceable under Nevada law; (D) that the Interest Rate applicable to each of the Loans is not usurious under Nevada law; and (E) such other matters as Closing Date Lender may require.

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(ff) Fairness Opinion. A fairness opinion executed by a qualified, independent, third-party professional financial advisor or investment bank opining as to (i) the fairness of the transactions contemplated by this Agreement as between the Borrowers and Credit Parties and Guarantors, and (ii) an allocation of fair value to each Hospital Facility, in form and substance satisfactory to Closing Date Lender.

(gg) Closing and Funding Checklist - Other Documents and Instruments. Each Borrower and each Credit Party and each Guarantor shall have executed (where required) and delivered to Closing Date Lender each of the other documents, exhibits, disclosure schedules, instruments and other items listed in the Closing and Funding Checklist, in form and content satisfactory to Closing Date Lender.

(hh) $50,000,000 Credit Agreement. All conditions precedent to the obligation of Medical Provider Financial Corporation I (as lender) under Article 4 of the $50,000,000 Credit Agreement shall have been satisfied or provided for in a manner satisfactory to said lender, in its sole discretion, or waived in writing by said lender

(ii) Documents Required by Title Commitment. Each Borrower shall have executed (where required) and deposited into Escrow all documents and instruments required by the Title Commitment and/or the Escrow Company.

(jj) $10,700,000 Credit Agreement. All conditions precedent to the obligation of Medical Provider Financial Corporation III under Article 2 of the $10,700,000 Credit Agreement shall have been satisfied or provided for in a manner satisfactory to said Medical Provider Financial Corporation III, in its sole discretion, or waived in writing by Medical Provider Financial Corporation III.

2.2 Further Conditions Precedent to Making Loans; Further Conditions Precedent to Funding Advances. The obligations of Closing Date Lender to making the Loans to Borrowers and to funding any Advances under the Loans to Borrowers, shall be subject to the following further conditions precedent:

(a) Further Conditions Precedent to Making Loans. Closing Date Lender shall not be obligated to make any of the Loans to Borrowers unless and until the following additional conditions precedent have been satisfied or provided for in a manner reasonably satisfactory to Closing Date Lender, or waived in writing by Closing Date Lender, on or before the Closing Date:

(i) Loan Documents. All Loan Documents having been executed and delivered on or before the Closing Date shall remain in full force and effect, and Closing Date Lender shall have received such further documents, instruments, agreements and legal opinions as Closing Date Lender shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, each in form and substance satisfactory to Closing Date Lender.

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(ii) $50,000,000 Credit Agreement. All loan documents having been executed and delivered on or before the closing date of the transaction contemplated by the $50,000,000 Credit Agreement shall remain in full force and effect, and the lender under the $50,000,000 Credit Agreement shall have received such further documents, instruments, agreements and legal opinions as such lender shall reasonably request in connection with the transactions contemplated by the $50,000,000 Credit Agreement and the loan documents referenced therein, each in form and substance satisfactory to said lender.

(iii) Approvals. Closing Date Lender shall have received (A) satisfactory evidence (or, shall, in its reasonable discretion, continue to be satisfied with such evidence received under Section 2.1(b) (Approvals)), that each Borrower and each Credit Party have obtained, or in the case of necessary Governmental Authority approvals, have applied for, all required consents and approvals of all Persons including all requisite Governmental Authorities, to the execution, delivery and performance of this Agreement and the other Loan Documents to which they are parties or a signatory, or (B) an officer’s certificate signed by an executive officer of each Borrower in form and substance satisfactory to Closing Date Lender affirming that no such consents or approvals are required.

(iv) Timing. The closing must occur by the Closing Date.

(v) Collateral. Closing Date Lender shall have approved of the Collateral in its sole and absolute discretion.

(vi) Changes to Disclosure Schedules. Borrowers shall have delivered to Closing Date Lender updates to all Disclosure Schedules as required by Section 5.6 (Supplemental Disclosure), and Closing Date Lender shall have approved in its discretion all updates to the Disclosure Schedules as have been delivered to Closing Date Lender on or before the Closing Date.

(vii) No Material Adverse Effect. No event or circumstance shall have occurred that has or reasonably could be expected by Closing Date Lender to have a Material Adverse Effect.

(viii) Title Policies. Title Company shall irrevocably be committed to issue the Title Policy to Closing Date Lender on the Closing Date for each Property, at Borrowers’ sole cost and expense, in form and content acceptable to Closing Date Lender in its sole discretion.

(ix) Escrow. Borrowers shall have opened Escrow at the offices of the Title Company and the escrow officer shall be prepared to close Escrow on the terms and conditions set forth in the Escrow Instructions on deposit therein.

(b) Conditions to Funding Advances. Closing Date Lender shall not be obligated to fund any Advance under any of the Loans to Borrowers on the Closing Date or on any other date if:

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(i) Any representation or warranty by any Borrower or by any Credit Party or by any Guarantor contained herein or in any other Loan Document is untrue or incorrect in any material respect as of such date;

(ii) Any Default or Event of Default has occurred and is continuing or would result after giving effect to any Advance; or

(iii) Any event or circumstance shall have occurred that has or reasonably could be expected by Closing Date Lender to have a Material Adverse Effect.

The request by any Borrower or Borrower’s Representative that Closing Date Lender fund an Advance under any Loan on the Closing Date or on any other date shall in each event be deemed to constitute, as of the date thereof, (A) a representation and warranty by all Borrowers and all Credit Parties and all Guarantors that the conditions precedent in this Section 2.2 (Further Conditions Precedent to Making Loans; Further Conditions Precedent to Funding Advances) to which it is a party or a signatory have been satisfied, and (B) a reaffirmation by each Borrower and by each Credit Party and by each Guarantor of their respective obligations under the Loan Documents.

2.3 Place of Closing; Delivery of Loan Documents to Closing Date Lender; Deposits Into Escrow; Close of Escrow; Distribution of Funds and Documents. The transactions contemplated by this Agreement and the other Loan Documents will close on the Closing Date, as follows:

(a) Place Of Closing. Unless otherwise agreed in writing by Borrowers and Closing Date Lender, the Closing will take place on the Closing Date at the offices of Medical Capital Corporation, 2100 South State College Blvd., Anaheim, California 92806, Attn: Joseph J. Lampariello, President and COO, telephone: 714-935-3100.

(b) Delivery of Loan Documents to Closing Date Lender’s Counsel. Each Borrower shall, not less than three (3) Business Days prior to the Closing Date, deliver or cause to be delivered to legal counsel for Closing Date Lender the following Loan Documents, each duly executed by each Borrower, each Credit Party (where applicable), each Guarantor (where applicable), any other Person required by this Agreement, and, where required, witnessed, acknowledged and in recordable form, with all exhibits, schedules and annexes (each pre-approved by Closing Date Lender ) attached and executed as required:

(i) Two (2) duplicate original counterparts of this Agreement, executed by each Borrower and each Credit Party and each Guarantor and with all completed Annexes and Disclosure Schedules attached.

(ii) One (1) original of the Existing Real Estate Term Note, executed by Borrowers.

(iii) One (1) original of the promissory note evidencing the $35,000,000 Non-Revolving Line of Credit Loan, executed by Borrowers.

(iv) [Intentionally Omitted]

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(v) Two (2) duplicate original counterparts of the Notice of Request for Advance, executed by Borrower’s Representative.

(vi) Two (2) duplicate original counterparts of the Security Agreement, executed by Borrowers.

(vii) Two (2) duplicate original counterparts of the Collateral Assignment of Contracts re Western Medical Center - Anaheim, executed by IHHI and WMC-A.

(viii) Two (2) duplicate original counterparts of the Collateral Assignment of Contracts re Western Medical Center — Santa Ana, executed by IHHI and WMC-SA.

(ix) Two (2) duplicate original counterparts of the Collateral Assignment of Contracts re Coastal Community Hospital, executed by IHHI and Coastal.

(x) Two (2) duplicate original counterparts of the Collateral Assignment of Contracts re Chapman MOB Lease, executed by IHHI.

(xi) Two (2) duplicate original counterparts of the Collateral Assignment of Contracts re Chapman Hospital Lease, executed by IHHI.

(xii) Two (2) duplicate original counterparts of the Deposit Account Security Agreement re Western Medical Center - Anaheim, executed by IHHI and WMC-A.

(xiii) Two (2) duplicate original counterparts of the Deposit Account Security Agreement re Western Medical Center - Santa Ana, executed by IHHI and WMC-SA.

(xiv) Two (2) duplicate original counterparts of the Deposit Account Security Agreement re Coastal Community Hospital, executed by IHHI and Coastal.

(xv) Two (2) duplicate original counterparts of the Deposit Account Security Agreement re Chapman MOB Lease, executed by IHHI.

(xvi) Two (2) duplicate original counterparts of the Deposit Account Security Agreement re Chapman Hospital Lease, executed by IHHI.

(xvii) Two (2) duplicate original counterparts of the Control Agreement, executed by Borrowers and Bank.

(xviii) Two (2) duplicate original counterparts of the Post-Closing Agreement, executed by Borrowers.

(xix) Two (2) duplicate original counterparts of the Intellectual Property Security Agreement, executed by Borrowers.

(xx) Two (2) duplicate original counterparts of the Environmental Indemnity Agreement, executed by Borrowers and by each Credit Party (other than Ganesha).

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(xxi) Two (2) duplicate original counterparts of the Guaranty Agreement, executed by each Guarantor.

(xxii) Two (2) duplicate original counterparts of the Intercreditor Agreement, executed by Borrowers.

(xxiii) Two (2) duplicate original counterparts of the Pledge Agreement, executed by IHHI, Ganesha and West Coast.

(xxiv) Two (2) duplicate original counterparts of the Stock Power executed by IHHI.

(xxv) All original Stock certificates in WMC-A, WMC-SA, Coastal and Chapman owned, held or controlled by IHHI.

(xxvi) Two (2) duplicate original counterparts of the Membership Power executed by Ganesha and West Coast.

(xxvii) All original Membership Certificates in PCHI owned, held or controlled by Ganesha; and all Membership Certificates in PCHI owned, held or controlled by West Coast.

(xxviii) Two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate (Chapman MOB Lease), executed by the Landlord under the Chapman MOB Lease.

(xxix) Two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate (Chapman Hospital Lease), executed by the Landlord under the Chapman Hospital Lease.

(xxx) Two (2) duplicate original counterparts of the Landlord’s Consent and Estoppel Certificate (Triple Net Lease), executed by PCHI.

(xxxi) One (1) original Warrant, executed by IHHI.

(xxxii) Two (2) original executed opinions of California legal counsel for PCHI, West Coast, Ganesha, WMC-A, WMC-SA, Coastal and Chapman, executed by said counsel.

(xxxiii) Two (2) original executed first opinions of Nevada legal counsel for IHHI and OC-PIN, executed by said Nevada counsel.

(xxxiv) Two (2) original executed second opinions of Nevada legal counsel for all Borrowers and Credit Parties and Guarantors, executed by said Nevada counsel.

(xxxv) One (1) original executed fairness opinion, in form and content acceptable to Closing Date Lender.

(xxxvi) All other documents, instruments, agreements, Annexes, Schedules, Exhibits not set forth above but required by the Closing and Funding Checklist.

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(c) Deposits Into Escrow. Unless otherwise set forth below, Borrowers and Closing Date Lender shall, not less than two (2) Business Days prior to the Closing Date, deposit the following documents, instruments and other items into Escrow, each duly executed and, where appropriate, witnessed, acknowledged and in recordable form, with all exhibits, schedules and annexes (each pre-approved by Closing Date Lender ) attached and executed as required:

(i) One (1) copy of this Agreement, executed by Closing Date Lender, by each Borrower and by each Credit Party and by each Guarantor and with all completed Annexes and Disclosure Schedules and Exhibits attached.

(ii) With respect to the Western Medical Center - Anaheim, one (1) original $80,000,000 Deed of Trust executed and acknowledged by PCHI with the legal description describing the fee simple interest in the Western Medical Center - Anaheim.

(iii) With respect to the Western Medical Center - Santa Ana, one (1) original $80,000,000 Deed of Trust executed and acknowledged by PCHI with the legal description describing the fee simple interest in the Western Medical Center - Santa Ana.

(iv) With respect to the Coastal Communities Hospital, one (1) original $80,000,000 Deed of Trust executed and acknowledged by PCHI with the legal description describing the fee simple interest in the Coastal Communities Hospital.

(v) With respect to the Chapman Medical Center:

(A) one (1) original $80,000,000 Deed of Trust executed and acknowledged by IHHI with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; and

(B) one (1) original $80,000,000 Deed of Trust executed and acknowledged by IHHI with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease.

(vi) With respect to the Western Medical Center - Anaheim, one (1) original Absolute Assignment of Leases and Rents executed and acknowledged by PCHI, IHHI and WMC-A with the legal description describing the fee simple interest in the Western Medical Center - Anaheim.

(vii) With respect to the Western Medical Center - Santa Ana, one (1) original Absolute Assignment of Leases and Rents executed and acknowledged by PCHI, IHHI and WMC-SA with the legal description describing the fee simple interest in the Western Medical Center - Santa Ana.

(viii) With respect to the Coastal Communities Hospital, one (1) original Absolute Assignment of Leases and Rents executed and acknowledged by PCHI, IHHI and Coastal with the legal description describing the fee simple interest in the Coastal Communities Hospital.

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(ix) With respect to the Chapman Western Medical Center:

(A) one (1) original Absolute Assignment of Leases and Rents executed and acknowledged by IHHI with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease; and

(B) one (1) original Absolute Assignment of Leases and Rents executed and acknowledged by IHHI with the legal description describing (1) the fee simple interest in the Chapman Medical Center, and (2) IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease.

(x) Escrow Instructions executed by each Borrower and each Credit Party and each Guarantor.

(xi) For each Property, all UCC-1 Financing Statements (Fixture Filing) as are required by Closing Date Lender under the Loan Documents, naming the applicable Person’s as Debtor.

(xii) All other documents, resolutions, charter documents, affidavits and items required by any Title Company pursuant to and as set forth in any Title Commitment.

(xiii) By 11:00 a.m. Los Angeles time on the Closing Date, Closing Date Lender and Borrowers shall deposit into Escrow any funds required by this Agreement.

(d) Close of Escrow; Recordation of Loan Documents. At such time as (i) Escrow Holder holds for the account of Closing Date Lender each of the documents, instruments and funds set forth above; (ii) each Borrower, each Credit Party, each Guarantor and Closing Date Lender have complied with their respective obligations under this Agreement and their respective Escrow Instructions; (iii) Escrow Holder is prepared to close and consummate the transactions contemplated by the $50,000,000 Credit Agreement and has complied with the escrow instructions by the parties to the $50,000,000 Credit Agreement; (iv) Escrow Holder is prepared to close and consummate the transactions contemplated by the $10,700,000 Credit Agreement and has complied with the escrow instructions by the parties to the $10,700,000 Credit Agreement; and (v) the Title Company is irrevocably prepared to issue and deliver each Title Policy to Closing Date Lender on the Closing Date, then Escrow Holder shall close Escrow as follows:

(i) With respect to fee simple interest at Western Medical Center -Anaheim, Escrow Holder will (1) release from record all existing Closing Date Lender Liens re the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous Accounts Receivable Purchase Agreement, and all Previous UCC-1 Financing Statements (Fixture Filings) except any Previous UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $10,700,000 Term Loan; (2) cause the Western Medical Center - Anaheim $80,000,000 Deed of Trust to be recorded as a first Lien and encumbrance against the fee simple title of the Western Medical Center - Santa Ana; (3) cause the Western Medical Center - Anaheim Absolute Assignment of Leases and Rents to be recorded as a Lien and encumbrance against the fee simple title of the Western Medical Center -Anaheim; and (4) cause the Western Medical Center - Anaheim UCC-1 Financing Statement (Fixture Filing) to be recorded, in each case subject only to the applicable Permitted Exceptions.

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(ii) With respect to the fee simple interest at Western Medical Center — Santa Ana, Escrow Holder will (1) release from record all existing Closing Date Lender Liens re the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous Accounts Receivable Purchase Agreement, and all Previous UCC-1 Financing Statements (Fixture Filings) except any Previous UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $10,700,000 Term Loan; (2) cause the Western Medical Center - Santa Ana $80,000,000 Deed of Trust to be recorded as a first Lien and encumbrance against the fee simple title of the Western Medical Center - Santa Ana; (3) cause the Western Medical Center - Santa Ana Absolute Assignment of Leases and Rents to be recorded as a Lien and encumbrance against the fee simple title of the Western Medical Center – Santa Ana; and (4) cause the Western Medical Center — Santa Ana UCC-1 Financing Statement (Fixture Filing) to be recorded, in each case subject only to the applicable Permitted Exceptions.

(iii) With respect to the fee simple interest at Coastal Communities Hospital, Escrow Holder will (1) release from record all existing Closing Date Lender Liens re the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous Accounts Receivable Purchase Agreement, and all Previous UCC-1 Financing Statements (Fixture Filings) except any Previous UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $10,700,000 Term Loan; (2) cause the Coastal Communities Hospital $80,000,000 Deed of Trust to be recorded as a first Lien and encumbrance against the fee simple title of the Coastal Communities Hospital; (3) cause the Coastal Communities Hospital Absolute Assignment of Leases and Rents to be recorded as a Lien and encumbrance against the fee simple title of the Coastal Communities Hospital; and (4) cause the Coastal Communities Hospital UCC-1 Financing Statement (Fixture Filing) to be recorded, in each case subject only to the applicable Permitted Exceptions.

(iv) With respect to IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease at the Chapman Medical Center, Escrow Holder will (1) release from record all existing Closing Date Lender Liens re the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous Accounts Receivable Purchase Agreement, and all Previous UCC-1 Financing Statements (Fixture Filings) except any Previous UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $10,700,000 Term Loan; (2) cause the Chapman Medical Center $80,000,000 Deed of Trust (Chapman MOB Lease) to be recorded as a first Lien and encumbrance against IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease; (3) cause the Chapman Medical Center Absolute Assignment of Leases and Rents (Chapman MOB Lease) to be recorded as a Lien and encumbrance against IHHI’s interest, as MOB tenant, in the Chapman MOB Lease; and (4) cause the Chapman Medical Center UCC-1 Financing Statement (Fixture Filing) (Chapman MOB Lease) to be recorded against Chapman’s interest, as MOB Tenant, in the Chapman MOB Lease, in each case subject only to the applicable Permitted Exceptions.

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(v) With respect to IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease at the Chapman Medical Center, Escrow Holder will (1) release from record all existing Closing Date Lender Liens re the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous Accounts Receivable Purchase Agreement, and all Previous UCC-1 Financing Statements (Fixture Filings) except any Previous UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $10,700,000 Term Loan; (2) cause the Chapman Medical Center $80,000,000 Deed of Trust (Chapman Hospital Lease) to be recorded as a first Lien and encumbrance against IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease; (3) cause the Chapman Medical Center Absolute Assignment of Leases and Rents (Chapman Hospital Lease) to be recorded as a Lien and encumbrance against IHHI’s interest, as Hospital tenant, in the Chapman Hospital Lease; and (4) cause the Chapman Medical Center UCC-1 Financing Statement (Fixture Filing) (Chapman Hospital Lease) to be recorded against Chapman’s interest, as Hospital Tenant, in the Chapman Hospital Lease, in each case subject only to the applicable Permitted Exceptions

(e) Distribution of Funds and Documents by Escrow Holder at Closing. When Escrow Holder is in the position to close Escrow as required by Section 2.3(d) (Close of Escrow; Recordation of Loan Documents) immediately above, but in no event later than the Closing Date, Escrow Holder shall distribute funds and documents then on deposit in Escrow to Borrowers as set forth in Closing Date Lender ’s separate escrow instructions.

(f) Distribution of Documents by Escrow Holder.

(i) The original and one (1) copy of each Closing Date Lender ’s Title Policy to Closing Date Lender.

(ii) A true and correct copy of each of the $80,000,000 Deeds of Trust to Closing Date Lender (with a copy to Borrowers) as recorded.

(iii) A true and correct copy of each of the Absolute Assignment of Leases and Rents to Closing Date Lender (with a copy to Borrowers) as recorded.

(iv) A true and correct copy of each UCC-1 Financing Statement (Fixture Filing) to Closing Date Lender (with a copy to Borrowers) as recorded.

(v) Final settlement statement to Closing Date Lender and to Borrowers with respect to distribution of amounts deposited into this Escrow. Even though the following amounts were not deposited into Escrow, said final settlement statement shall list the total amount of the Advances made by Closing Date Lender to Borrowers pursuant to this Agreement but which were withheld by Closing Date Lender to pay in full the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Origination Fees and Closing Date Lender ’s Costs.

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(g) Distribution of Documents by Closing Date Lender at Closing. When Escrow Holder has closed Escrow and distributed the documents and funds as and when required by this Agreement, Closing Date Lender shall cause the documents then in its possession to be distributed as follows:

(i) To Borrower’s Representative: one (1) duplicate original counterpart of the Absolute Assignments of Leases and Rents; the Security Agreement; the Collateral Assignments of Contracts; the Deposit Account Security Agreements; the Control Agreement; the Post-Closing Agreement; the Intellectual Property Security Agreement; the Environmental Indemnity Agreement; the Guaranty Agreement; the Intercreditor Agreement; the Pledge Agreement; the Stock Power; the Membership Power; the Landlord’s Consent and Estoppel Certificate (Chapman MOB Lease); the Landlord’s Consent and Estoppel Certificate (Chapman Hospital Lease) and the Landlord’s Consent and Estoppel Certificate (Triple Net Lease).

(ii) To Borrower’s Representative: one (1) copy of the Existing Real Estate Term Note; one (1) copy of the promissory note evidencing the $35,000,000 Non-Revolving Line of Credit Loan; and one (1) copy of the fairness opinion.

(iii) To Closing Date Lender: one (1) duplicate original counterpart of the Absolute Assignments of Leases and Rents; the Security Agreement; the Collateral Assignments of Contracts; the Deposit Account Security Agreements; the Control Agreement; the Post-Closing Agreement; the Intellectual Property Security Agreement; the Environmental Indemnity Agreement; the Guaranty Agreement; the Intercreditor Agreement; the Pledge Agreement; the Stock Power; the Membership Power; the Landlord’s Consent and Estoppel Certificate (Chapman MOB Lease); the Landlord’s Consent and Estoppel Certificate (Chapman Hospital Lease); and the Landlord’s Consent and Estoppel Certificate (Triple Net Lease).

(iv) To Closing Date Lender: the original executed Existing Real Estate Term Note; the original executed promissory note evidencing the $35,000,000 Non-Revolving Line of Credit Loan; the original, executed Warrant; the original of each of the executed legal opinions; and the original executed fairness opinion.

3. REPRESENTATIONS AND WARRANTIES

To induce Lenders to make the Loans, Borrowers make the following representations and warranties to Lenders with respect to Borrowers; each Credit Party makes the following representations and warranties to Lenders with respect to itself; and each Guarantor makes the following representations and warranties to Lenders with respect to itself. Each and all of said representations and warranties (i) shall be true, correct, complete and accurate on the Closing Date, on each subsequent funding date and on the Restatement Effective Date (unless expressly limited to a particular date), and (ii) shall survive the execution and delivery of this Agreement (it being understood, that, for purposes of any representation and warranty expressly made as of the Closing Date, each subsequent funding date and the Restatement Effective Date with reference to, or qualified by, a Disclosure Schedule, such reference shall include such updated version, if any, of such Disclosure Schedule as may be made effective (including by consent of Lender Agent for the benefit of Lenders) pursuant to Section 5.6 (Supplemental Disclosure) on or before the Closing Date).

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3.1 Borrowers and Credit Parties.

(a) Corporate Existence; Compliance with Applicable Laws.

(i) IHHI (1) is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada; (2) is registered as a foreign corporation in the State of California and is qualified to do business in and is doing business in the State of California; (3) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses or liabilities which could reasonably be expected to have a Material Adverse Effect; (4) has the requisite power and authority and the legal right to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now conducted or proposed to be conducted; (5) has applied for all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (6) is in compliance with its bylaws; and (7) is in compliance in all material respects with all other Applicable Laws.

(ii) WMC-A, WMC-SA, Coastal and Chapman are each (1) corporations duly organized, validly existing and in good standing under the laws of the State of California; (2) doing business in the State of California; (3) duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses or liabilities which could reasonably be expected to have a Material Adverse Effect; (4) has the requisite power and authority and the legal right to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now conducted or proposed to be conducted; (5) has applied for all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (6) is in compliance with its bylaws; and (7) is in compliance in all material respects with all other Applicable Laws.

(iii) PCHI and Ganesha are each (1) limited liability companies duly organized, validly existing and in good standing under the laws of the State of California; (2) doing business in the State of California; (3) duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses or liabilities which could reasonably be expected to have a Material Adverse Effect; (4) have the requisite power and authority and the legal right to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now conducted or proposed to be conducted; (5) have applied for all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (6) is in compliance with its operating agreement; and (7) is in compliance in all material respects with all other Applicable Laws.

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(iv) OC-PIN is a limited liability company duly organized, validly existing and in good standing under the laws of the State of Nevada; (2) is registered as a foreign limited liability company in the State of California and is qualified to do business in and is doing business in the State of California; (3) is duly qualified to conduct business and is in good standing in each other jurisdiction where its ownership or lease of property or the conduct of its business requires such qualification, except where the failure to be so qualified would not result in exposure to losses or liabilities which could reasonably be expected to have a Material Adverse Effect; (4) has the requisite power and authority and the legal right to own, pledge, mortgage, or otherwise encumber and operate its properties, to lease the property it operates under lease and to conduct its business as now conducted or proposed to be conducted; (5) has applied for all licenses, permits, consents or approvals from or by, and has made all material filings with, and has given all notices to, all Governmental Authorities having jurisdiction, to the extent required for such ownership, operation and conduct; (6) is in compliance with its operating agreement; and (7) is in compliance in all material respects with all other Applicable Laws.

(b) Executive Office, Collateral Locations, FEIN. As of the Closing Date, the name of each Borrower and each Credit Party and each Guarantor, as its name appears in official filings in the States of Nevada and California (as applicable), and the current location of each Borrower’s and each Credit Party’s and each Guarantor’s chief executive office and the premises at which any Collateral is located are set forth in Disclosure Schedule 3.1B. None of such locations has changed within the four (4) months preceding the Closing Date (except that Collateral may have been transferred from one Hospital Facility to another during said period) and each Borrower and Credit Party and each Guarantor has only one state of incorporation or organization and has not changed the state of incorporation or organization at any time within the five (5) year period prior to the Closing Date. During the preceding five (5) years, no Borrower and no Credit Party and no Guarantor has conducted business under or used any name (whether corporate, partnership or assumed) other than as shown on Schedule 3.1A. Each Borrower and each Credit Party and each Guarantor is the sole owner of all of its names listed on Schedule 3.1A, and any and all business done and invoices issued in such names are such Borrower’s and/or such Credit Party’s and such Guarantor’s sales, business and invoices. Each trade name of each Borrower and each Credit Party and each Guarantor represents a division or trading style of such Borrower and/or such Credit Party and/or such Guarantor. All Accounts of each Borrower and each Credit Party (other than Ganesha) and each Guarantor (other than Ganesha) arise, originate and are located, and all of the Collateral and all books and records in connection therewith or in any way relating thereto or evidencing the Collateral are located and shall only be located, in and at such locations other than goods in transit and immaterial amounts of property. All of the Collateral is located only in the continental United States. Each Borrower’s and each Credit Party’s (other than Ganesha) and each Guarantor’s (other than Ganesha) Medicare and Medicaid Provider Numbers are set forth on Schedule 3.1A. In addition, Disclosure Schedule 3.1A lists the federal employer identification number of each Borrower and each Credit Party and each Guarantor.

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3.2 Power, Authorization, Enforceable Obligations. The execution, delivery and performance by Borrowers of the Loan Documents to which it is a party and the creation of all Liens provided for therein: (a) are within such Person’s power; (b) have been duly authorized by all necessary corporate or limited liability company action; (c) do not contravene any provision of such Person’s bylaws or operating agreement; (d) do not violate any law or regulation, or any order or decree of any court or Governmental Authority; (e) do not conflict with or result in the breach or termination of, constitute a default under or accelerate or permit the acceleration of any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Person is a party or by which such Person or any of its property is bound; (f) do not result in the creation or imposition of any Lien upon any of the property of such Person other than those in favor of Lender Agent for the benefit of Lenders pursuant to the Loan Documents; and (g) do not require the consent or approval of any Governmental Authority or any other Person, except those referred to in Section 2.1(b) (Approvals), all of which will have been duly obtained, made or complied with prior to the Closing Date. Each of the Loan Documents shall be duly executed and delivered by Borrowers and Credit Parties and each such Loan Document shall constitute a legal, valid and binding obligation of Borrowers and Credit Parties enforceable against it in accordance with its terms. Credit Parties hereby make the foregoing representations and warranties in clauses (d), (e), (f) and (g) of this Section 3.2 (Power, Authorization, Enforceable Obligations) with respect to the execution, delivery and performance by Credit Parties of the Loan Documents to which Credit Parties are a party and the creation of all Liens provided for therein.

3.3 Financial Statements and Projections. Except for the Projections, all Financial Statements delivered to Lender Agent for the benefit of Lenders by Borrowers that are referred to below have been prepared in accordance with GAAP consistently applied throughout the periods covered (except as disclosed therein and except, with respect to unaudited Financial Statements, for the absence of footnotes and normal year-end audit adjustments) and present fairly in all material respects the financial position of Borrowers as of the dates thereof and the results of their operations and cash flows for the periods then ended. Credit Parties (other than Ganesha) hereby represent and warrant to Lenders that all financial statements delivered to Lender Agent for the benefit of Lenders by Credit Parties present fairly in all material respects the financial position of the Credit Parties as of the dates thereof, and since the date of the most recent financial statements submitted to Lender Agent for the benefit of Lenders, there has not occurred any Material Adverse Effect or, to Credit Parties’ knowledge, any other event or condition that would reasonably be likely to have a Material Adverse Effect.

(a) Financial Statements. The Financial Statements which have been delivered by Borrowers to Lender Agent for the benefit of Lenders on or before the date hereof are comprised of:

(i) The consolidated, unaudited balance sheets of Borrowers as of September 30, 2012, and the related statements of income and cash flows of Borrowers for the six (6) month period then ended.

(ii) The unaudited balance sheet(s) at September 30, 2012 of Borrowers and the related consolidated statement(s) of income and cash flows of Borrowers for the Fiscal Quarter then ended.

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(b) Pro Forma. The pro forma financial statements which have been delivered by Borrowers to Lender Agent for the benefit of Lenders on or before the date hereof were prepared by Borrowers giving pro forma effect to the Related Transactions, was based on the unaudited consolidated and consolidating balance sheets of Borrowers and its Subsidiaries, and were prepared in accordance with GAAP (to the extent applicable), with only such adjustments thereto as would be required in accordance with GAAP.

(c) Projections. All Projections which have been delivered by Borrowers to Lender Agent for the benefit of Lenders were prepared by Borrowers in light of Borrower’s past experience, but including reasonably estimated future payments of known contingent liabilities, and reflect projections on an annual basis for 2012/2013. The Projections are based upon the same accounting principles as those used in the preparation of the financial statements described above with certain normalizing assumptions made by Borrowers, and the estimates and assumptions stated therein, all of which Borrowers believe to be reasonable and fair in light of current conditions and current facts known to Borrowers and, as of the Restatement Effective Date, reflect Borrower’s good faith and reasonable estimates of the future financial performance of Borrowers for the period set forth therein.

3.4 Material Adverse Effect.

(a) Borrowers. The Borrowers hereby represent to Lenders that, between the Effective Date and the Closing Date: (i) to the best of Borrower’s knowledge, after due inquiry, there has not been any material increase in contingent or noncontingent liabilities, liabilities for Charges, or obligations with respect to long-term leases or unusual forward or long-term commitments of Borrowers, (ii) to the best of Borrower’s knowledge, after due inquiry, there has not been any material decrease in the assets of Borrowers, (iii) no contract, lease or other agreement or instrument has been entered into by Borrowers or has become binding upon Borrower’s assets and, to the knowledge of Borrowers, no law or regulation applicable to Borrowers has been adopted that has had or could reasonably be expected to have a Material Adverse Effect with respect to Borrowers or the Collateral, (iv) to the best of Borrower’s knowledge, after due inquiry, neither Borrowers nor any of the Credit Parties is in default under any material contract, lease or other agreement or instrument, that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect with respect to Borrowers or the Collateral, and (v) to the best of Borrower’s knowledge, after due inquiry, no event has occurred, that alone or together with other events, has had, or could reasonably be expected to have, a Material Adverse Effect with respect to Borrowers or the Collateral.

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(b) Credit Parties. The Credit Parties (other than Ganesha) hereby represent to Lenders that, between the Effective Date and the Closing Date: (i) to the best of each Credit Party’s knowledge, there has not been any material increase in contingent or noncontingent liabilities, liabilities for Charges, or obligations with respect to long-term leases or unusual forward or long-term commitments of Borrowers, (ii) to the best of each Credit Party’s knowledge, there has not been any material decrease in the assets of any Credit Party, (iii) no contract, lease or other agreement or instrument has been entered into by any Credit Party or has become binding upon Credit Parties assets and, to the knowledge of Credit Parties, no law or regulation applicable to Credit Parties or to Borrowers has been adopted that has had or could reasonably be expected to have a Material Adverse Effect with respect to Credit Party’s or Borrowers or the Collateral, (iv) to the best of each Credit Party’s knowledge, neither Borrowers nor any of the Credit Parties is in default under any material contract, lease or other agreement or instrument, that alone or in the aggregate could reasonably be expected to have a Material Adverse Effect with respect to Borrowers or the Credit Parties or the Collateral, and (v) to the best of each Credit Party’s knowledge, no event has occurred, that alone or together with other events, has had, or could reasonably be expected to have, a Material Adverse Effect with respect to Borrowers or the Credit Parties or the Collateral.

3.5 Ownership of Collateral; Liens. Borrowers and Credit Parties (other than Ganesha) (a) each separately own good, valid and marketable title to or a valid leasehold interest in, all of its properties and assets, including all of its Collateral whether personal or real, subject to no transfer restrictions or Liens of any kind except for Permitted Encumbrances, and (b) is in compliance in all material respects with each lease to which it is a party or otherwise bound. None of the Collateral is subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to Borrowers or to Credit Parties that may result in any Liens (including Liens arising under Environmental Laws or other Applicable Laws) other than Permitted Encumbrances. Disclosure Schedule 3.5 attached hereto sets forth a list of all real estate and leases to be owned or held by Borrowers immediately after the Closing Date. Each Borrower enjoys peaceful and undisturbed possession under all such leases and such leases are all the leases necessary for the operation of such properties and assets are valid and subsisting and are in full force and effect.

3.6 Labor Matters. Except as set forth on Disclosure Schedule 3.6, as of the Closing Date, (a) no strikes or other material labor disputes against Borrowers are pending or, to any Borrower’s or to any Credit Party’s knowledge, threatened; (b) hours worked by and payment made to employees of Borrowers comply in all material respects with the Fair Labor Standards Act and other Applicable Laws; (c) all payments due from Borrowers for employee health and welfare insurance have been paid or accrued as a liability on the books of Borrowers; (d) Borrowers are not a party to or bound by any collective bargaining agreement, management agreement, consulting agreement, employment agreement, bonus, restricted stock, stock option, or stock appreciation plan or agreement or any similar plan, agreement or arrangement unless true and complete copies of any agreements described on Disclosure Schedule 3.6 have been delivered to Lenders; (e) there is no organizing activity involving Borrowers pending or, to Borrower’s or Credit Party’s knowledge, threatened by any labor union or group of employees of Borrowers; (f) except as otherwise disclosed on Disclosure Schedule 3.6, there are no representation proceedings pending or, to Borrower’s or Credit Party’s knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Borrower has made a pending demand for recognition; and (g) there are no material complaints or charges against any Borrower pending or, to the knowledge of Borrowers or Credit Parties, threatened to be filed with any Governmental Authority or arbitrator based on, arising out of, in connection with, or otherwise relating to the employment or termination of employment by any Borrower of any individual.

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3.7 Ventures, Subsidiaries and Affiliates; Outstanding Stock. Except as listed on Disclosure Schedule 3.7, the Borrowers and the Credit Parties have no Subsidiaries. Disclosure Schedule 3.7 states the authorized and issued capitalization of each Borrower and of each Credit Party (other than Ganesha), the number and class of equity securities and/or ownership, voting or partnership interests issued and outstanding of each Borrower and each Credit Party (other than Ganesha) and the record and beneficial owners thereof (including options, warrants and other rights to acquire any of the foregoing). The ownership or partnership interests of each Credit Party are not certificated, the documents relating to such interests do not expressly state that the interests are governed by Article 8 of the Uniform Commercial Code, and the interests are not held in a securities account. The outstanding equity securities and/or ownership, voting or partnership interests of each Borrower and each Credit Party (other than Ganesha) have been duly authorized and validly issued and are fully paid and non-assessable, and with respect to equity pledged to Lender Agent for the benefit of the Lenders, each Person listed on Disclosure Schedule 3.7 owns beneficially and of record all the equity securities and/or ownership, voting or partnership interests it is listed as owning free and clear of any Liens other than Liens created by the Collateral Documents and Liens created under the A/R Facility. Disclosure Schedule 3.7 also lists the directors, members, managers and/or partners of each Borrower and each Credit Party (other than Ganesha). Except as listed on Disclosure Schedule 3.7, no Credit Party (other than Ganesha) owns an interest in, participates in or engages in any joint venture, partnership or similar arrangements with any Person. Except as set forth in Disclosure Schedule 3.7, as of the Closing Date, there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Borrower or any Credit Party (other than Ganesha) has issued or may be required to issue, sell, repurchase or redeem any of its Stock. All outstanding Indebtedness and Guaranteed Indebtedness of Borrowers and Credit Parties (other than Ganesha) as of the Closing Date identified in Section 6.3 (Indebtedness) is described in Disclosure Schedule 6.3.

3.8 Government Regulation. No Borrower is an “investment company” or an “affiliated person” of, or “promoter” or “principal underwriter” for, an “investment company,” as such terms are defined in the Investment Company Act of 1940. No Borrower is subject to regulation under the Public Utility Holding Company Act of 1935, the Federal Power Act, or any other federal or state statute that restricts or limits its ability to incur Indebtedness or to perform its obligations hereunder. The making of the Loans by Lenders to Borrowers, the application of the proceeds thereof and repayment thereof and the consummation of the Related Transactions will not violate any provision of any such statute or any rule, regulation or order issued by the Securities and Exchange Commission or other Applicable Laws binding on Borrowers.

3.9 Margin Regulations. Borrowers are not engaged, nor will they engage, principally or as one of its important activities, in the business of extending credit for the purpose of “purchasing” or “carrying” any “margin stock” as such terms are defined in Regulation U of the Federal Reserve Board as now and from time to time hereafter in effect. Borrowers do not own any margin stock, and none of the proceeds of the Loans or other extensions of credit under this Agreement will be used, directly or indirectly, for the purpose of purchasing or carrying any margin stock, for the purpose of reducing or retiring any Indebtedness that was originally incurred to purchase or carry any stock or for any other purpose that might cause the Loans or other extensions of credit under this Agreement to be considered a “purpose credit” within the meaning of Regulations T, U or X of the Federal Reserve Board. Borrowers will not take or permit to be taken any action that might cause any Loan Document to violate any regulation of the Federal Reserve Board. Each Credit Party (other than Ganesha) hereby makes the foregoing representations, warranties and covenants to Lenders set forth in this Section 3.9 (Margin Regulations) with respect to such Credit Party.

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3.10 Taxes. Except as described in Disclosure Schedule 3.10, all Federal and other material tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by Borrowers have been filed with the appropriate Governmental Authority, and all Charges have been paid prior to the date on which any fine, penalty, interest or late charge may be added thereto for nonpayment thereof excluding Charges or other amounts being contested in accordance with Section 5.2(b) (Right to Contest Charges) and unless the failure to so file or pay would not reasonably be expected to result in fines, penalties or interest in excess of $100,000 in the aggregate. Proper and accurate amounts have been withheld by Borrowers for all periods in full and complete compliance with all applicable federal, state, local and foreign laws and such withholdings have been timely paid to the respective Governmental Authorities. Disclosure Schedule 3.10 sets forth as of the Closing Date and the Closing Date those taxable years for which each Borrower’s tax returns are currently being audited by the IRS or any other applicable Governmental Authority, and any assessments or threatened assessments in connection with such audit, or otherwise currently outstanding. Except as described in Disclosure Schedule 3.10, as of the Closing Date, no Borrower has executed or filed with the IRS or any other Governmental Authority any agreement or other document extending, or having the effect of extending, the period for assessment or collection of any Charges. Borrowers are not liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to Borrower’s and Credit Party’s knowledge, as a transferee. As of the Closing Date, Borrowers have not agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise. Each Credit Party (other than Ganesha) hereby make the foregoing representations, warranties and covenants to Lenders set forth in this Section 3.10 (Taxes) with respect to all Charges and tax returns of such Credit Party.

3.11 ERISA.

(a) Disclosure Schedule 3.11 lists, as of the Closing Date, for each Borrower (i) all ERISA Affiliates and (ii) all Plans and separately identifies all Pension Plans, including Title IV Plans, Multiemployer Plans, and all Retiree Welfare Plans. Copies of all such listed Plans have been delivered to Lenders. Except with respect to Multiemployer Plans, each Qualified Plan has been determined by the IRS to qualify under Section 401 of the IRC, the trusts created thereunder have been determined to be exempt from tax under the provisions of Section 501 of the IRC, and nothing has occurred that would cause the loss of such qualification or tax-exempt status. Each Plan is in compliance in all material respects with the applicable provisions of ERISA, the IRC and its terms, including the timely filing of all reports required under the IRC or ERISA. Neither any Borrower nor any ERISA Affiliate has failed to make any material contribution or pay any material amount due as required by either Section 412 of the IRC or Section 302 of ERISA or the terms of any such Plan. No “prohibited transaction,” as defined in Section 406 of ERISA and Section 4975 of the IRC, has occurred with respect to any Plan, that would subject any Borrower to a material tax on prohibited transactions imposed by Section 502(i) of ERISA or Section 4975 of the IRC.

(b) Except as set forth in Disclosure Schedule 3.11: (i) no Title IV Plan has any material Unfunded Pension Liability; (ii) no ERISA Event has occurred or is reasonably expected to occur; (iii) there are no pending, or to the knowledge of Borrowers, threatened material claims (other than claims for benefits in the normal course), sanctions, actions or lawsuits, asserted or instituted against any Plan or any Person as fiduciary or sponsor of any Plan; (iv) neither any Borrower nor any ERISA Affiliate has incurred or reasonably expects to incur any material liability as a result of a complete or partial withdrawal from a Multiemployer Plan; and (v) within the last five years no Title IV Plan of any Borrower or any ERISA Affiliate has been terminated, whether or not in a “standard termination” as that term is used in Section 4041 of ERISA, nor has any Title IV Plan of any Borrower or any ERISA Affiliate (determined at any time within the last five years) with material Unfunded Pension Liabilities been transferred outside of the “controlled group” (within the meaning of Section 4001(a)(14( of ERISA) of any Borrower or any ERISA Affiliate (determined at such time).

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3.12 No Litigation. Except as set forth in Disclosure Schedule 3.12A, no Litigation, action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of Borrowers or Credit Parties, threatened against Borrowers, before any Governmental Authority or before any arbitrator or panel of arbitrators, (a) that challenges the execution, delivery and performance of Borrower’s or Credit Party’s right or power to enter into or perform any of its obligations under the Loan Documents to which it is a party, or the validity or enforceability of any Loan Document or any action taken thereunder, or (b) that has a reasonable risk of being determined adversely to Borrowers or Credit Parties and that, if so determined, could reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule 3.12B, as of the Closing Date there is no Litigation pending or, to Borrower’s or Credit Party’s knowledge, threatened, that seeks damages in excess of One Hundred Thousand Dollars ($100,000) or injunctive relief against, or alleges criminal misconduct of, Borrowers.

3.13 Brokers. Except as set forth on Disclosure Schedule 3.13, no broker or finder brought about the obtaining, making or closing of the Loans or the Related Transactions, and neither Borrowers nor any Affiliates thereof has any obligation to any Person in respect of any finder’s or brokerage fees in connection therewith.

3.14 Intellectual Property. As of the Closing Date, Borrowers own or will own, and have or will have, rights to use all Intellectual Property necessary to continue to conduct its business as now conducted by it or presently proposed to be conducted by it, and each Patent, Trademark, registered Copyright and License is listed, together with application or registration numbers, as applicable, in Disclosure Schedule 3.14. Borrowers conduct their businesses and affairs without knowingly infringing or interfering with any Intellectual Property of any other Person which could reasonably be expected to have a Material Adverse Effect. Except as set forth in Disclosure Schedule 3.14, neither Borrowers nor Credit Parties is aware of any material infringement claim by any other Person with respect to any Intellectual Property.

3.15 Full Disclosure. All representations and warranties made in any of the Loan Documents by Borrowers or Credit Parties or Guarantors shall be made after giving full effect to the transactions contemplated in this Agreement. No information contained in this Agreement, any of the other Loan Documents, Financial Statements or Collateral Reports or other written reports from time to time prepared by Borrowers or Credit Parties or Guarantors and delivered hereunder or any written statement prepared by Borrowers or Credit Parties or Guarantors and furnished by or on behalf of Borrowers or Credit Parties or Guarantors to Lender Agent for the benefit of Lenders pursuant to the terms of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not materially misleading in light of the circumstances under which they were made. Projections from time to time delivered hereunder are or will be based upon the estimates and assumptions stated therein, all of which Borrowers and Credit Parties (other than Ganesha) and Guarantors (other than Ganesha), as applicable, believed at the time of delivery to be reasonable and fair in light of current conditions and current facts known to Borrowers and Credit Parties (other than Ganesha) and Guarantors (other than Ganesha), as applicable, as of such delivery date, and reflect Borrower’s and Credit Party’s (other than Ganesha’s) and Guarantor’s (other than Ganesha’s) good faith and reasonable estimates of the future financial performance of Borrowers and of the other information projected therein for the period set forth therein. The Liens granted to Lender Agent for the benefit of Lenders pursuant to the Collateral Documents will at all times be fully perfected first priority Liens in and to the Collateral described therein, subject, as to priority, only to Permitted Encumbrances.

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3.16 Environmental Matters. Each Borrower and each Credit Party (other than Ganesha) and each Guarantor represent and warrant to Lenders as follows:

(a) Except as set forth in Disclosure Schedule 3.16, as of the date hereof, no Borrower and no Credit Party and no Guarantor knows of any Hazardous Material which is present, used, manufactured, handled, generated, transported, stored, treated, discharged, released, buried or disposed of on, in, under or about any Property in violation of applicable Environmental Laws;

(b) To the best of each Borrower’s and each Credit Party’s and each Guarantor’s knowledge, following diligent inquiry, there has not been any use, generation, manufacture, storage, treatment, disposal, release or threatened release of any Hazardous Material by any prior owners of prior occupants of any Property or by any third parties on, in, under or about any Property;

(c) As of the date hereof there is no pending or, to each Borrower’s and each Credit Party’s and each Guarantor’s knowledge, threatened litigation or proceedings before any administrative agency in which any person or entity alleges the release, threat of release, placement on, under or about any Property by any Borrower or any Credit Party or any Guarantor, or the manufacture, handling, generation, transportation, storage, treatment, discharge, burial or disposal on, in, under or about any Property by any Borrower or any Credit Party or any Guarantor, or the transportation to or from any Property by any Borrower or any Credit Party or any Guarantor, of any Hazardous Material, in violation of Environmental Laws;

(d) As of the date hereof, no Borrower and no Credit Party and no Guarantor has received any notice and no Borrower and no Credit Party and no Guarantor has any actual knowledge that any Governmental Authority or any employee or agent thereof been determined, or threatens to determine, that there is a presence, release, threat of release, placement on, in, under or about any Property caused by any Borrower or by any Credit Party or by any Guarantor, or the manufacture, handling, generation, transportation, storage, treatment, discharge, burial or disposal on, in, under or about any Property caused by any Borrower or any Credit Party or any Guarantor, or the transportation to or from any Property by any Borrower or any Credit Party or any Guarantor, of any Hazardous Material, in violation of Environmental Laws; and

(e) To each Borrower’s and each Credit Party’s and each Guarantor’s knowledge, there have been no communications or agreements with any Governmental Authority or any private entity indicating that there has occurred, a release, threat of release, placement on, in, under or about any Property by any Borrower or any Credit Party or any Guarantor, or the manufacture, handling, generation, transportation, storage, treatment, discharge, burial or disposal on, in, under or about any Property by any Borrower or any Credit Party or any Guarantor, or the transportation to or from any Property by any Borrower or by any Credit Party or by any Guarantor, of any Hazardous Material in violation of any Environmental Laws.

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3.17 Insurance. Disclosure Schedule 3.17 lists all insurance policies of any nature maintained, as of the Closing Date, for current occurrences by Borrowers, as well as a brief description thereof, and a copy of each current certificate of insurance naming Lender Agent for the benefit of Lenders as an additional co-insured.

3.18 Deposit and Disbursement Accounts. Disclosure Schedule 3.18 lists all banks and other financial institutions at which Borrowers maintain or will maintain deposit, commodities, investment or other accounts as of each of the Closing Date, including any Disbursement Accounts, and such Schedule correctly identifies the name, address and telephone number of each depository, the name in which the account is held, a description of the purpose of the account, and the complete account number therefor. Disclosure Schedule 3.18 shall, as of the Closing Date, identify which deposit accounts of each entity are used to receive Governmental Authority payments.

3.19 Vendor Relations. As of the Closing Date, there exists no actual or, to the knowledge of Borrowers or Credit Parties or Guarantors, threatened termination or cancellation of, or any material adverse modification or change in the business relationship of Borrowers with any supplier essential to its operations.

3.20 Bonding; Licenses; Permits. Except as set forth on Disclosure Schedule 3.20, as of the Closing Date, no Borrower is a party to or bound by any surety bond agreement or bonding requirement with respect to products or services sold by it or any trademark or patent license agreement with respect to products sold by it. Disclosure Schedule 3.20 lists, as of the Closing Date, each permit each Borrower is required to obtain and maintain in order to conduct its respective Business in its respective Hospital Facility. Each Borrower has all permits required to conduct its business, each of which is in full force and effect and is not the subject of any pending or to its knowledge, threatened withdrawal.

3.21 Solvency. Both before and after giving effect to (a) the Loans to be made or incurred on the Closing Date or such other date as Advances are made or incurred, (b) the disbursement of the proceeds of such Advances pursuant to the instructions of Borrower’s Representative; (c) the consummation of the other Related Transactions; and (d) the payment and accrual of all transaction costs in connection with the foregoing, Borrowers are each and will be Solvent.

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4. FINANCIAL STATEMENTS AND INFORMATION

4.1 Reports and Notices.

(a) Borrowers hereby agree that, from and after the Closing Date and until the Termination Date, they shall deliver to Lender Agent for the benefit of Lenders, the various Collateral Reports at the times, to the Persons and in the manner set forth in Annex D (Notice Addresses) including all certifications required with respect to Certified Cash balances.

(b) Borrowers hereby agree that, from and after the Restatement Effective Date and until the Termination Date, they shall deliver to Lenders, copies of each Borrowing Base Certificate (as defined in the A/R Facility) delivered to the A/R Facility Lender Agent.

4.2 Communication with Accountants. Borrowers and Credit Parties authorize Lenders to communicate and/or meet directly with all independent certified public accountants of Borrowers, and Borrowers shall authorize and shall instruct those accountants to communicate and/or meet with Lenders with regard to any and all financial statements and supporting financial documentation relating to Borrowers with respect to the business, results of operations and financial condition of Borrowers. Prior to communicating with the independent public accounts of Borrowers, Lenders shall deliver a reasonable advance written notice to Borrowers stating the purpose and scope of the communication and/or meeting.

5. AFFIRMATIVE COVENANTS

To induce Lenders to make the Loans, Borrowers and Credit Parties and Guarantors, as applicable, make the following affirmative covenants in favor of Lenders, each of which shall survive the execution and delivery of this Agreement.

5.1 Maintenance of Existence and Conduct of Business. Borrowers and Credit Parties and Guarantors shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate and/or limited liability company existence and its material rights; continue to conduct its business substantially as conducted prior to the Closing Date, anticipated to be conducted, or as otherwise permitted hereunder; at all times maintain, preserve and protect all of their assets and properties necessary to the conduct of its business, and keep the same in good repair, working order and condition in all material respects (taking into consideration ordinary wear and tear) and from time to time make, or cause to be made, all necessary or appropriate repairs, replacements and improvements thereto consistent with industry practices.

5.2 Payment of Charges.

(a) Obligation to Pay Charges. Subject to Section 5.2(b) (Right to Contest Charges), Borrowers shall pay and discharge or cause to be paid and discharged promptly all Charges payable by them, including (i) Charges imposed upon them, their income and profits, or any of their property (real, personal or mixed) and all Charges with respect to Taxes, social security and unemployment withholding with respect to their employees, (ii) lawful claims for labor, materials, supplies and services or otherwise, and (iii) all storage or rental charges payable to warehousemen or bailees in possession of any Collateral, in each case, before any thereof shall become past due, except in the case of clauses (ii) and (iii) where the failure to pay or discharge such Charges would not result in aggregate liabilities in excess of $100,000.

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(a) Right to Contest Charges. Borrowers may in good faith contest, by appropriate proceedings, the validity or amount of any Charges, Taxes or claims described in Section 5.2(a) (Obligation to Pay Charges); provided, that (i) adequate reserves with respect to such contest are maintained on the books of Borrowers, in accordance with GAAP; (ii) no Lien shall be imposed to secure payment of such Charges (other than payments to warehousemen and/or bailees) that is superior to any of the Liens securing the Obligations and such contest is maintained and prosecuted continuously and with diligence and operates to suspend collection or enforcement of such Charges; (iii) none of the Collateral becomes subject to forfeiture or loss as a result of such contest; and (iv) Borrowers shall promptly pay or discharge such contested Charges, Taxes or claims and all additional charges, interest, penalties and expenses, if any, and shall deliver to Lenders evidence reasonably acceptable to Lenders of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to Borrowers or the conditions set forth in this Section 5.2(b) (Right to Contest Charges) are no longer met.

5.3 Books and Records. Borrowers shall keep adequate books and records with respect to their business activities in which proper entries, reflecting all financial transactions, are made in accordance with GAAP (except as otherwise disclosed on the Financial Statements).

5.4 Insurance; Damage to or Destruction of Collateral.

(a) Insurance. Borrowers shall, upon Lender Agent’s request, in Disclosure Schedule 3.17, list all existing policies of insurance that they carry and maintain, along with the names and contact information for each existing insurance carrier, which policies and carriers shall be subject to the prior written consent of Lender Agent, which consent shall not be unreasonably withheld. If Lender Agent fails or refuses to approve Borrower’s existing policies of insurance or existing insurance carriers, then Borrowers agrees to increase or change its insurance coverage or change its insurance carrier as required by Lenders, and the same shall be listed in Disclosure Schedule 3.17. Thereafter, Borrowers shall, at its sole cost and expense, maintain the policies of insurance described on Disclosure Schedule 3.17 as approved by Lender Agent for the benefit of Lenders or may obtain and maintain other policies of insurance in form and amounts and with insurers reasonably acceptable to Lender Agent. All policies of insurance (or the loss payable and additional insured endorsements delivered to Lender Agent) that relate to coverage involving the Collateral shall contain provisions pursuant to which the insurer agrees to provide thirty (30) days prior written notice to Lender Agent in the event of any non-renewal, cancellation or amendment of any such insurance policy. If Borrowers at any time or times hereafter shall fail to obtain or maintain any of the policies of insurance required above, or to pay all premiums relating thereto, Lender Agent may at any time or times thereafter obtain and maintain such policies of insurance and pay such premiums and take any other action with respect thereto that Lender Agent deem advisable. Lenders and Lender Agent shall have no obligation to obtain insurance for Borrowers or pay any premiums therefor. By doing so, Lenders shall not be deemed to have waived any Default or Event of Default arising from Borrower’s failure to maintain such insurance or pay any premiums therefore. All sums so disbursed, including reasonable attorneys’ fees, court costs and other charges related thereto, shall be payable on demand by Borrowers to Lender Agent for the benefit of Lenders and shall be additional Obligations hereunder secured by the Collateral, and shall bear interest at the Default Rate until paid in full to Lenders.

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(b) Lenders’ Insurance Rights. Upon any change in Borrower’s insurance risk profile (as determined by Borrower’s insurance broker or as reasonably determined by Lenders pursuant to and based upon generally recognized insurance underwriting standards (including changes caused by changes in laws affecting the potential liability of a Borrowers), Lenders reserves the right to require additional forms and limits of insurance to, in Lenders’ reasonable opinion, adequately protect Lenders’ interests and Lien in all or any portion of the Collateral and to ensure that Borrowers are protected by insurance in amounts and with coverage customary for its industry. If reasonably requested by Lenders, Borrowers shall to deliver to Lenders from time to time a report of a reputable insurance broker, reasonably satisfactory to Lenders, with respect to its insurance policies.

(c) Endorsements. Borrowers shall deliver to Lenders, in form and substance reasonably satisfactory to Lenders, endorsements to all general liability and other liability policies naming Lender Agent as an additional insured. Borrowers shall irrevocably make, constitute and appoint Lender Agent (and all officers, employees of Lenders designated by Lender Agent), so long as any Default or Event of Default has occurred and is continuing, as each Borrower’s true and lawful agent and attorney-in-fact for the purpose of making, settling and adjusting claims under all policies of insurance relating to coverage of the Collateral, endorsing the name of Borrowers on any check or other item of payment for the proceeds of such policies of insurance and for making all determinations and decisions with respect to such policies of insurance. Lender Agent shall have no duty to exercise any rights or powers granted to it pursuant to the foregoing power-of-attorney. Borrower’s Representative shall promptly notify Lender Agent of any loss, damage, or destruction to the Collateral in the amount of $100,000 or more, whether or not covered by insurance. After deducting from such proceeds (i) the expenses incurred by Lenders in the collection or handling thereof, and (ii) amounts required to be paid to creditors (other than Lenders) having Permitted Encumbrances, Lenders may, at their option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.3(c) (Application of Prepayments). Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds could not reasonably be expected to have a Material Adverse Effect, Lenders shall permit Borrowers to replace, restore, repair or rebuild the property.

5.5 Compliance with Applicable Laws. Borrowers shall comply in all material respects with all federal, state, local and foreign laws and regulations applicable to it, including those relating to ERISA, labor laws, Environmental Laws and Environmental Permits.

5.6 Supplemental Disclosure. On the Closing Date, and thereafter from time to time as may be reasonably requested by Lenders, Borrowers shall supplement and update each Disclosure Schedule attached to this Agreement, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising that, if existing or occurring on the Closing Date, would have been required to be set forth or described in such Disclosure Schedule or as an exception to such representation or that is necessary to correct any information in such Disclosure Schedule or representation which has been rendered inaccurate thereby (and, in the case of any supplements or updates to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement or update to any such Disclosure Schedule or representation shall amend, supplement or otherwise modify any Disclosure Schedule or representation, or be deemed a waiver of any Default or Event of Default resulting from the matters disclosed therein, except as consented to by Lenders in writing, and (b) no supplement or update shall be required or permitted as to representations and warranties that expressly relate only to the Closing Date (except as set forth in the introduction to Section 3 (Representations and Warranties) for purposes of representations and warranties made as of the Closing Date). If any Borrower has a material “commercial tort claim” (as defined in the Code), it shall promptly notify Lenders in writing of the existence thereof.

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5.7 Intellectual Property. Borrowers and Credit Parties will conduct their business and affairs without material infringement of or material interference with any Intellectual Property of any other Person.

5.8 Environmental Matters. Each Borrower and each Credit Party (other than Ganesha) shall (a) comply with and use commercially reasonable efforts to cause each Borrower and its employees, agents and representatives at any Property to comply with all Environmental Laws; (b) without limiting the generality of clause (a) above, not engage in, permit or acquiesce in to any Hazardous Material Activity on, under or about any Property, except in strict accordance with all Environmental Laws, and with then prudent business practices as determined by said Borrower or Credit Party; (c) immediately advise Lenders in writing of (i) the receipt by any Borrower or any Credit Party of written notice of any and all Hazardous Material Claims, (ii) any knowledge by any Borrower or any Credit Party that any Property does not comply with any Environmental Laws, (iii) any remedial action taken by any Borrower or any Credit Party or any other Person in response to any Hazardous Materials or Hazardous Materials Activity on, under or about any Property, or to any Hazardous Material Claims, and (iv) any Borrower’s or any Credit Party’s discovery of the presence of any Hazardous Materials or Hazardous Material Activity on, in, under or about any Property or any real property immediately adjacent to any Property whether or not the same requires notice to be given to any governmental entity or agency under Environmental Laws; and (d) submit to Lenders, promptly upon receipt or preparation, copies of any and all reports, studies, analyses, correspondence, governmental comments or approvals, proposed removal or other remedial work contracts and similar information prepared or received by any Borrower or any Credit Party in connection with any remedial work or Hazardous Materials relating to any Property. If Lenders at any time have a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Borrower or any Credit Party (other than Ganesha) or any Environmental Liability of any Borrower or any Credit Party (other than Ganesha) arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any Property or any of their other real estate, that, in each case, could reasonably be expected to have a Material Adverse Effect, then such Borrower and/or Credit Party (other than Ganesha) shall, upon a Lender’s written request (i) cause the performance of such environmental investigations including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at such Borrower’s or such Credit Party’s expense, as Lenders may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms reasonably acceptable to Lenders and shall be in form and substance reasonably acceptable to Lenders, and (ii) if such Borrower or Credit Party shall not have timely performed such environmental investigations, permit Lenders or its representatives to have access to all real estate for the purpose of conducting such environmental investigations and testing as Lenders reasonably deems appropriate, including subsurface sampling of soil and groundwater. Each Borrower and Credit Party (other than Ganesha) shall reimburse Lenders for the costs of such investigations and the same will constitute a part of the Obligations secured hereunder.

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5.9 Landlord Agreements. With respect to any location where any material amount of Collateral is stored or located, Lenders may require Borrowers to provide a reasonable landlord or mortgagee agreement or bailee letter as a condition to the continued storage of the Collateral at such location(s). Borrowers shall timely and fully pay and perform all obligations under all leases and other agreements with respect to each leased location or public warehouse where any Collateral is or may be located.

5.10 Further Assurances. Borrowers and Credit Parties each agree that it shall, at Borrower’s or Credit Party’s expense and upon the reasonable request of Lenders, duly execute and deliver, or cause to be duly executed and delivered, to Lenders such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Lenders to carry out more effectively the provisions and purposes of this Agreement and each Loan Document.

5.11 Qualified Cash. Borrowers shall deposit all net cash proceeds of Collateral as Qualified Cash in a Qualified Cash Account subject to the right of Borrowers to withdraw such cash proceeds. From and during the continuance of an Event of Default, Lenders may exercise all rights under the applicable Control Agreements relating to any Qualified Cash, including the right to deliver applicable control exercise notices to each applicable bank and securities intermediary and cause all such Qualified Cash to be forwarded immediately to a collection account designated by Lenders through daily sweeps (or as otherwise directed by Lenders); provided that so long as the A/R Facility is in effect, the provisions of this Section 5.11 shall be subject to the A/R Facility.

5.12 Operation of Business. Borrowers shall have and maintain at all times from the Closing Date until the Obligations have been paid in full (other than indemnification Obligations), sufficient approvals, consents, and permits from all necessary Governmental Authorities to fully operate the Business in accordance with Applicable Laws. Borrowers shall use their best efforts and use appropriate diligence to secure all approvals, consents and permits as and when required by Applicable Laws to fully operate the Business.

5.13 After-Acquired Property; Acquisition of other Real Property Interests. In the event from time to time Borrower acquires any fee interest in any real property or improvements or any master leasehold interest or ground leasehold interest in any real property or improvements, then Borrowers agree to promptly notify Lenders in writing at least ten (10) Business Days prior to such acquisition and to execute, acknowledge and deliver to Lenders at least five (5) Business Days prior to such acquisition a deed of trust or mortgage for recordation on said other real property or improvements, as a first lien or encumbrance on Borrower’s fee interest or, if applicable, on Borrower’s interest in a master lease or ground lease. Each such deed of trust or mortgage shall secure repayment of the Obligations, including but not limited to repayment of the Loans. All reasonable expenditures incurred by Lenders in performing this paragraph shall be additional Obligations payable upon demand and delivery of reasonable backup documentation, and shall bear interest at the Default Interest Rate from the date of demand for payment until paid in full.

5.14 Observer Status on Borrower’s Board of Directors. Until the Loan is paid in full and satisfied, IHHI hereby grants Lender Agent non-voting observer status with respect to all meetings of its board of directors (and committees thereof) and all meetings of its shareholders (and committees thereof), excluding meetings (or portions thereof) held in executive session called in good faith and that relate matters not in IHHI’s ordinary course of business. Concurrently with delivery of all notices of meetings and agendas to its directors and shareholders, IHHI agrees to and shall deliver a copy of each such notice and agenda to Lender Agent.

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5.15 Independent Directors. Until the Loan is paid in full and satisfied, Independent Directors shall at all times constitute a majority of the directors serving as members of IHHI’s board of directors.

5.16 Financial Reports, Notices and Other Information.

(a) Financial Statements and Other Reports. Each Borrower will deliver to Lender Agent: (1) as soon as available, but no later than thirty (30) days after the last day of each month (or forty-five (45) days after the last day of the last month of each Fiscal Quarter), a company prepared consolidated balance sheet and income statement covering Borrowers’ and their consolidated Subsidiaries’ consolidated operations during the period, prepared under GAAP, consistently applied (except for ordinary course adjustments to such monthly financial statements which are taken in good faith, actuarial adjustments for self-insurance retention and disproportionate share payment adjustments), in a form reasonably acceptable to Lender Agent; (2) as soon as available, but no later than one hundred fifty (150) days after the last day of each Fiscal Year, audited consolidated financial statements prepared under GAAP, consistently applied, together with an unqualified opinion on the financial statements from an independent certified public accounting firm acceptable to Lender Agent in its reasonable discretion; (3) within five (5) days of delivery or filing thereof by any Borrower, copies of all statements, reports and notices made available to such Borrower’s security holders or to any holders of Subordinated Debt and copies of all reports and other filings made by such Borrower with any stock exchange on which any securities of such Borrower are traded and/or the United States Securities and Exchange Commission; (4) a prompt report of any legal actions pending or threatened in writing against any Borrower or any of its Subsidiaries that are not covered by insurance (including Borrower’s self-insured retention amounts) and could reasonably be expected to result in damages or costs to any Borrower or any of its Subsidiaries of $500,000 or more; (5) prompt written notice of an event that materially and adversely affects the value of any material Intellectual Property; (6) budgets, sales projections, operating plans and other financial information and other information, reports or statements regarding the Borrowers, their business and the Collateral as Lender Agent may from time to time reasonably request; (7) concurrent with the delivery of its audited consolidated financial statements prepared under GAAP, a reconciliation between its interim fourth quarter report and any adjustments thereafter in connection with finalizing its audited consolidated financial statements prepared under GAAP, consistently applied; (8) promptly upon their becoming available, copies of all interest rate and currency hedging agreements that any Borrower or any of its Subsidiaries is party to and all Material Contracts (as defined in the A/R Facility) to the extent such documents are filed with the United States Securities and Exchange Commission; (9) every Fiscal Quarter (but not more frequently unless an Event of Default then exists and is continuing), a schedule of Eligible Accounts (as defined in the A/R Facility) and the thirty (30) largest Account Debtors (as defined in the A/R Facility) during such quarter; (10) within ten (10) days after the preparation or issuance thereof, copies of financial statements (other than those required to be delivered pursuant to clauses (1) and (2) above) prepared by, for or on behalf of Borrowers and any other notes, reports and other materials related thereto, including, without limitation, any pro forma financial statements; (11) promptly upon receipt thereof, copies of any reports submitted to a Borrower by its independent accountants in connection with any interim audit of the books of such Person or any of its Affiliates and copies of each management control letter provided by such independent accountants; (12) within fifteen (15) days after the execution thereof, a copy of any contracts with the federal government or with a Governmental Authority in the State of California; (13) as soon as available, but no later than one (1) day after the commencement of each Fiscal Year, consolidated month by month projected operating budgets, annual projections, profit and loss statements, and cash flow reports of and for Borrowers for such upcoming Fiscal Year (including an income statement for each month and a balance sheet as of the end of the last month in each Fiscal Quarter); and (14) any additional information, documents, statements, reports and other materials that are provided to the agent or the lenders under the A/R Facility.

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(b) Notices. Borrowers will give prompt written notice to Lender Agent: (1) of any litigation or governmental proceedings pending or, to Borrower’s knowledge, threatened (in writing) against Borrowers or any Credit Party which would reasonably be expected to have a Material Adverse Effect with respect to Borrowers or any Credit Party or which in any manner calls into question the validity or enforceability of any Loan Document; (2) upon any Borrower becoming aware of the existence of any Default or Event of Default (which notice shall specify the nature and status thereof, the period of existence thereof and what action is proposed to be taken with respect thereto); (3) if any Borrower is in breach or default under or with respect to any Material Contract (as defined in the A/R Facility), or if any Borrower is in breach or default under or with respect to any other contract, agreement, lease or other instrument to which it is a party or by which its property is bound or affected, which breach or default could reasonably be expected to have a Material Adverse Effect; (4) of any strikes or other labor disputes pending or, to any Borrower’s knowledge, threatened in writing against any Borrower; (5) if there is any infringement or claim of infringement by any other Person with respect to any Intellectual Property rights of any Borrower that could reasonably be expected to have a Material Adverse Effect, or, to Borrower’s knowledge, if there is any claim by any other Person that any Borrower in the conduct of its business is infringing on the Intellectual Property rights of others that could reasonably be expected to have a Material Adverse Effect; and (6) of all returns, recoveries, disputes and claims relating to any of the Borrowers’ accounts receivable that involve more than $500,000; (7) any other development, event, fact, circumstance or condition that would reasonably be likely to have a Material Adverse Effect, in each case describing the nature and status thereof and the action proposed to be taken with respect thereto; (8) to the extent not otherwise delivered pursuant to another provision hereof, any notice given by a Borrower to any other lender of a Borrower, which notice to Lenders shall be accompanied by a copy of the applicable notice given to the other lender; (9) receipt of any notice or request from any Governmental Authority or governmental payor regarding any liability or claim of liability or any material modification to any special program or the amounts payable to a Borrower thereunder; (10) receipt of any notice by a Borrower regarding termination of any manager of any facility owned, operated or leased by a Credit Party; and (11) promptly after a Borrower or any authorized officer of a Borrower obtains knowledge thereof, any oral or written communication from the IRS or otherwise with respect to any tax investigations, relating to a Borrower directly, or relating to any consolidated tax return which was filed on behalf of a Borrower, in respect of (x) any tax assessment or possible tax assessment, (y) years that are designated open pending tax examination or audit, or (z) information that could give rise to an IRS tax liability or assessment.

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6. NEGATIVE COVENANTS

To induce Lenders to make the Loans, Borrowers and Credit Parties, as applicable, make the following negative covenants in favor of Lenders, each of which shall survive the execution and delivery of this Agreement.

6.1 Mergers, Subsidiaries, Etc. Borrowers shall not, directly or indirectly, by operation of law or otherwise, (i) form or acquire any Subsidiary in addition to the existing Subsidiaries of Borrowers; or (ii) merge with, consolidate with, acquire all or substantially all of the assets or Stock of, or otherwise combine with or acquire, any Person, without first receiving the prior written consent of Lenders.

6.2 Investments; Line of Credit Loan and Advances. Borrowers shall not make or permit to exist any investment in, or make, accrue or permit to exist loans or advances of money to, any Person, through the direct or indirect lending of money, holding of securities or otherwise, except that: (a) Borrowers may hold investments constituting notes payable, or stock or other securities issued to Borrowers pursuant to negotiated agreements with respect to settlement of such issuer’s accounts in the ordinary course of business consistent with past practices; (b) Borrowers may invest Qualified Cash in Qualified Cash Accounts (i) as of the Closing Date in the kinds and types of investments that they are then so invested, and (ii) thereafter, as to any new investments made after the Closing Date in other kinds and types of investments as are in conformity with Borrower’s investment policies previously adopted by its board of directors or managers so long as Lender Agent’s Liens for the benefit of the Lenders remain perfected therein, and (c) Borrowers may invest cash and cash equivalents (other than Qualified Cash in the Qualified Cash Accounts) (i) as of the Closing Date in the kinds and types of investments that they are then so invested, and (ii) thereafter, as to any new investments made after the Closing Date in other kinds and types of investments as are in conformity with Borrower’s investment policies previously adopted by its board of directors; provided that so long as the A/R Facility is in effect, Borrowers may invest all cash and cash equivalents pursuant to the terms of the A/R Facility (as in effect on the A/R Facility Closing Date or as amended, supplemented or otherwise modified in accordance with the terms of the A/R Facility Intercreditor Agreement) and subject to the terms of the A/R Facility Intercreditor Agreement.

6.3 Indebtedness.

(a) Borrowers shall not create, incur or assume any Indebtedness, except (without duplication) (i) Indebtedness created after the date hereof by conditional sale or other title retention agreements (including Capital Leases) or in connection with purchase money Indebtedness with respect to Equipment and Fixtures or other capital assets acquired by Borrowers in the ordinary course of business; (ii) the Loans and the other Obligations; (iii) unsecured Indebtedness (other than Funded Debt) incurred in the ordinary course of Borrower’s business; (iv) Indebtedness created after the date hereof for financing of insurance premiums; and (v) Indebtedness under the A/R Facility.

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(b) Borrowers shall not, directly or indirectly, voluntarily purchase, redeem, defease or prepay any principal of, premium, if any, interest or other amount payable in respect of any Funded Debt prior to its scheduled due date, other than the A/R Facility and the Obligations.

6.4 Employee Loans and Affiliate Transactions. Except as set forth in Disclosure Schedule 6.4, no Borrower is a party to any transaction with any of its Affiliates. Borrowers shall not enter into or be a party to any transaction with any Affiliate thereof except in the ordinary course of and pursuant to the reasonable requirements of Borrower’s business and upon fair and reasonable terms that are no less favorable to Borrowers than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of Borrowers. Borrowers shall not enter into any lending or borrowing transaction with any employees of Borrowers, except loans to its respective employees in the ordinary course of business consistent with past practices for travel and entertainment expenses, relocation costs, pension plan advances, and similar purposes.

6.5 Capital Structure and Business. No Borrower or Credit Party (other than Ganesha) shall amend its charter, articles, bylaws or operating agreement from versions delivered to the Lenders on the Restatement Effective Date without first receiving the prior written consent of Lenders. No Borrower or Credit Party (other than Ganesha) shall engage in any business other than the businesses currently engaged in by it, without first receiving the prior written consent of Lenders.

6.6 Guaranteed Indebtedness. Borrowers shall not create, incur, or assume any Guaranteed Indebtedness unless such Guaranteed Indebtedness would be permitted to be incurred directly by Borrowers pursuant to Section 6.3 (Indebtedness).

6.7 Liens. Except (i) the A/R Facility Liens and (ii) as set forth in Disclosure Schedule 6.7, no Borrower is subject to any existing Liens (excluding Lender Agent’s Liens). Borrowers shall not create, incur, assume or permit to exist any Lien on or with respect to any of the Collateral (whether now owned or hereafter acquired) except for Permitted Encumbrances.

6.8 Sale of Collateral and Intellectual Property. Borrowers shall not sell, transfer, convey, assign, license or otherwise dispose of any interest in Collateral, other than in the ordinary course of business, with an aggregate value in excess of $100,000. Borrowers shall not sell, transfer, convey, assign, license or otherwise dispose of any interest in Intellectual Property.

6.9 ERISA. Borrowers shall not cause or permit any ERISA Affiliate to, cause or permit to occur (a) an event that could result in the imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of ERISA or (b) an ERISA Event to the extent such ERISA Event would reasonably be expected to result in taxes, penalties and other liabilities in an aggregate amount in excess of $100,000 in the aggregate.

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6.10 Hazardous Materials. Borrowers shall not cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any real property owned or leased by Borrowers where such Release would (a) violate in any respect, or form the basis for any Environmental Liabilities under, any Environmental Laws or Environmental Permits or (b) otherwise adversely impact the value or marketability of any real property owned or leased by Borrowers or any of the Collateral, other than such violations or Environmental Liabilities that could not reasonably be expected to have a Material Adverse Effect.

6.11 Restricted Payments. During the term of this Agreement, Borrowers shall not make any Restricted Payment, except (a) employee loans permitted under Section 6.4 (Employee Loans and Affiliate Transactions), (b) so long as no Event of Default shall have occurred and is continuing, dividends and distributions by Borrowers to its Shareholders or partners or members, (c) ordinary course payments to Borrowers and/or to Credit Parties for services rendered to the Business, (d) declare, pay or make dividends or distributions payable in its stock, or split-ups or reclassifications of its stock, and (e) redeem its capital stock from terminated employees pursuant to, but only to the extent required under, the terms of the related employment agreements.

6.12 Change of Corporate Name, State of Organization or Location; Change of Fiscal Year. No Borrower and no Credit Party and no Guarantor shall (a) change its name as it appears in official filings in the state of its incorporation or organization, (b) change its chief executive office, principal place of business, corporate offices or locations at which Collateral is held or stored, or the location of their records concerning the Collateral, (c) change the type of entity that it is, (d) change its organization identification numbers issued by its state of its incorporation or organization, or (e) change its state of incorporation or organization or incorporate or organize in any additional jurisdictions, in each case without at least ten (10) Business Days prior written notice to Lenders and provided that Borrowers and Credit Parties and Guarantors shall have taken such actions and executed such documents as Lenders reasonably requests in connection therewith to continue the perfection of any Liens in favor of Lender Agent in any Collateral, and provided further that, any change to such Borrowers or such Credit Party’s or such Guarantor’s jurisdiction or state of incorporation or organization, such new jurisdiction or state of incorporation or organization shall be located in the United States. Borrowers shall not change their Fiscal Year without giving Lenders at least thirty (30) calendar days prior written notice thereof.

6.13 No Impairment of Intercompany Transfers. Borrowers shall not directly or indirectly enter into or become bound by any agreement, instrument, indenture or other obligation (other than this Agreement and the other Loan Documents) that could directly or indirectly restrict, prohibit or require the consent of any Person with respect to the payment of dividends or distributions.

6.14 [Intentionally Omitted.]

6.15 Dr. Shah. Until the Loan is paid in full and satisfied, Borrowers will not, directly or indirectly, permit Dr. Shah to be nominated, or elected, or appointed, or directly or indirectly compensated, paid, engaged, retained or become, an officer, or director, or employee, or manager, or supervisor, or consultant, or agent, or representative of, IHHI, WMC-A, WMC-SA, Coastal or Chapman.

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6.16 Shareholder Blocking Rights. No Borrower shall issue any Stock that grants or provides any direct or indirect owner thereof any Shareholder Blocking Rights.

6.17 Financial Covenants.

(a) Minimum EBITDA. The Borrowers will not at any time permit, for the Test Period ending June 30, 2013 and each Test Period thereafter, EBITDA to be less than $20,000,000.

(b) Minimum Adjusted EBITDA. The Borrowers will not at any time permit, for (i) the Test Period ending March 31, 2014, Adjusted EBITDA to be less than $2,500,000, (ii) the Test Period ending June 30, 2014, Adjusted EBITDA to be less than $2,500,000, (iii) the Test Period ending September 30, 2014, Adjusted EBITDA to be less than $2,500,000, (iv) the Test Period ending December 31, 2014, Adjusted EBITDA to be less than $2,500,000, (v) the Test Period ending March 31, 2015, Adjusted EBITDA to be less than $5,000,000, (vi) the Test Period ending June 30, 2015, Adjusted EBITDA to be less than $5,000,000, (vii) the Test Period ending September 30, 2015, Adjusted EBITDA to be less than $5,000,000, (viii) the Test Period ending December 31, 2015, Adjusted EBITDA to be less than $5,000,000 and (ix) for the Test Period ending March 31, 2016, Adjusted EBITDA to be less than $7,500,000.

(c) Fixed Charge Coverage Ratio. The Borrowers will not permit the Fixed Charge Coverage Ratio (as defined in and calculated pursuant to the Worksheet in Annex E) as of the last day of any Fiscal Quarter set forth below to be less than the ratio set forth below for such period:

Period	Ratio
Any given Fiscal Quarter, measured on a trailing four quarter basis, beginning with the Fiscal Quarter ending June 30, 2013 (which shall be the “Defined Period” for purposes of Annex E)	1.00 to 1.00

Evidence of Compliance. Borrowers shall furnish to Lender Agent, at the time of delivery of the financial statements required by clauses (1) and (2) of Section 5.16 (Financial Statements and Other Reports), evidence (in form and content satisfactory to Lender Agent) of Borrowers’ compliance with the covenants in this Section 6.17 and evidence that no Default or Event of Default resulting from the provisions of this Section 6.17 has occurred and is continuing. Such evidence shall include, without limitation, (a) a statement and report, on a form approved by Lender Agent, detailing Borrowers’ calculations, and (b) if requested by Lender Agent, back-up documentation (including, without limitation, invoices, receipts and other evidence of costs incurred during such quarter as Lender Agent shall reasonably require) evidencing the propriety of the calculations.

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(d) Defined Terms. For purposes of this Section 6.17, the following definitions shall apply:

‘Adjusted EBITDA’ means, for any period, the sum, without duplication, of the following for each Borrower and PCHI collectively on a consolidated basis: Net Income, plus (a) Interest Expenses, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization expense, (e) all other non-cash, non-recurring charges and expenses, excluding accruals for cash expenses made in the ordinary course of business, (f) loss from any sale of assets, other than sales in the ordinary course of business, (g) the portion of lease payments paid by any Borrower to PCHI in respect of lease payments which are attributable to interest, (h) the QAF Recovery Adjustment, (i) the warrant repurchase price under the Repurchase Agreement to the extent deducted from Net Income, and (j) any amendment, consent, origination or other transaction fees and legal expenses payable or paid by any Borrower or PCHI and relating to the Loan Documents or to the A/R Facility, to the extent deducted from Net Income, minus (i) gains from any sale of assets, other than sales in the ordinary course of business, and (ii) other extraordinary or non-recurring gains minus (if a positive number) or plus (if a negative number), the Net QAF Funds for such period (but only to the extent that such Net QAF Funds were included by any Borrower in the calculation of Net Income for such period), in each case determined in accordance with GAAP.

‘EBITDA’ means, for any period, the sum, without duplication, of the following for each Borrower and PCHI collectively on a consolidated basis: Net Income, plus (a) Interest Expenses, (b) taxes on income, whether paid, payable or accrued, (c) depreciation expense, (d) amortization expense, (e) all other non-cash, non-recurring charges and expenses, excluding accruals for cash expenses made in the ordinary course of business, (f) loss from any sale of assets, other than sales in the ordinary course of business, (g) the portion of lease payments paid by any Borrower to PCHI in respect of lease payments which are attributable to interest, (h) the warrant repurchase price under the Repurchase Agreement to the extent deducted from Net Income, and (i) any amendment, consent, origination or other transaction fees and legal expenses payable or paid by any Borrower or PCHI and relating to the Loan Documents or to the A/R Facility, to the extent deducted from Net Income minus (i) gains from any sale of assets, other than sales in the ordinary course of business, and (ii) other extraordinary or non-recurring gains, in each case determined in accordance with GAAP.

‘Interest Expense’ means, for any period, for Borrowers and PCHI collectively on a consolidated basis, (a) total interest expense (including without limitation attributable to Capital Leases in accordance with GAAP), (b) fees with respect to all outstanding Indebtedness including without limitation capitalized interest but excluding commissions, discounts and other fees owed with respect to letters of credit and bankers’ acceptance financing and (c) net costs under any interest rate hedging agreements.

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‘Net Income’ means, for any period, the net income (or loss) of Borrowers and PCHI collectively on a consolidated basis determined in accordance with GAAP; provided, however, that such amount shall exclude (a) the income (or loss) of any Person (other than any Borrower, any Credit Party or any of their respective Subsidiaries) in which any other Person (other than any Borrower, any Credit Party or any of their respective Subsidiaries) has a joint interest, except to the extent of the amount of dividends or other distributions actually paid to a Borrower or PCHI by such Person, (b) the income (or loss) of any Person accrued prior to the date it becomes a Borrower or is merged into or consolidated with a Borrower or PCHI or that Person’s assets are acquired by a Borrower or PCHI, (c) the income of any Subsidiary of any Borrower or PCHI to the extent that the declaration or payment of dividends or similar distributions of that income by that Subsidiary is not at the time permitted by operation of the terms of the charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to that Subsidiary, (d) compensation expense resulting from the issuance of capital stock, stock options or stock appreciation rights issued to former or current employees, including officers, of a Borrower or PCHI, or the exercise of such options or rights, in each case to the extent the obligation (if any) associated therewith is not expected to be settled by the payment of cash by a Borrower or PCHI or any affiliate thereof, and (e) compensation expense resulting from the repurchase of capital stock, options and rights described in clause (d) of this definition of Net Income.

‘QAF Recovery Adjustment’ means, for any Test Period during which Net Income was reduced by any Net QAF Funds (such reduction, the “Maximum Amount”), any reduction in Net Income related to Medicaid or Medicaid Managed Care payment rates (including DSH and similar payments by the State and Counties of California for indigent care) recognized in accordance with GAAP, initially calculated by reference to payment rates included in Net Income as of September 30, 2012 and, following any QAF Recovery Adjustment calculated by reference to such September 30, 2012 payment rates, by reference to the payment rates included in Net Income for the most recent QAF Recovery Adjustment; provided that (i) California AB1383 or any substitute, replacement or successor legislation or payments or implementing regulations are in effect during such Test Period; (ii) the Borrowers provide evidence to Lender Agent that such QAF Recovery Adjustment is reasonably expected to result in an increase in Net QAF Funds and (iii) in no event may the QAF Recovery Adjustment exceed the Maximum Amount.

‘Test Period’ means, with respect to each Fiscal Quarter beginning with the Fiscal Quarter ending June 30, 2013, the four most recent Fiscal Quarters then ended (taken as one accounting period).

7. TERM

7.1 Defined Terms. For purposes of this Section 6.17, the following definitions shall apply:Termination. The financing arrangements contemplated hereby shall be in effect until the earlier of the date when the Loans and other Obligations (other than indemnification Obligations) have been paid in full and satisfied or the Maturity Date, and the Loans and all other Obligations shall be automatically due and payable in full on such date without demand by Lenders.

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7.2 Survival of Obligations Upon Termination of Financing Arrangements. Except as otherwise expressly provided for in the Loan Documents, no termination or cancellation (regardless of cause or procedure) of any financing arrangement under this Agreement shall in any way affect or impair the obligations, duties and liabilities of Borrowers or Credit Parties or the rights of Lenders or Lender Agent relating to any unpaid portion of the Loans or any other Obligations, due or not due, liquidated, contingent or unliquidated, or any transaction or event occurring prior to such termination, or any transaction or event, the performance of which is required after the Maturity Date. Except as otherwise expressly provided herein or in any other Loan Document, all undertakings, agreements, covenants, warranties and representations of or binding upon Borrowers and Credit Parties, and all rights of Lenders or Lender Agent, all as contained in the Loan Documents, shall not terminate or expire, but rather shall survive any such termination or cancellation and shall continue in full force and effect until the Termination Date; provided, that the provisions of Section 11 (Miscellaneous), the payment obligations under Section 1 (Amount and Terms of Credit Facilities), and the indemnities contained in the Loan Documents shall survive the Maturity Date.

8. EVENTS OF DEFAULT; REMEDIES

8.1 Events of Default. The occurrence of any one or more of the following events (regardless of the reason therefor) shall constitute an Event of Default hereunder:

(a) Any Borrower fails to make any payment of interest or of principal on any Loan within five (5) calendar days after the same is due and payable, provided, that if any Borrower fails to make any payment within such five (5) calendar day period, interest at the Default Rate shall accrue from the due date for such payment on all Obligations and the Loans.

(b) Borrowers fail to pay or reimburse Lenders for any costs or expenses reimbursable under this Agreement or under any other Loan Document, or Borrowers fail to make payment of any Obligations (not specifically referenced in any other subsection of this Section 8.1) within ten (10) calendar days following Lenders’ demand for such reimbursement or payment thereof; provided, that if any Borrower fails to pay such amount within said ten (10) calendar day period, interest at the Default Rate shall accrue from the due date for such payment on all Obligations and on the Loans.

(c) Borrowers or Credit Parties fail or neglect to perform, keep or observe any provision of this Agreement (not specifically referenced in any other subsection of this Section 8.1) applicable to them and the same shall remain unremedied for ten (10) Business Days or more after the earlier of (i) Borrower’s or Credit Party’s actual knowledge thereof, or (ii) Borrower’s or Credit Party’s receipt of notice thereof from Lenders.

(d) Borrowers fail or neglect to perform, keep or observe any of the provisions of Section 4.1 (Reports and Notices) or any provisions set forth in Annex B (Cash Management System) or Annex C (Collateral Reports), respectively, and the same shall remain unremedied in whole or in part for thirty (30) calendar days or more after the earlier of (i) said Borrower’s actual knowledge thereof, or (ii) said Borrower’s receipt of notice thereof from Lenders.

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(e) Borrowers deliver a supplement or update to any Disclosure Schedule as required by Section 5.6 (Supplemental Disclosure) and Lenders fail to approve of the same because such supplement or update (i) discloses the existence of an Event of Default, or (ii) discloses a Material Adverse Effect, or (iii) discloses any fact or circumstance which, with the passage of time or otherwise, would constitute an Event of Default or Material Adverse Effect.

(f) Borrowers or Credit Parties or Guarantors fail or neglect to timely perform, keep or observe any other provision of any of the Loan Documents required to be performed by it and the same shall remain unremedied in whole or in part for ten (10) Business Days after receipt of notice thereof from Lenders.

(g) Any Guarantor fails or neglects to timely perform, keep or observe any provision of the Guaranty Agreement and the same shall remain unremedied in whole or in part for ten (10) Business Days after receipt of notice thereof from Lenders.

(h) [reserved]

(i) [reserved]

(j) (i) A default or breach occurs under any other agreement, document or instrument to which any Borrower or any Credit Party is or are a party that is not cured within any applicable grace period therefor, such default or breach is not waived in writing by Lenders or Lender Agent, on behalf of the Lenders, and such default or breach involves the failure to make any payment when due in respect of any Indebtedness or Guaranteed Indebtedness (other than the Obligations) of Borrowers or Credit Parties in an amount in excess of $100,000; or (ii) an event, condition or circumstance occurs that causes, or permits any holder of Indebtedness or Guaranteed Indebtedness or a trustee to cause, Indebtedness or Guaranteed Indebtedness or a portion thereof to become due prior to its stated maturity or prior to its regularly scheduled dates of payment, or the holder of such Indebtedness or Guaranteed Indebtedness or such trustee has the right to demand cash collateral in respect of such Indebtedness or Guaranteed Indebtedness, in each case, regardless of whether such right is exercised, by such holder or trustee.

(k) Any representation or warranty herein or in any Loan Document or in any written statement, report, Financial Statement or certificate made or delivered to Lenders or Lender Agent by Borrowers or Credit Parties is untrue or incorrect in any material respect as of the date when made or deemed made.

(l) Assets of Borrowers or Credit Parties with a fair market value of $100,000 or more are attached, seized, levied upon or subjected to a writ or distress warrant, or come within the possession of any receiver, trustee, custodian or general assignee for the benefit of creditors of Borrowers or such Credit Parties and such condition continues for thirty (30) calendar days or more.

(m) A case or proceeding is commenced against any Borrower or any Credit Party seeking a decree or order in respect of said Borrower or Credit Party (i) under the Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for said Borrower or Credit Party or for any substantial part of said Borrower’s or Credit Party’s assets, or (iii) ordering the winding-up or liquidation of the affairs of any Borrower or Credit Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) calendar days or more or a decree or order granting the relief sought in such case or proceeding is granted by a court of competent jurisdiction.

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(n) Any Borrower or any Credit Party (i) files a petition seeking relief under the Bankruptcy Code, or any other applicable federal, state or foreign bankruptcy or other similar law, (ii) consents to or fails to contest in a timely and appropriate manner the institution of proceedings thereunder or the filing of any such petition or the appointment of or taking possession by a custodian, receiver, liquidator, assignee, trustee or sequestrator (or similar official) for such Borrower or Credit Party or for any substantial part of such Borrower’s or Credit Party’s assets, (iii) makes a general assignment for the benefit of creditors, (iv) takes any action in furtherance of any of the foregoing; or (v) admits in writing its inability to, or is generally unable to, pay its debts as such debts become due.

(o) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate at any time are outstanding against Borrowers or Credit Parties (which judgments are not covered by insurance policies as to which liability has been accepted in writing by the insurance carrier), and the same is/are not, within thirty (30) calendar days after the entry thereof, discharged or execution thereof stayed or bonded pending appeal, or such judgments are not discharged prior to the expiration of any such stay.

(p) Any material provision of any Loan Document for any reason ceases to be valid, binding and enforceable in accordance with its terms (or any Borrower or any Credit Party or any Guarantor shall challenge the enforceability of any Loan Document or shall assert in writing, or engage in any action or inaction based on any such assertion, that any provision of any of the Loan Documents has ceased to be or otherwise is not valid, binding and enforceable in accordance with its terms), or any Lien created under any Loan Document ceases to be a valid and perfected first priority Lien (except as otherwise permitted herein or therein) in any of the Collateral purported to be covered thereby.

(q) Any Change of Control occurs.

(r) A Material Adverse Effect shall exist as determined in the reasonable judgment of Lenders.

(s) IHHI fails or refuses, more than once during any consecutive twelve (12) month period, for any reason, to grant Lender Agent non-voting observer status with respect to all meetings of its board of directors and all meetings of its shareholders.

(t) IHHI fails or refuses, more than once during any consecutive twelve (12) month period, for any reason to deliver to Lender Agent, concurrently with delivery to all shareholders, a notice and agenda of each annual meeting, special meeting or emergency meeting of shareholders.

(u) IHHI fails or refuses, more than once during any consecutive twelve (12) month period, for any reason to deliver to Lender Agent, concurrently with delivery to all directors, a notice and agenda of each annual meeting, regular meeting, special meeting or emergency meeting of directors.

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(v) More than once during any consecutive twelve (12) month period, the directors or shareholders of IHHI waive notice of a directors meeting and fail to deliver advance notice to Lender Agent of said waiver of directors meeting.

(w) More than once during any consecutive twelve (12) month period, the directors or shareholders of IHHI take any action without a meeting, which action was required or permitted to be taken at a meeting, and fail to deliver advance notice of the taking of said action to Lender Agent.

(x) More than once during any consecutive twelve (12) month period, the directors or shareholders of IHHI hold a meeting by written consensus and fail to deliver advance notice of said meeting by consensus to Lender Agent.

(y) Dr. Shah at any time is nominated, or elected, or appointed, or directly or indirectly is compensated, paid, engaged, retained or becomes, an officer, or director, or employee, or manager, or supervisor, or consultant, or agent, or representative of, IHHI, WMC-A, WMC-SA, Coastal or Chapman.

(z) Independent Directors cease to constitute a majority of directors on IHHI’s board of directors, and replacement Independent Director(s) acceptable to Lenders in their sole discretion are not appointed, or nominated and elected, to IHHI’s board of directors within thirty (30) calendar days after the date such Independent Directors cease to constitute a majority of directors on IHHI’s board of directors.

(aa) IHHI, as tenant, commits a breach or default under the Triple Net Lease and the same remains uncured following receipt of all required notices and expiration of all applicable cure periods.

(bb) (dd) IHHI, as tenant, commits a breach or default under any of the Chapman Leases and the same remains uncured following receipt of all required notices and expiration of all applicable cure periods.

(cc) Without first receiving the prior written consent of the Lenders (which consent may be granted or withheld by any Lender in its sole discretion):

(i) IHHI for any reason terminates the sublease with WMC-A for the Western Medical Center - Anaheim;

(ii) IHHI for any reason terminates the sublease with WMC-SA for the Western Medical Center - Santa Ana;

(iii) IHHI for any reason terminates the sublease with Coastal for the Coastal Communities Hospital; or

(iv) IHHI for any reason terminates any of the sub-subleases with Chapman for any portion of the Chapman Medical Center.

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(dd) PCHI ceases to own all (100%) of the fee simple title (i) in the Western Medical Center - Anaheim, or (ii) in the Western Medical Center - Santa Ana; or (iii) in the Coastal Communities Hospital.

(ee) Borrowers or Credit Parties fail or neglect to perform, keep or observe any provision of Section 6.17 (Financial Covenants) applicable to them and the same shall remain unremedied for five (5) days or more after the earlier of (i) Borrower’s or Credit Party’s actual knowledge thereof, or (ii) Borrower’s or Credit Party’s receipt of notice thereof from Lender Agent.

8.2 Remedies. Lenders shall be entitled to enforce payment and performance of the Indebtedness and Obligations and to exercise all rights and powers under this Agreement and the other Loan Documents or other agreement or any laws now or hereafter in force. No remedy herein conferred upon or reserved to any Lender is intended to be exclusive of any other remedy set forth herein or by law provided or permitted, but each shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute. Every power or remedy given by this Agreement or any of the other Loan Documents to Lender Agent or any Lender in any capacity or to which Lender Agent or any Lender may be otherwise entitled, may be exercised, concurrently or independently, from time to time and as often as may be deemed expedient by Lender Agent and Lender Agent and any Lender may pursue inconsistent remedies. Lender Agent’s and Lenders’ remedies upon the occurrence and continuance of an Event of Default include, but are not limited to, the following:

(a) Accelerate Maturity Date of Line of Credit Loan. If any Event of Default has occurred and is continuing, Lender Agent may, with the consent of the Lenders, without notice, accelerate the Maturity Date of the Loans and declare all of the Obligations, including all amounts due under the Loans, to be forthwith due and payable, all without presentment, demand, protest or further notice of any kind, all of which are expressly waived by Borrowers and Credit Parties (in their respective capacities as Credit Parties and Guarantors).

(b) [Intentionally Omitted.]

(c) Increase Rate of Interest to Default Rate. If any Event of Default has occurred and is continuing, Lender Agent may without notice except as otherwise expressly provided herein, increase the rate of interest applicable to the Loans to the Default Rate.

(d) Other Remedies. If any Event of Default has occurred and is continuing, Lender Agent may without notice: (i)  make application to a court of competent jurisdiction for, and obtain from such court as a matter of strict right, the appointment of a receiver of the Business, which receiver shall have all the usual powers and duties of receivers in similar cases, including the full power to maintain and otherwise operate the Business upon such terms as may be approved by the court; and (ii) exercise any other rights and remedies provided to Lenders under the Loan Documents, or at law or equity, including all remedies provided under the Code; provided, that upon the occurrence of an Event of Default specified in Sections 8.1(m) or (n) (Events of Default), all of the Obligations and the Loans, shall become immediately due and payable without declaration, notice or demand by any Person.

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8.3 Waivers. Except as otherwise provided for in this Agreement or by applicable law, each Borrower and each Credit Party and each Guarantor waive (including for purposes of Section 13 (Suretyship Waivers)): (a) presentment, demand and protest and notice of presentment, dishonor, notice of intent to accelerate, notice of acceleration, protest, default (unless specifically required in this Agreement), nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lenders on which Borrowers or Credit Parties or Guarantors may in any way be liable, and hereby ratifies and confirms whatever the Lender Agent, on behalf of Lenders or Lenders may do in this regard, (b) all rights to notice and a hearing prior to any Lender’s taking possession or control of, or to any Lender’s replevy, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing a Lender to exercise any of its remedies, and (c) the benefit of all valuation, appraisal, marshaling and exemption laws.

9. ASSIGNMENT AND PARTICIPATIONS; APPOINTMENT OF LENDER

9.1 Assignment and Participations.

(a) Assignment to Qualified Assignee. Subject to the terms of this Section 9.1 (Assignment and Participations), any Lender may make an assignment to a Qualified Assignee of, or sell participations in, at any time or times, the Loan Documents and the Loans, or any portion thereof or interest therein, including any Lender’s rights, title, interests, remedies, powers or duties thereunder. Any assignment by a Lender shall: (i) require the execution of an assignment agreement in form and content reasonably satisfactory to, and acknowledged by, Lender Agent; and (ii) be conditioned on such assignee representing to Lender Agent that it is purchasing the applicable Loan to be assigned to it for its own account, for investment purposes and not with a view to the distribution thereof. In the case of an assignment by a Lender under this Section 9.1(a) (Assignment to Qualified Assignee), the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as such Lender hereunder. The original Lender shall be relieved of its obligations hereunder with respect to the assigned portion thereof from and after the date of such assignment. Borrowers and Credit Parties and Guarantors hereby acknowledge and agree that any assignment shall give rise to a direct obligation of Borrowers to the assignee and that the assignee shall be considered to be a “Lender.” In the event a Lender assigns or otherwise transfers all or any part of the Obligations, such Lender shall so notify Borrowers and Credit Parties and Guarantors, and Borrowers shall, upon the request of such new Lender, execute one or more new notes in exchange for any of the Notes (upon the same terms), if any, being assigned. Notwithstanding the foregoing provisions of this Section 9.1(a) (Assignment to Qualified Assignee), any Lender may at any time pledge the Obligations held by it and any Lender’s rights under this Agreement and the other Loan Documents to a financial institution.

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(b) Participations. Any participations by a Lender of all or any part of the aggregate commitment of a Lender to make Advances under the Loans shall be made with the understanding that all amounts payable by Borrowers hereunder shall be determined as if such Lender had not sold such participations, and that the holder of any such participation shall not be entitled to require such Lender to take or omit to take any action hereunder except actions directly affecting (i) any reduction in the principal amount of, or interest rate payable with respect to, any Loan in which such holder participates, (ii) any extension of the scheduled amortization of the principal amount of any Loan in which such holder participates or the final maturity date thereof, and (iii) any release of all or substantially all of the Collateral (other than in accordance with the terms of this Agreement, the Collateral Documents or the other Loan Documents). Solely for purposes of Section 1.14 (Taxes), and Section 1.15 (Capital Adequacy; Increased Costs; Illegality), Borrowers and Credit Parties and Guarantors acknowledge and agree that a participation shall give rise to a direct obligation of Borrowers to the participant (in each case subject to the terms and conditions in such Sections applicable to Lenders) and the participant shall be considered to be a “Lender.” The Borrowers and Credit Parties and Guarantors further consent to the voting provisions set forth in Section 3 of the Participation Agreement.

(c) Cooperation to Effect Assignments and Participations. Borrowers and Credit Parties shall assist Lenders under this Section 9.1 (Assignment and Participations) as reasonably required to enable Lenders to effectuate any such assignment or participations, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and, if requested by a Lender, the preparation of informational materials for, and the participation of management in meetings with, potential assignees or participants. Borrowers and Credit Parties shall certify the correctness, completeness and accuracy, in all material respects of all descriptions of Borrowers and Credit Parties and their respective affairs contained in any selling materials provided by them and all other information provided by them and included in such materials.

(d) Disclosures by Lenders. A Lender may furnish any information concerning Borrowers and the Credit Parties in the possession of a Lender from time to time to assignees and participants (including prospective assignees and participants); provided that such Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 11.10 (Confidentiality).

9.2 Reliance, Etc. Neither Lenders nor any of its Affiliates nor any of their respective directors, officers, employees or attorneys shall be liable for any action taken or omitted to be taken by it or them under or in connection with this Agreement or the other Loan Documents, except for damages caused by its or their own gross negligence or willful misconduct. Without limiting the generality of the foregoing, each Lender: (a) may consult with legal counsel, independent public accountants and other experts selected by it and shall not be liable for any action taken or omitted to be taken by it in good faith in accordance with the advice of such counsel, accountants or experts; (b) makes no warranty or representation to Borrowers or Credit Parties and shall not be responsible to Borrowers or Credit Parties for any statements, warranties or representations made in or in connection with this Agreement or the other Loan Documents; (c) shall not have any duty to ascertain or to inquire as to the performance or observance of any of the terms, covenants or conditions of this Agreement or the other Loan Documents on the part of Borrowers and Credit Parties or to inspect the Collateral (including the books and records) of Borrowers or Credit Parties; (d) shall not be responsible to Borrowers or Credit Parties for the due execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or the other Loan Documents or any other instrument or document furnished pursuant hereto or thereto; and (e) shall incur no liability under or in respect of this Agreement or the other Loan Documents by acting upon any notice, consent, certificate or other instrument or writing (which may be by telecopy, telegram, cable or telex) believed by it to be genuine and signed or sent by the proper party or parties.

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10. SUCCESSORS AND ASSIGNS

This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of Borrowers, Credit Parties, Lenders and Lender Agent, and their respective successors and assigns (including, in the case of Borrowers and Credit Parties, a debtor-in-possession on behalf of a Borrower or a Credit Party), except as otherwise provided herein or therein. Neither Borrowers nor Credit Parties may assign, transfer, hypothecate or otherwise convey its rights, benefits, obligations or duties hereunder or under any of the other Loan Documents without the prior express written consent of Lender Agent and each of the Lenders, which consent may be granted or withheld by Lender Agent and each Lender in its sole and absolute discretion. Any such purported assignment, transfer, hypothecation or other conveyance by Borrowers or Credit Parties without the prior express written consent of Lender Agent and each Lender shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of Borrowers, Credit Parties, Lenders and Lender Agent with respect to the transactions contemplated hereby and no Person shall be a third party beneficiary of any of the terms and provisions of this Agreement or any of the other Loan Documents.

11. MISCELLANEOUS

11.1 Complete Agreement; Modification of Agreement. This Agreement and the other Loan Documents (including all annexes, exhibits, and disclosure schedules attached hereto or thereto) constitute the complete agreement between the parties with respect to the subject matter thereof and may not be modified, altered or amended except as set forth in Section 11.2 (Amendments and Waivers). The Original Credit Agreement and any other term sheet, letter of interest, commitment letter, fee letter or confidentiality agreement, if any, between Borrowers or Credit Parties, Lenders and Lender Agent or any of their respective Affiliates, predating this Agreement and relating to a financing of substantially similar form, purpose or effect shall be superseded by this Agreement.

11.2 Amendments and Waivers.

(a) Signed by Representatives. No amendment, modification, termination or waiver of or consent with respect to any provision of this Agreement that waives compliance with the conditions precedent set forth in Article 2 (Conditions Precedent) to the making of any of the Loans shall be effective unless the same shall be in writing and signed by Lender Agent and Borrowers. No waiver or consent with respect to any Default or any Event of Default shall be effective for purposes of the conditions precedent to the making of the Loans unless the same shall be in writing and signed by Lender Agent and Borrowers.

(b) Must Be In Writing. No amendment, modification, termination or waiver shall, unless in writing and signed by Lender Agent and Borrowers: (i) reduce the principal amount of or the Interest Rate applicable to the Loans; (ii) extend any scheduled payment date or the Stated Maturity Date; (iii) waive, forgive, defer, extend or postpone any payment of interest; or (iv) release any Guarantor or, except as otherwise permitted herein or in the other Loan Documents, release, or permit Borrowers or Credit Parties to sell or otherwise dispose of, any Collateral. Each amendment, modification, termination or waiver shall be effective only in the specific instance and for the specific purpose for which it was given. Notwithstanding the foregoing, no amendment, modification, termination or waiver shall be required for Lender to take additional Collateral pursuant to any Loan Document. No amendment, modification, termination or waiver of any provision of any of the Notes shall be effective without the written concurrence of the holder of that Note. No notice to or demand on Borrowers or Credit Parties in any case shall entitle Borrowers or Credit Parties to any other or further notice or demand in similar or other circumstances. Any amendment, modification, termination, waiver or consent effected in accordance with this Section 11.2 (Amendments and Waivers) shall be binding upon each holder of the Note in question at the time outstanding and each future holder of said Note.

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(c) Termination of Liens. Upon payment of the Loans in full in cash and performance of all Obligations (other than indemnification Obligations), and a release of all existing and future claims (whether known or unknown) against each Lender and Lender Agent, and so long as no suits, actions, proceedings or claims are pending against any Indemnified Person, Lender Agent, on behalf of the Lenders, shall promptly upon receipt of written request from Borrowers deliver to Borrowers such termination statements, Lien releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations.

(d) Lender Voting. In addition to the terms set forth in the foregoing clauses (a) through (c) of this Section 11.2, if at any time there is more than one Lender hereunder, no amendment, modification, termination or waiver of any provision of the Loan Documents, or consent to any departure by any Borrower or Credit Party therefrom, shall in any event be effective without the written concurrence of one or more Lenders having or holding Loans representing more than fifty percent (50%) of the aggregate outstanding principal amount of the Loans.

11.3 Fees and Expenses. Borrowers shall reimburse Lender Agent and each Lender for (i) all fees, costs and expenses (including the reasonable fees and expenses of all of Lender Agent’s and each Lender’s outside attorneys, advisors, consultants and auditors), and (ii) all fees, costs and expenses, including the reasonable fees, costs and expenses of other advisors (including environmental and management consultants and appraisers), incurred in connection with the negotiation, preparation and filing and/or recordation of the Loan Documents, or incurred in connection with any amendment, modification or waiver of, consent with respect to, or termination of, any of the Loan Documents or Related Transactions Documents, or advice provided in connection with a breach or Default under the Loans or Lender Agent’s and each Lender’s rights hereunder or thereunder, or in connection with any of the following:

(a) Any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender Agent, Lenders, Borrowers, Credit Parties or any other Person and whether as a party, witness or otherwise) in any way relating to the Collateral, this Agreement, any of the Loan Documents or any other agreement to be executed or delivered in connection herewith or therewith, including any litigation, contest, dispute, suit, case, proceeding or action, and any appeal or review thereof, in connection with a case commenced by or against Borrowers and/or Credit Parties or any other Person that may be obligated to Lenders by virtue of the Loan Documents; including any such litigation, contest, dispute, suit, proceeding or action arising in connection with any work-out or restructuring or forbearance of the Loans during the pendency of one or more Events of Default; provided that no Person shall be entitled to reimbursement under this clause (a) in respect of any litigation, contest, dispute, suit, proceeding or action to the extent any of the foregoing results from such Person’s gross negligence or willful misconduct.

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(b) Any attempt to enforce any remedies of Lenders against Borrowers and/or Credit Parties or any other Person that may be obligated to Lenders by virtue of any of the Loan Documents, including any such attempt to enforce any such remedies in the course of any work- out or restructuring or forbearance of the Loans during the pendency of one or more Events of Default.

(c) Any workout or restructuring or forbearance of the Loans during the pendency of one or more Events of Default.

(d) Efforts by Lenders to (i) monitor the operations, financial condition and/or regulatory status of the Business after an Event of Default occurs under this Agreement or under any of the other Loan Documents; (ii) evaluate, observe or assess Borrowers or Credit Parties or their respective business affairs after a breach or Default under this Agreement or under any of the other Loan Documents; and (iii) verify, protect, evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of any of the Collateral; including, as to each of clauses (a) through (c) above, all reasonable attorneys’ and other professional and service providers’ fees arising from such services and other advice, assistance or other representation, including those in connection with any appellate proceedings, and all reasonable expenses, costs, charges and other statutory and non-statutory fees and costs incurred by such counsel and others in connection with or relating to any of the events or actions described in this Section 11.3 (Fees and Expenses), all of which shall be payable, on demand, by Borrowers to Lenders. Without limiting the generality of the foregoing, such expenses, costs, charges and fees shall include: a Lender’s Costs, fees, costs and reasonable expenses of attorneys, accountants, environmental advisors, appraisers, investment bankers, management and other consultants and paralegals; court costs and expenses; photocopying and duplication expenses; court reporter fees, statutory and non-statutory costs and expenses; long distance telephone charges; air express charges; telegram or telecopy charges; secretarial overtime charges; and expenses for travel, lodging and food paid or incurred in connection with the performance of such legal or other advisory services.

11.4 No Waiver. Lender Agent’s or a Lender’s failure, at any time or from time to time, to require strict performance by Borrowers or Credit Parties of any provision of this Agreement or any other Loan Document shall not waive, affect or diminish any right of Lender Agent or such Lender thereafter to demand strict compliance and performance herewith or therewith. Any suspension or waiver of an Event of Default shall not suspend, waive or affect any other Event of Default whether the same is prior or subsequent thereto and whether the same or of a different type. Subject to the provisions of Section 11.2 (Amendments and Waivers), none of the undertakings, agreements, warranties, covenants and representations of Borrowers or Credit Parties contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by Borrowers or Credit Parties shall be deemed to have been suspended or waived by Lenders, unless such waiver or suspension is by an instrument in writing signed by Lender Agent and each Lender and directed to Borrower’s Representative specifying such suspension or waiver.

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11.5 Remedies. Each Lender’s rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies that a Lender may have under any other agreement, including the other Loan Documents, by operation of law or otherwise. Recourse to the Collateral shall not be required.

11.6 Severability. Wherever possible, each provision of this Agreement and the other Loan Documents shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement or any other Loan Document shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement or such other Loan Document.

11.7 Conflict of Terms. Except as otherwise provided in this Agreement or any of the other Loan Documents by specific reference to the applicable provisions of this Agreement, if any provision contained in this Agreement conflicts with any provision in any of the other Loan Documents, the provision contained in this Agreement shall govern and control.

11.8 Attorneys’ Fees; Indemnification.

(a) Attorneys’ Fees. If any action or proceeding is brought by any party against any other party, the prevailing party shall be entitled to recover from the other party reasonable attorneys’ fees and statutory and non-statutory costs incurred in connection with the prosecution or defense of such action. The foregoing includes, without limitation, attorneys’ fees and costs of investigation incurred in appellate proceedings, costs incurred in establishing the right to indemnification, expert or other witness fees, copy and facsimile and telephone charges, courier and messenger charges, court costs, fees of charges of any arbitrator or mediator or arbitration or mediator service, or in connection with, any case or proceeding under Chapter 7, 11 or 13 of the Bankruptcy Code, 11 U.S.C. 101 et seq., or any successor statutes. For purposes of this Agreement, the term “attorneys’ fees” or “attorneys’ fees and costs” shall also include the fees and expenses of counsel to the parties hereto, which may include the allocable costs of in-house counsel, printing, photostating, duplicating and other expenses, air freight charges, and fee billed for law clerks, paralegals and other persons not admitted to the bar but performing services under the supervision of an attorney.

(b) Indemnification. Should any Lender, as a result of its relationship with Borrowers or Credit Parties or Guarantors contemplated hereby, be made a party to any litigation instituted by Borrowers or Credit Parties or Guarantors against a Person other than such Lender, or any litigation instituted against Borrowers or Credit Parties or Guarantors by any Person other than such Lender, Borrowers shall jointly and severally indemnify, defend, protect and hold harmless such Lender from any and all loss, cost, liability, damage or expense incurred by such Lender, including attorneys’ fees and costs, in connection with the litigation.

11.9 Time of the Essence. Time is of the essence in the performance of each and every term, condition and covenant of this Agreement.

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11.10 Confidentiality. Lender Agent and each Lender agrees to use commercially reasonable efforts to maintain as confidential all information provided to them by Borrowers and/or Credit Parties which is designated in a writing delivered to Lender Agent or any Lender as confidential (provided, that, all non-public financial information and financial projections provided by Borrowers or Credit Parties to Lender Agent or Lenders shall be deemed confidential whether or not so designated in writing as confidential) for a period of one (1) year following receipt thereof, except that Lender Agent or Lenders may disclose such information (a) to Persons employed or engaged by Lender Agent or such Lender; (b) to any bona fide assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 11.10 (Confidentiality) and any such bona fide assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any Governmental Authority or reasonably believed (based on advice of counsel) by Lender Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of Lender Agent’s or such Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under this Agreement or the other Loan Documents or in connection with any Litigation relative to this Agreement or the other Loan Documents or the transactions related hereto or thereto to which Lender Agent or Lender is a party; or (f) that ceases to be confidential through no fault of Lender Agent or such Lender. If Lender Agent or such Lender is required in any proceeding, by any court decree, subpoena or legal or administrative order or process, to disclose any such confidential information, Lender Agent or such Lender will use commercially reasonable efforts to give Borrowers and Credit Parties, as applicable, prompt written notice of such request so that Borrowers or Credit Parties may seek an appropriate protective order. If in the absence of a protective order, Lender Agent or such Lender is compelled in a proceeding to disclose any such confidential information, Lender Agent or such Lender may disclose such portion of such confidential information that it is compelled to disclose; provided, however, that Lender Agent or such Lender shall use commercially reasonable efforts to provide Borrowers and Credit Parties, as applicable, written notice of the information to be disclosed as far in advance of its disclosure as is practicable.

11.11 GOVERNING LAW. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS AGREEMENT AND IN ANY OF THE OTHER LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS AGREEMENT AND EACH OF THE OTHER LOAN DOCUMENTS AND THE OBLIGATIONS SHALL BE GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEVADA APPLICABLE TO CONTRACTS MADE AND PERFORMED IN THAT STATE AND ANY APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. BORROWERS AND CREDIT PARTIES AND LENDER EACH HEREBY CONSENT AND AGREE THAT THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF NEVADA, CLARK COUNTY, CITY OF LAS VEGAS, SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN OR AMONG BORROWERS AND CREDIT PARTIES ON THE ONE HAND, AND LENDER ON THE OTHER HAND, PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY MATTER ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS; PROVIDED, THAT EACH LENDER, LENDER AGENT, EACH BORROWER AND EACH CREDIT PARTY ACKNOWLEDGE THAT ANY APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF CLARK COUNTY, NEVADA; PROVIDED FURTHER, THAT NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR OPERATE TO PRECLUDE LENDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF LENDER. EACH BORROWER AND EACH CREDIT PARTY AND LENDER EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER, EACH CREDIT PARTY, LENDER AGENT AND EACH LENDER HEREBY WAIVE ANY OBJECTION THAT ANY BORROWER OR ANY CREDIT PARTY, LENDER AGENT OR ANY LENDER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER, EACH CREDIT PARTY, LENDER AGENT AND EACH LENDER HEREBY AGREE THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE AT THE ADDRESSES SET FORTH IN ANNEX D OF THIS AGREEMENT.

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11.12 Notices. Except as otherwise provided herein, whenever it is provided herein that any notice, demand, request, consent, approval, declaration or other communication shall or may be given to or served upon any of the parties by any other parties, or whenever any of the parties desires to give or serve upon any other parties any communication with respect to this Agreement, each such notice, demand, request, consent, approval, declaration or other communication shall be in writing and shall be deemed to have been validly served, given or delivered: (a) upon the earlier of actual receipt or three (3) Business Days after deposit in the United States Mail, registered or certified mail, return receipt requested, with proper postage prepaid; (b) upon transmission, when sent by electronic transmission, telecopy or facsimile transmission (with such electronic transmission, telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.12 (Notices)); (c) one (1) Business Day after deposit with a reputable overnight courier with all charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of which shall be addressed to the party to be notified and sent to the address or facsimile number indicated in Annex D (Notice Addresses) or to such other address (or facsimile number) as may be substituted by notice given as herein provided. The giving of any notice required hereunder may be waived in writing by the party entitled to receive such notice. Failure or delay in delivering copies of any notice, demand, request, consent, approval, declaration or other communication to any Person (other than Borrower’s Representative or Lender) designated in Annex D (Notice Addresses) to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication.

11.13 Section Titles. The Section titles and headings contained in this Agreement are and shall be without substantive meaning or content of any kind whatsoever and are not a part of the agreement between the parties hereto.

11.14 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement.

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11.15 WAIVER OF JURY TRIAL. BECAUSE DISPUTES ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG ANY LENDER, LENDER AGENT, ANY BORROWER AND ANY CREDIT PARTY ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH, THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS RELATED THERETO.

11.16 Press Releases and Related Matters. Borrowers and Credit Parties agree that neither they nor their respective Affiliates will in the future issue any press releases or other public disclosure using the name of any Lender, Lender Agent or its Affiliates or referring to this Agreement, the other Loan Documents or the Related Transactions Documents without at least two (2) Business Days’ prior written notice to Lender Agent and each Lender and without the prior written consent of Lender Agent and each Lender (which consent will not be unreasonably withheld) unless (and only to the extent that) Borrowers or Credit Parties or their respective Affiliate are required to do so under law, regulation or any applicable exchange rules or OTC bulletin board rules, then, in any event, Borrowers, Credit Parties or their respective Affiliates will use commercially reasonable efforts to consult with Lender Agent and each Lender before issuing such press release or other public disclosure. Borrowers and Credit Parties consent to the publication by Lender Agent and each Lender of advertising material relating to the financing transactions contemplated by this Agreement using Borrower’s and Credit Party’s name, product photographs, logo or trademark, without the consent of Borrowers or Credit Parties. Lender Agent and each Lender may provide to industry trade organizations information necessary and customary for inclusion in league table measurements unless such disclosure would violate or any applicable exchange rules or OTC bulletin board rules applicable to Borrowers.

11.17 Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against Borrowers or Credit Parties for liquidation or reorganization, or should Borrowers or Credit Parties become insolvent or make a general assignment for the benefit of any creditor or creditors, or should a receiver or trustee be appointed for all or any significant part of any Borrower’s or any Credit Party’s assets, and shall continue to be effective or to be reinstated, as the case may be, if at any time payment and performance of the Obligations, or any part thereof, is, pursuant to applicable law, rescinded or reduced in amount, or must otherwise be restored or returned by any obligee of the Obligations, whether as a “voidable preference,” “fraudulent conveyance,” or otherwise, all as though such payment or performance had not been made. In the event that any payment, or any part thereof, is rescinded, reduced, restored or returned, the Obligations shall be reinstated and deemed reduced only by such amount paid and not so rescinded, reduced, restored or returned.

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11.18 Advice of Counsel. Each of the Borrowers and each of the Credit Parties represent to Lender Agent and the Lenders and Lender Agent and each Lender represent to said Borrowers and to said Credit Parties, that they have each discussed this Agreement and, specifically, the provisions of Section 11.11 (Governing Law) and Section 11.15 (Waiver of Jury Trial), with their legal counsel.

11.19 No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

11.20 Limitation on Each Borrower’s and Each Credit Party’s Liability. Anything to the contrary notwithstanding, if any Fraudulent Transfer Law is determined by a court of competent jurisdiction to be applicable to the obligation of any Borrower or any Credit Party under this Agreement or under any other Loan Documents, said obligations shall be limited to a maximum aggregate amount equal to the largest amount that would not render its obligations hereunder subject to avoidance as a fraudulent transfer or conveyance under said Fraudulent Transfer Laws, in each case after giving effect to all other liabilities of such Borrower and such Credit Party, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Borrower or such Credit Party in respect of intercompany indebtedness to any other Borrowers or Credit Parties or Affiliates of Borrowers or Credit Parties).

11.21 Lender Agent.

(a) Appointment of Lender Agent. Silver Point Finance, LLC, a Delaware limited liability company (“Silver Point”), is hereby appointed Lender Agent hereunder and under the other Loan Documents and each Lender hereby authorizes Silver Point to act as its agent in each such capacity in accordance with the terms hereof. Lender Agent hereby agrees to act upon the express conditions contained herein and the other Loan Documents, as applicable. The provisions of this section are solely for the benefit of the Lender Agent and each Lender and no Borrower or Credit Party shall have any rights as a third party beneficiary of any of the provisions thereof. In performing its functions and duties hereunder, the Lender Agent shall act solely as an agent of Lenders and does not assume and shall not be deemed to have assumed any obligation towards or relationship of agency or trust with or for Borrowers, Credit Parties or any of their respective Subsidiaries.

(b) Powers and Duties. Each Lender authorizes the Lender Agent to take such action on each Lender’s behalf and to exercise such powers, rights and remedies and perform such duties hereunder and under the other Loan Documents as are specifically delegated or granted to the Lender Agent by the terms hereof or otherwise agreed in writing by each Lender, together with such actions, powers, rights and remedies as are reasonably incidental thereto. The Lender Agent shall have only those duties and responsibilities that are expressly specified herein and the other Loan Documents. The Lender Agent may exercise such powers, rights and remedies and perform such duties by or through its agents or employees. The Lender Agent shall not have or be deemed to have, by reason hereof or any of the other Loan Documents, a fiduciary relationship in respect of each Lender; and nothing herein or any of the other Loan Documents, expressed or implied, is intended to or shall be so construed as to impose upon the Lender Agent any obligations in respect hereof or any of the other Loan Documents except as expressly set forth herein or therein.

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(c) Successor Agent. The Lender Agent may assign its rights and duties as Lender Agent hereunder to an Affiliate of Silver Point without the prior written consent of, or prior written notice to, any Borrower, Credit Party or any Lender; provided that the Borrowers, Credit Parties and Lenders may deem and treat such assigning Lender Agent as the relevant Lender Agent for all purposes hereof, unless and until such the Lender Agent provides written notice to Borrowers, Credit Parties and Lenders of such assignment. Upon such assignment such Affiliate shall succeed to and become vested with all rights, powers, privileges and duties as the Lender Agent hereunder and under the other Loan Documents. In addition, with the unanimous consent of all Lenders in the event there is more than one Lender hereunder, Lenders may remove the Lender Agent and appoint a successor Lender Agent without the consent of Borrowers, Credit Parties or the Lender Agent.

(d) Lenders under Security and Guaranty. Each Lender hereby further authorizes the Lender Agent, on behalf of and for the benefit of each Lender, to be the agent for and representative of each Lender with respect to the Guaranty, the Collateral and the Loan Documents related thereto. With the written consent or authorization from each Lender, the Lender Agent may execute any documents or instruments necessary to (i) release or subordinate any Lien encumbering any item of Collateral that is the subject of a sale or other disposition of assets or for the establishment of the A/R Facility by Borrowers that, in either case, is permitted by the Loan Documents and (ii) release any Guarantor from its guaranty if such release is permitted under the Loan Documents. After the payment in full of the Obligations (other than indemnification Obligations), the Lender Agent shall, upon request of the Borrowers and the consent of each Lender (such consent not to be unreasonably withheld), take such actions as shall be required to promptly release the security interest in the Collateral and to promptly release each Guarantor from its guaranty under the Guaranty Agreements to which it is a party.

(e) Loan Document Provisions. For all purposes hereunder and under the other Loan Documents, any provision requiring any action, consent or vote of a “Lender” may be taken or given by the Lender Agent acting at the direction of the Lenders.

12. [Intentionally Omitted.]

13. SURETYSHIP WAIVERS

13.1 Suretyship Waivers. Because Credit Parties are not direct borrowers from Lenders under this Agreement, although the Loans directly and indirectly benefit each Person comprising Borrowers and Credit Parties, it is possible that the Credit Parties could be construed as guarantors or sureties of Borrowers and of each other and thereby have certain rights and remedies accorded to them that were not intended to be available to any of them. Accordingly, in order to induce the Lenders to provide the credit facilities and accommodations provided for herein, each Person which is a Borrower or a Credit Party for itself agrees as follows:

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(a) Irrevocable Waivers. The waivers provided in this section are intended to be irrevocable and to apply to all present and future Obligations of Borrowers and Credit Parties to Lenders, including those arising under successive transactions which shall either continue the Obligations, increase or decrease them, or from time to time, create new Obligations, after all or any prior Obligations have been satisfied, and notwithstanding the dissolution, liquidation or bankruptcy of Borrowers, Credit Parties, or Guarantors, of all or any portion of the Obligations, or other event or proceeding affecting Borrowers or Credit Parties or Guarantors of any portion of the Obligations.

(b) Separate and Independent Obligations of Credit Parties. The Obligations of Credit Parties hereunder are separate and independent of (i) Borrower’s obligation to pay Lenders principal and interest under the Term Note and the other Obligations hereunder, and (ii) the liabilities and obligations of Credit Parties which are Guarantors. A separate action or actions may be brought and prosecuted against Credit Parties whether or not any action is brought and prosecuted against Borrowers, and whether or not Credit Parties are joined in any such action or actions. Borrowers and Credit Parties waive the benefit of any statute of limitations affecting the Obligations hereunder or the enforcement thereof.

(c) Authority of Lenders. Credit Parties and Guarantors hereby authorize Lenders, without notice or demand and without affecting their liability hereunder, from time to time to: (i) amend, alter, restate, replace, modify, renew, extend, accelerate or otherwise change the time for payment or the terms of the Obligations with Borrowers, including increasing or decreasing the Interest Rate thereon or the principal amount thereof; (ii) accept partial payments on the Obligations from Borrowers or Guarantors; (iii) accept new or additional documents, instruments or agreements relative to the Obligations; (iv) take and hold security or additional guaranties for the payment of the Obligations, and amend, alter, exchange, substitute, transfer, enforce, waive, subordinate, terminate, modify and release in any manner any such security or guaranties; (v) apply such security and direct the order or manner of sale thereof as Lenders in their sole discretion may determine; (vi) release or substitute any Guarantor; (vii) settle, release on terms satisfactory to Lenders (or by operation of law or otherwise), compound, compromise, collect or otherwise liquidate any indebtedness or security in any manner, consent to the transfer of security and bid and purchase at any sale, without affecting or impairing the Obligations of Borrowers or Credit Parties or Guarantors hereunder; or (viii) enforce any other right or remedy granted to Lenders under this Agreement or under any of the other Loan Documents or under any Guaranty Agreement. No action which Lenders shall take or fail to take in connection with this Agreement or any of the Loan Documents, or any of them, or any security for the Obligations or other undertakings of Borrowers, nor any course of dealing with Borrowers or Credit Parties or Guarantors, or any course of dealing with any other person or legal entity, shall release Borrower’s Obligations or Credit Party’s or Guarantor’s responsibilities hereunder, shall affect this Agreement or the other Loan Documents in any way, or afford Borrowers or Credit Parties or Guarantors any recourse against Lenders. Without limiting the generality of the foregoing, Borrowers agree that this Agreement shall extend and be applicable to each new or replacement Note delivered by Borrowers pursuant thereto without notice to or further consent from Credit Parties or Guarantors.

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(d) Waiver of Rights Against Lenders. Borrowers and Credit Parties and Guarantors waive any right to require Lenders to: (i) proceed against Borrowers, against Guarantors, against Credit Parties, or against anyone else; (ii) proceed against or exhaust any security for the Obligations, or to marshal assets or to marshal assets of any Person in any particular order; (iii) except as required by applicable law, give notice of the terms, time and place of any public or private sale of any real or personalty securing the Obligations; or (iv) pursue any other remedy in such Lender’s power whatsoever. Each Person which is a Borrower, Guarantor, or a Credit Party waives any defense arising by reason of any disability or other defense of Borrowers, Guarantors, or Credit Parties, or by reason of the cessation from any cause whatsoever of the liability of Borrowers, Guarantors, or Credit Parties, or by reason of any act or omission of Lenders or other Persons which directly or indirectly results in or aids the discharge or release of Borrowers, Guarantors, or Credit Parties, or any of the Obligations or any security therefor by operation of law or otherwise, or by reason of the amendment, modification, renewal, extension or other change in any of the Obligations. Borrowers, Credit Parties and Guarantors waive all setoffs and counterclaims and all presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Agreement and of the existence, creation, or incurring of new or additional Obligations, and all other notices and demands of any kind and description now or hereafter provided for by any statute or rule of law, except for such notices and demands as specifically required by this Agreement. Borrowers, Guarantors, and Credit Parties expressly waive any right whatsoever to, or right whatsoever to participate in, any security now or hereafter held by Lenders, reimbursement, indemnity, exoneration, contribution or any other claim under local, state or federal law, including, without limitation, 11 U.S.C. 547, which it may now or hereafter have against Borrowers, Guarantors, or Credit Parties, or any other Person directly or contingently liable for the Obligations, or against or with respect to Borrower’s or Credit Party’s or Guarantor’s property (including, without limitation, any Collateral under any of the Loan Documents) arising from the existence or performance of this Agreement until all of the Obligations have been indefeasibly paid or satisfied in full.

(e) Representations and Warranties. Borrowers, Guarantors, and Credit Parties represent and warrant to each Lender that: (i) this Agreement is executed at each Borrower’s, each Guarantor’s, and each Credit Party’s request; (ii) Guarantors, and Credit Parties have each established adequate means of obtaining from Borrowers on a continuing basis financial and other information pertaining to Borrower’s Business and Borrower’s financial condition; and (iii) Guarantors and Credit Parties are now and will be completely familiar with the Business, operation and financial condition of Borrowers and its assets and of its Business. Borrowers, Guarantors and Credit Parties hereby waive and relinquish any duty on the part of Lender to disclose to any of said parties any matter, fact or thing relating to the Business, operation or financial condition of Borrowers and their respective assets now known or hereafter known by any Lender during the term of this Agreement. With respect to any present or future Obligations of Borrowers to any Lender, such Lender need not inquire into the authority of Borrowers, and any Obligations made or created in reliance upon the professed exercise of such powers.

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(f) No Set-Off, Counterclaim, Etc. So long as any of the Obligations under this Agreement remain unpaid or undischarged, neither Guarantors nor Credit Parties will, by paying any sum recoverable hereunder (whether or not demanded by Lenders) or by any means or on any other ground, (i) claim any set-off or counterclaim against Borrowers, Guarantors, or Credit Parties in respect of any Obligations or other indebtedness by virtue of the right of subrogation, by operation of law or otherwise; (ii) in any proceedings under federal bankruptcy law or insolvency proceedings of any nature, assert its rights in competition with Lender in respect of any payment hereunder because of any claims which Guarantors or Credit Parties may have against Borrowers or any other Person; or (iii) be entitled to have the benefit of any counterclaim or proof of claim or dividend or payment by or on behalf of Borrowers, Guarantors, or Credit Parties or other Person, or the benefit of any of any other security for any Obligation which, now or hereafter, Lenders may hold or in which it may have any share or interest.

13.2 Election of Remedies. If Lenders may, under Applicable Laws, proceed to realize its benefits under any of the Loan Documents granting a Lien upon any Collateral, whether owned by Borrowers or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, such Lender may, at its sole option, determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Section 13 (Suretyship Waivers). If, in the exercise of any of its rights and remedies, such Lender shall forfeit any of its rights or remedies, including its right to enter a deficiency judgment against Borrowers or any other Person, whether because of any applicable laws pertaining to “election of remedies” or the like, Borrowers hereby consent to such action by such Lender and waive any claim based upon such action, even if such action by such Lender shall result in a full or partial loss of any rights of subrogation that Borrowers might otherwise have had but for such action by such Lender. Any election of remedies that results in the denial or impairment of the right of Lenders to seek a deficiency judgment against Borrowers shall not impair Guarantor’s or Credit Party’s obligations to pay the full amount of the Obligations applicable to it. In the event Lenders shall bid at any foreclosure or trustee’s sale or at any private sale permitted by law or the Loan Documents, Lenders may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lenders but shall be credited against the Obligations.

[Signature Page Follows]

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized representatives as of the date first above written.

LENDERS:

SPCP Group, LLC,

a Delaware limited liability company

By:

Name: 

Title: 

LENDER AGENT:

SILVER POINT FINANCE, LLC,

a Delaware limited liability company

By:

Name: 

Title: 

BORROWERS:

INTEGRATED HEALTHCARE HOLDINGS, INC.,
a Nevada corporation

By:

Name: 

Title: 

WMC-A, INC., a California corporation

By:

Name: 

Title: 

WMC-SA, INC., a California corporation

By:

Name: 

Title: 

COASTAL COMMUNITIES HOSPITAL, INC.,
a California corporation

By:

Name: 

Title: 

CHAPMAN MEDICAL CENTER, INC.,
a California corporation

By:

Name: 

Title: 

CREDIT PARTIES:

PACIFIC COAST HOLDINGS INVESTMENT, LLC,
a California limited liability company

By:

Name: 

Title: 

By:

Name: 

Title: 

ganesha realty, llc,
a California limited liability company

By:

Name: 

Title: 

ANNEX A
TO
AMENDED AND RESTATED
CREDIT AGREEMENT ($47,277,000 Term Note)

DEFINITIONS

Initially capitalized terms used in this Agreement shall (unless otherwise provided elsewhere in the Loan Documents) have the following respective meanings. All references to Sections, Exhibits, Schedules or Annexes in the following definitions shall refer to sections, Exhibits, Schedules or Annexes of or to this Credit Agreement:

“Absolute Assignment” means each of the following:

the Absolute Assignment of Leases and Rents With License Back re Western Medical Center - Anaheim, dated as of the Closing Date, by and among Closing Date Lender, PCHI and WMC-A in the form of Exhibit “F” attached hereto;

the Absolute Assignment of Leases and Rents With License Back re Western Medical Center — Santa Ana, dated as of the Closing Date, by and among Closing Date Lender, PCHI and WMC-SA in the form of Exhibit “F” attached hereto;

the Absolute Assignment of Leases and Rents With License Back re Coastal Communities Hospital, dated as of the Closing Date, by and among Closing Date Lender, PCHI and Coastal in the form of Exhibit “F” attached hereto;

the Absolute Assignment of Leases and Rents With License Back re Chapman MOB Lease, dated as of the Closing Date, by and among Closing Date Lender and IHHI in the form of Exhibit “F” attached hereto; and

the Absolute Assignment of Leases and Rents With License Back re Chapman Hospital Lease, dated as of the Closing Date, by and among Closing Date Lender and IHHI in the form of Exhibit “F” attached hereto.

“Accounts” means (i) the right to receive payment of rent, occupancy payments and other similar payments due and owing by any Person using or occupying space in any real property owned or leased by Borrowers, plus (ii) the future right to receive payment of any monetary obligations, whether or not earned by performance, now or hereafter existing, arising under or in relation to each Borrower’s Business.

“Advance” means any advance of funds under the Loans.

“Affiliate” means, with respect to any Person (excluding Lender), (a) each Person that, directly or indirectly, owns or controls, whether beneficially, or as a trustee, guardian or other fiduciary, 10% or more of the Stock having ordinary voting power in the election of directors of such Person, (b) each Person that controls, is controlled by or is under common control with such Person, (c) each of such Person’s officers, directors, joint venturers and partners, and (d) in the case of Borrowers, the immediate family members, spouses and lineal descendants of individuals who are Affiliates of Borrowers. For the purposes of this definition, “control” of a Person shall mean the possession, directly or indirectly, of the power to direct or cause the direction of its management or policies, whether through the ownership of voting securities, by contract or otherwise.

Annex A-1

“Agreement” means this Amended and Restated Credit Agreement by and among Borrowers, Credit Parties, Guarantors, Lenders, and Lender Agent, as the same may be amended, supplemented, restated or otherwise modified from time to time.

“Amendment and Restatement Agreement” means the Amendment and Restatement to the Credit Agreement dated as of February 7, 2013 (and as amended, restated or otherwise modified from time to time) among Borrowers, Ganesha, PCHI, SPCP Group IV, LLC, Lenders and Lender Agent.

“Amendment No. 3 Effective Date” means April 13, 2010.

“Annexes” means, together, Annex A (Definitions), Annex B (Cash Management System), Annex C (Collateral Reports) and Annex D (Notice Addresses) attached to this Agreement.

“Applicable Laws” means all federal, state and local laws, statutes, codes, regulations, rules, acts, ordinances of all Governmental Authorities, departments, commissions, boards, courts, authorities, agencies, officials and officers, including without limitation, Environmental Laws, all building, safety, health, use laws, the Fair Labor Standards Act, 29 U.S.C. §§201 et seq., the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. Section 18a, the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101, et seq., as amended, and the California version of the WARN Act, and any deed restrictions or other requirements of record applicable to the Collateral or to Borrowers or Credit Parties, or to their respective businesses.

“Appraisal” means an appraisal of the Properties prepared by Marshall & Stevens, M.A.I.

“Appraised Value” means the fair market value of the Properties as set forth in the Appraisal.

“A/R Facility” means (a) the Credit and Security Agreement, dated as of or about August 30, 2010, among MidCap Financial, LLC, as administrative agent and a lender, the Borrowers and the other parties thereto from time to time, as amended, restated, supplemented or otherwise modified from time to time or (b) any Permitted Refinancing thereof.

“A/R Facility Closing Date” means (a) August 30, 2010 or (b) with respect to any Permitted Refinancing of the A/R Facility, the closing date of such facility.

“A/R Facility Collateral” means the “Revolving Collateral” as such term is defined in the A/R Facility Intercreditor Agreement.

“A/R Facility Intercreditor Agreement” means (a) the Intercreditor Agreement, dated as of or about August 30, 2010, among MidCap Financial, LLC, the Lender Agent, the Borrowers and the Credit Parties, as amended, restated, supplemented or otherwise modified from time to time subject to the terms and conditions of the A/R Facility Intercreditor Agreement and (b) any intercreditor or subordination documentation entered with respect to any replacement A/R Facility in form reasonably agreed to by Lender Agent and substantially consistent with the A/R Facility Intercreditor Agreement referred to in clause (a) of this definition.

Annex A-2

“A/R Facility Lender Agent” means the Agent as defined in the A/R Facility.

“A/R Facility Liens” means a first and prior assignment of and security interest in the A/R Facility Collateral and the proceeds and products thereof.

“Authorized Individual” has the meaning ascribed to it in Section 1.5(g).

“Bank” means Wells Fargo Bank, N.A., located at 2030 Main Street, Suite 900, Irvine, California 92614.

“Bankruptcy Code” means the provisions of Title 11 of the United States Code, 11 U.S.C. §101 et seq.

“Borrowers” means IHHI, WMC-A, WMC-SA, Chapman and Coastal.

“Borrower’s Representative” means an Authorized Individual at the address of IHHI, or any replacement therefor approved by Lender as required by this Agreement.

“Business” means the business of Borrowers as defined in the Recitals set forth above.

“Business Day” means each day of the year that is not a Saturday or Sunday and which day (a) is not a day on which federally-chartered banking institutions in New York, New York are required to close, and (b) is a not a regularly scheduled holiday in the state of New York or in the United States.

“Capital Expenditure(s)” means, with respect to any Person, all expenditures (by the expenditure of cash or the incurrence of Indebtedness) by such Person during any measuring period for any fixed assets or improvements or for replacements, substitutions or additions thereto that have a useful life of more than one year and that are required to be capitalized under GAAP.

“Capital Lease” means, with respect to any Person, any lease of any property (whether real, personal or mixed) by such Person as lessee that, in accordance with GAAP, would be required to be classified and accounted for as a capital lease on a balance sheet of such Person.

“Capital Lease Obligation” means, with respect to any Capital Lease of any Person, the amount of the obligation of the lessee thereunder that, in accordance with GAAP, would appear on a balance sheet of such lessee in respect of such Capital Lease.

Annex A-3

“Cash Collateral Account” has the meaning ascribed to it Annex B (Cash Management System).

“Cash Management System” means the cash management system described in Annex B (Cash Management System).

“Certified Cash” means the net amount of Dollars in unrestricted cash and cash equivalents of Borrowers that is/are in Deposit Accounts or securities accounts maintained by a branch of a bank or securities intermediary within the United States and which are identified on Disclosure Schedule 3.18 (Deposit and Disbursement Accounts), as updated by Borrowers from time to time, as Certified Cash Accounts, which Certified Cash Accounts are not subject to any Liens, statutory liens or rights of offset, any overdraft, or any other charge or priority in favor of any Person other than Lender or, for any Deposit Account or securities account, the rights of the applicable bank or securities intermediary maintaining such Deposit Account or securities account with respect to customary account charges relating thereto (provided, that any amounts subject to any such rights in favor of any such bank or securities intermediary shall be excluded from Certified Cash for purposes of calculation of the amount thereof). For the avoidance of any doubt, the amount of Borrowers’ marketable securities and Qualified Cash at the time of any determination shall be deemed to constitute Certified Cash but only to the extent they are not subject to any Liens, statutory liens or rights of offset, any overdraft, or any other charge or priority in favor of any Person other than Lender.

“Change of Control” means that any of the following have occurred: (a) Kali P. Chaudhuri, M.D. and his Affiliates no longer beneficially own a majority of the outstanding shares (and/or securities readily convertible into or exercisable for shares) of Voting Stock on a fully diluted basis of IHHI; or (b) during any period of twelve (12) consecutive calendar months, Persons who at the beginning of such period constituted the majority of the board of directors of any Borrower or the majority of the managers of PCHI (together with any new Person whose nomination or election or appointment was approved by the required vote of the shareholders or members) cease for any reason (other than death or personal disability) to constitute a majority of the board of directors of any Borrower or the majority of the managers of PCHI; or (c) IHHI ceases to own, directly or indirectly, and control, all (100%) of the Stock of WMC-A, WMC-SA, Chapman and Coastal; or (d) Kenneth K. Westbrook ceases to be Chief Executive Officer or Director of IHHI, or WMC-A, or WMC-SA, or Chapman, or Coastal, and a replacement Chief Executive Officer acceptable to Lender in its sole discretion is not employed by the applicable Borrower within thirty (30) calendar days after the date that Kenneth K. Westbrook is no longer Chief Executive Office or Director of IHHI, or WMC-A, or WMC-SA, or Chapman, or Coastal; (e) Ganesha ceases to own, directly or indirectly, at least 49% of the membership interests of PCHI or any other Person (other than any entity the shareholders and shareholdings of which are substantially the same as the non-Ganesha shareholders and shareholdings of PCHI on the Amendment No. 3 Effective Date) and its Affiliates owns, directly or indirectly, a greater percentage of membership interests of PCHI than Ganesha; or (f) Kali P. Chaudhuri, M.D. ceases to own, directly or indirectly, a majority of the outstanding Voting Stock of Ganesha. Notwithstanding the foregoing, a Change of Control shall not occur as a result of the exercise by Kali P. Chaudhuri, M.D., SPCP Group IV, LLC, SPCP Group, LLC or their respective Affiliates or designees or assigns of the warrants issued by IHHI to Kali P. Chaudhuri, M.D., KPC Resolution Company, LLC (so long as it is controlled by Kali P. Chaudhuri, M.D.), SPCP Group IV, LLC, and SPCP Group, LLC or their respective designees or assigns on the Amendment No. 3 Effective Date.

Annex A-4

“Chapman” means Chapman Medical Center, Inc., a California corporation.

“Chapman Leases” means each of the following:

That certain lease agreement dated December 31, 1984, by and between Chapman Medical, L.P., a California limited partnership, successor-in-interest to Chapman Investments Associates, a California limited liability company, successor-in-interest to James L, Kirby, Successor Trustee of the Taggart Land Trust dated December 29, 1977, Fred D. Pierce, Trustee of the Stanford Land Trust dated December 29, 1977, Lawrence A. Johnson, Trustee of the Oxford Land Trust dated December 29, 1977, James L. Kirby, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, Melia Harper Long, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, and Mattison James Harper, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, as tenants in common doing business under the fictitious name Chapman Investment Associates (collectively, “Hospital Landlord”), and Chapman General Hospital, Inc., a California corporation, as the initial Tenant thereunder (the “Hospital Tenant”). Said lease agreement was amended by a First Amendment dated April 8, 1985, by a Second Amendment dated April 1, 1989, by a Third Amendment dated November 5, 1990 and by a Fourth Amendment dated August 25, 1994. Said lease, as amended by the First, Second, Third and Fourth Amendments, shall collectively hereinafter be referred to as the “Chapman Hospital Lease.” The 2601 East Chapman Hospital Lease encumbers the real property and hospital improvements commonly described as and located at 2601 East Chapman Avenue, Orange, California. A memorandum of the Chapman Hospital Lease was recorded on August 30, 1994 as Instrument No. 94-0533295 of the Official Records of the Office of the County Recorder of the County of Orange, State of California. Hospital Tenant’s interest in the Chapman Hospital Lease was assigned and transferred to IHHI on March 5, 2005.

That certain lease agreement dated December 31, 1984 by and between Chapman Medical, L.P., a California limited partnership, successor-in-interest to Chapman Investments Associates, a California limited liability company, successor-in-interest to James L, Kirby, Successor Trustee of the Taggart Land Trust dated December 29, 1977, Fred D. Pierce, Trustee of the Stanford Land Trust dated December 29, 1977, Lawrence A. Johnson, Trustee of the Oxford Land Trust dated December 29, 1977, James L. Kirby, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, Melia Harper Long, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, and Mattison James Harper, Successor Co-Trustee of the Cayuga Land Trust dated December 29, 1977, as tenants in common doing business under the fictitious name Chapman Investment Associates (collectively, “MOB Landlord”) and Greatwest Medical Management, Inc., a California corporation, as the initial Tenant (the “MOB Tenant”). Said lease agreement was amended by a First Amendment dated April 8, 1985, and by a Second Amendment dated August 25, 1994. Said lease agreement, as amended by the First Amendment and Second Amendment, shall collectively hereinafter be referred to as the “Chapman MOB Lease.” The 2617 East Chapman MOB Lease encumbers the medical office building premises commonly described as and located at 2617 East Chapman Avenue, Orange, California. A memorandum of the Chapman MOB Lease was recorded on August 30, 1994 as Instrument No. 94-0533296 of the Official Records of the Office of the County Recorder of the County of Orange, State of California. MOB Tenant’s interest in the Chapman MOB Lease was assigned and transferred to IHHI on March 5, 2005.

Annex A-5

“Chapman Medical Center” means the real property and hospital improvements located at 2601 East Chapman Avenue, Orange, California, and the real property and medical office building improvements located at 2617 East Chapman Avenue, Orange, California.

“Charges” means all federal, state, county, city, municipal, local, foreign or other governmental taxes (including taxes owed to the PBGC at the time due and payable), levies, assessments, charges, liens, claims or encumbrances upon or relating to (a) the Collateral, (b) the Obligations, (c) the employees, payroll, income or gross receipts of any of Borrowers or any of the Credit Parties, (d) the use of any real property owned or leased by Borrowers or Credit Parties (other than Ganesha and OC-PIN), or (e) any other aspect of the Business of Borrowers or the business of Credit Parties (other than Ganesha and OC-PIN).

“Chattel Paper” means any chattel paper,” as such term is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by Borrowers or Credit Parties.

“Closing Date” means October 9, 2007.

“Closing Date Lender” means Medical Provider Financial Corporation II, a Nevada Corporation.

“Closing and Funding Checklist” means the closing and funding checklist prepared by Closing Date Lender listing certain documents and information to be delivered in connection with the closing of the Original Credit Agreement and the other Loan Documents and the transactions contemplated thereunder, as described in Annex C (Collateral Reports).

“Coastal” means Coastal Communities Hospital, Inc., a California corporation.

“Coastal Communities Hospital” means the real property and hospital improvements located at 2701 South Bristol Street and 1901 and 1905 North College Avenue, Santa Ana, California.

“Code” means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of Nevada; provided, that to the extent that the Code is used to define any term herein or in any Loan Document and such term is defined differently in different Articles or Divisions of the Code, the definition of such term contained in such Article or Division shall govern; and provided further, that in the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies with respect to, Lender or any Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of Nevada, the term “Code” shall mean the Uniform Commercial Code as enacted and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection, priority or remedies and for purposes of definitions related to such provisions.

Annex A-6

“Collateral” means the following:

all of each Borrower’s tangible personal property, including without limitation all present and future Inventory and Equipment (including items of equipment which are or become Fixtures), now owned or hereafter acquired;

all of each Borrower’s intangible personal property and interests in personal property, including without limitation all present and future Accounts, contract rights, Permits, General Intangibles, Chattel Paper, Documents, Instruments, Deposit Accounts, Investment Property, Supporting Obligations, rights to the payment of money or other forms of consideration of any kind, tax refunds, insurance proceeds, now owned or hereafter acquired, and all intangible and tangible personal property relating to or arising out of any of the foregoing;

all of each Borrower’s Government Contracts and rights thereunder and the related Government Accounts and proceeds thereof, now or hereafter owned or acquired by such Borrower; provided, however, that Lender shall not have a Lien in any rights under any Government Contract of any Borrower or in the related Government Account where the taking of such security interest is a violation of an express prohibition contained in the Government Contract (for purposes of this limitation, the fact that a Government Contract is subject to, or otherwise refers to, Title 31, § 203 or Title 41, §15 of the United States Code shall not be deemed an express prohibition against assignment thereof) or is prohibited by applicable law, unless in any case consent is otherwise validly obtained;

PCHI’s fee simple interest in the Western Medical Center - Anaheim, in the Western Medical Center – Santa Ana, and in the Coastal Communities Hospital;

IHHI’s interest, as tenant, in the Triple Net Lease of the Western Medical Center — Anaheim, the Western Medical Center — Santa Ana, and the Coastal Communities Hospital;

IHHI’s interest, as sublandlord, in the sublease of the Western Medical Center - Anaheim to WMC-A, in the sublease of the Western Medical Center - Santa Ana to WMC-SA, and in the sublease of the Coastal Communities Hospital to Coastal;

IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease;

IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease; and

any and all additions and accessions to any of the foregoing, and any and all replacements, products and proceeds (including insurance proceeds) of any of the foregoing.

“Collateral Assignment” means each of the following:

the Collateral Assignment of Contracts re Western Medical Center — Anaheim, dated as of the Closing Date, by and among Closing Date Lender, IHHI and WMC-A in the form of Exhibit “H” attached hereto;

the Collateral Assignment of Contracts re Western Medical Center — Santa Ana, dated as of the Closing Date, by and among Closing Date Lender, IHHI and WMC-SA in the form of Exhibit “H” attached hereto;

Annex A-7

the Collateral Assignment of Contracts re Coastal Communities Hospital, dated as of the Closing Date, by and among Closing Date Lender, IHHI and Coastal in the form of Exhibit “H” attached hereto;

the Collateral Assignment of Contracts re Chapman MOB Lease, dated as of the Closing Date, by and among Closing Date Lender and IHHI in the form of Exhibit “H” attached hereto; and

the Collateral Assignment of Contracts re Chapman Hospital Lease, dated as of the Closing Date, by and among Closing Date Lender and IHHI in the form of Exhibit “H” attached hereto.

“Collateral Documents” means the $80,000,000 Deeds of Trust, the Absolute Assignments, the Collateral Assignment, the Security Agreement, the Pledge Agreement, the Stock Power, the IP Security Agreement, the UCC-1 Financing Statements, and all similar agreements, documents and instruments entered into guaranteeing payment of, or granting a Lien upon, real and personal property (and interests in real and personal property), and perfecting the Liens, as security for payment of, the Obligations.

“Collateral Reports” means the reports with respect to the Collateral referred to in Annex C (Collateral Reports).

“Contracts” means all contracts as such term is defined in the Code, now owned or hereafter acquired by any of Borrowers, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any of the Borrowers may now or hereafter have any right, title or interest, including any agreement relating to the terms of payment or the terms of performance of any Accounts.

“Control Agreement” means prior to April 13, 2010, the Control Agreement dated as of the Closing Date, by and among Closing Date Lender, Borrowers and Bank in the form of Exhibit “J” attached hereto.

“Copyright License” means any and all rights now owned or hereafter acquired by any of the Borrowers under any written agreement granting any right to use any Copyright or Copyright registration.

“Copyrights” means all of the following now owned or hereafter adopted or acquired by any of the Borrowers or any of the Credit Parties: (a) all copyrights and General Intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including all registrations, recordings and applications in the United States Copyright Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof, and (b) all reissues, extensions or renewals thereof.

“Credit Parties” means PCHI, OC-PIN and Ganesha, and their respective successors and assigns.

Annex A-8

“Default” means any event that, with the passage of time or notice or both, would, unless cured or waived in writing by Lender, become an Event of Default.

“Default Rate” means a rate of interest which is five percent (5%) per annum above the Interest Rate per annum otherwise applicable to the Loan.

“Deposit Accounts” means all deposit accounts as such term is defined in the Code, now or hereafter held in the name of any of the Borrowers.

“Deposit Account Security Agreement” means that certain Deposit Account Security Agreement dated as of the Closing Date, by and among the Closing Date Lender and Borrowers in the form of Exhibit “I” attached hereto.

“Disbursement Accounts” has the meaning ascribed to it in Annex B (Cash Management System).

“Disclosure Schedules” means the Schedules prepared by Borrowers and denominated as Disclosure Schedules 2.1(b) through 6.7 to this Agreement.

“Documents” means all documents, as such term is defined in the Code, now owned or hereafter acquired by any of Borrowers, wherever located.

“Dollars” or “$” means lawful currency of the United States of America.

“Dr. Shah” means Anil V. Shah, M.D., an individual.

“$10,700,000 Credit Agreement” has the meaning ascribed to it in the Recitals.

“$35,000,000 Non-Revolving Line of Credit Loan” means the $35,000,000 non-revolving line of credit loan made by Closing Date Lender to Borrowers pursuant to the Original Credit Agreement.

“$50,000,000 Credit Agreement” has the meaning ascribed to it in the Recitals.

“$80,000,000 Deed of Trust” means each of the following:

the Deed of Trust With Assignment of Rents and Fixture Filing re Western Medical Center - Anaheim, dated as of the Closing Date, executed by PCHI in favor of Closing Date Lender in the form of Exhibit “E” attached hereto;

the Deed of Trust With Assignment of Rents and Fixture Filing re Western Medical Center - Santa Ana, dated as of the Closing Date, executed by PCHI in favor of Closing Date Lender in the form of Exhibit “E” attached hereto;

Annex A-9

the Deed of Trust With Assignment of Rents and Fixture Filing re Coastal Communities Hospital, dated as of the Closing Date, executed by PCHI in favor of Closing Date Lender in the form of Exhibit “E” attached hereto;

the Deed of Trust With Assignment of Rents and Fixture Filing re Chapman MOB Lease, dated as of the Closing Date, executed by IHHI in favor of Closing Date Lender in the form of Exhibit “E” attached hereto; and

the Deed of Trust With Assignment of Rents and Fixture Filing re Chapman Hospital Lease, dated as of the Closing Date, executed by IHHI in favor of Closing Date Lender in the form of Exhibit “E” attached hereto.

“Effective Date” means October 9, 2007.

“Environmental Indemnity Agreement” means an Environmental Indemnity Agreement dated as of the Closing Date, by and between Borrowers, Credit Parties (other than Ganesha) and Closing Date Lender, in the form of Exhibit “M” attached hereto.

“Environmental Laws” means all federal, state and local health, safety, environmental or natural resource laws, statutes, regulations, rules, ordinances, codes, licenses, permits, orders, approvals, authorizations, concessions, franchises and similar items of all federal, state, county, municipal, or other governmental, quasi-governmental, regulatory or administrative authority, agency, board, court, arbitrator, body, instrumentality, commission or other judicial body exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to Governmental Authority having jurisdiction, including, without limitation all statutes referred to by name in the definition of Hazardous Materials; and all other state, federal, and local laws, regulations, rules, ordinances and orders which govern: (i) the existence, cleanup and/or remedy of contamination on real property and improvements; (ii) the emission or discharge of Hazardous Materials into the environment; (iii) the control of Hazardous Materials; (iv) the use, generation, transport, treatment, storage, disposal, removal, or recovery of Hazardous Materials; as well as all applicable judicial and administrative and regulatory decrees, judgments or orders (including without limitation the common law) and all applicable covenants running with the land that relate to the protection of health, safety, environment or natural resources.

“Environmental Liabilities” means, with respect to any Person, all environmental liabilities, obligations, responsibilities, response, remedial and removal costs, investigation and feasibility study costs, capital costs, operation and maintenance costs, losses, damages, punitive damages, property damages, natural resource damages, consequential damages, treble damages, costs and expenses (including all reasonable fees, disbursements and expenses of counsel, experts and consultants), fines, penalties, sanctions and interest incurred as a result of or related to any claim, suit, action, investigation, proceeding or demand by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute or common law, including any arising under or related to any Environmental Laws, Environmental Permits, or in connection with any Release or threatened Release or presence of a Hazardous Material whether on, at, in, under, from or about or in the vicinity of any real or personal property.

Annex A-10

“Environmental Losses” means any and all losses (including diminution in value of a Property), liabilities, damages, demands, claims, actions, judgments, causes of action, assessments, penalties, costs and expenses (including sums paid in settlement of claims), liens, interest, fines or penalties, including without limitation, the fees and disbursements of outside counsel, paralegals and accountants, consultant fees, expert fees, all foreseeable and unforeseeable consequential damages, and all other costs and expenses of any kind or nature, which are suffered or incurred by Lender with respect to a Property or adjacent real property or improvements arising out of or as a result of (i) the occurrence of any Hazardous Material Activity; (ii) any violation of any Environmental Laws or Applicable Laws; (iii) any investigation, inquiry, order, hearing, action, or other proceeding by or before any Governmental Authority in connection with any Hazardous Material Activity; (iv) any Hazardous Material Claims brought, asserted, or alleged against Lender or against any of Lender’s directors, officers, shareholders, employees, attorneys, or agents; (v) any actions taken by Lender to enter and inspect a Property pursuant to the rights granted Lender under this Agreement and the other Loan Documents; and (vi) any misrepresentation or inaccuracy in any representation or warranty by any Borrower or any Credit Party or any material breach or failure to perform any covenants or obligations by any Borrower or any Credit Party pursuant to this Agreement relating to environmental matters.

“Environmental Permits” means all permits, licenses, authorizations, certificates, approvals or registrations required by any Governmental Authority under any Environmental Laws.

“Equipment” means all equipment, as such term is defined in the Code, now owned or hereafter acquired by Borrowers, wherever located.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and any regulations promulgated thereunder.

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with any other Person, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC.

“ERISA Event” means (a) with respect to a Title IV Plan, any event described in Section 4043(c) of ERISA for which notice to the PBGC has not been waived; (b) the withdrawal of Borrowers or any ERISA Affiliate from a Title IV 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; (c) the complete or partial withdrawal of Borrowers or any ERISA Affiliate from any Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV Plan in a distress termination described in Section 4041 (c) of ERISA or the treatment of a plan amendment as a termination under Section 4041 of ERISA; (e) the institution of proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (f) with respect to a Title IV Plan, the existence of an “accumulated funding deficiency” (as defined in Section 412 of the IRC or Section 302 of ERISA) whether or not waived, or the failure to make by its due date a required installment under Section 412(m) of the Code or the failure to make any required contribution to a Multiemployer Plan; (g) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to a Title IV Plan; (h) the making of any amendment to any Title IV Plan which could result in the imposition of a lien or the posting of a bond or other security; (i) with respect to a Title IV Plan an event described in Section 4062(e) of ERISA; (j) any other event or condition that would reasonably be expected to constitute grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan or for the imposition of liability under Section 4069 or 4212(c) of ERISA; (k) the termination of a Multiemployer Plan under Section 4041A of ERISA or the reorganization or insolvency of a Multiemployer Plan under Section 4241 or 4245 of ERISA; (1) the loss of a Qualified Plan’s qualification or tax exempt status; or (m) the termination of a Plan described in Section 4064 of ERISA.

Annex A-11

“Escrow” means an escrow account established by the Escrow Company.

“Escrow Company” means Chicago Title Insurance Company, Commercial/Industrial, 700 South Flower Street, Suite 800, Los Angeles, California 90017, Attn: Patricia M. Schlageck (“Sr. Commercial Escrow Officer”), telephone: 213-488-4358; facsimile: 213-612-4138; email: patricia.schlageck@ctt.com.

“Escrow Holder” means Escrow Company.

“Event of Default” means that Borrowers and/or Credit Parties have committed one or more of the events described in Section 8.1 (Events of Default) of this Agreement.

“Exhibits” means any of Exhibits “A” through “T” attached to this Agreement.

“Existing Real Estate Term Loans” means the $47,277,000 real estate term loan made by Lenders to Borrowers outstanding as of the Restatement Effective Date.

“Existing Real Estate Term Note” means, collectively, promissory notes dated as of the Closing Date, in the aggregate principal amount of $45,000,000, executed by Borrowers in favor of Closing Date Lender pursuant to the Original Credit Agreement.

“Financial Statements” means the consolidated income statements, statements of cash flows and balance sheets of each of the Borrowers delivered in accordance with Section 3.4 (Financial Statements and Projections) of this Agreement.

“First Credit Agreement” means that certain Credit Agreement dated to be effective as of March 3, 2005, by and between Borrowers, Credit Parties and Closing Date Lender. Pursuant to the First Credit Agreement, Closing Date Lender made available to Borrowers the Previous $50,000,000 Acquisition Loan and the Previous $30,000,000 Line of Credit Loan.

“Fiscal Month” means any of the monthly accounting periods of Borrowers.

“Fiscal Quarter” means any of the quarterly accounting periods of Borrowers, ending on March 31, June 30, September 30 and December 31 of each year.

“Fiscal Year” means any of the annual accounting periods of Borrowers ending on March 31 of each year.

“Fixtures” means all fixtures as such term is defined in the Code, now owned or hereafter acquired by Borrowers or Credit Parties.

“Fraudulent Transfer Law” means Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law.

Annex A-12

“Funded Debt” means, with respect to any Person, without duplication, all Indebtedness for borrowed money evidenced by notes, bonds, debentures, or similar evidences of Indebtedness and that by its terms matures more than one year from, or is directly or indirectly renewable or extendible at such Person’s option under a line of credit or similar agreement obligating the lender or lenders to extend credit over a period of more than one year from the date of creation thereof, and specifically including Capital Lease Obligations, current maturities of long term debt, lines of credit and short term debt extendible beyond one year at the option of the debtor, and also including, in the case of Borrowers, the Obligations and, without duplication, Guaranteed Indebtedness consisting of guaranties of Funded Debt of other Persons.

“GAAP” means, as to a particular Person, such accounting practice as, in the opinion of the independent accountants regularly retained by such Person, conforms at the time to Generally Accepted Accounting Principles, consistently applied.

“Generally Accepted Accounting Principles” means those principles and practices in the United States of America (a) which are recognized as such by the Financial Accounting Standards Board, (b) which are applied for all periods after the date hereof in a manner consistent with the manner in which such principles and practices were applied to the most recent Financial Statements furnished Lender of the relevant Person, and (c) which are consistently applied for all periods after the date hereof so as to reflect properly the financial condition, and results of operations and changes in financial position, of such Person. If any change in any accounting principle or practice is required by the Financial Accounting Standards Board in order for such principle or practice to continue as a Generally Accepted Account Principle or practice, all reports and Financial Statements required hereunder shall be prepared in accordance with such changes.

“Ganesha” means Ganesha Realty, LLC, a California limited liability company.

“General Intangibles” means all general intangibles, as such term is defined in the Code, now owned or hereafter acquired by Borrowers, including all right, title and interest that Borrowers may now or hereafter have in or under any Contract, all payment intangibles, customer lists, Licenses, Copyrights, Trademarks, Patents, and all applications therefore and reissues, extensions or renewals thereof, rights in Intellectual Property, interests in partnerships, joint ventures and other business associations, licenses, permits, copyrights, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, experience, processes, models, drawings, materials and records, goodwill (including the goodwill associated with any Trademark or Trademark License), all rights and claims in or under insurance policies (including insurance for fire, damage, loss and casualty, whether covering personal property, real property, tangible rights or intangible rights, all liability, life, key man and business interruption insurance, and all unearned premiums), uncertificated securities, choices in action, deposit, checking and other bank accounts, rights to receive tax refunds and other payments, rights to receive dividends, distributions, cash, Instruments and other property in respect of or in exchange for pledged Stock and Investment Property, rights of indemnification, all books and records, correspondence, credit files, invoices and other papers, including without limitation all tapes, cards, computer runs and other papers and documents in the possession or under the control of Borrowers or any computer bureau or service company from time to time acting for Borrowers.

“Goods” means all goods as defined in the Code, now owned or hereafter acquired by Borrowers, wherever located, including embedded software to the extent included in goods as defined in the Code.

Annex A-13

“Governmental Authority” means any nation or government, any state, county, city, or other political subdivision thereof, and any agency, department or other entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.

“Guaranteed Indebtedness” means as to any Person, any obligation of such Person guaranteeing, providing comfort or otherwise supporting any Indebtedness, lease, dividend, or other obligation of any other Person in any manner, including any obligation or arrangement of such Person to (a) purchase or repurchase any such primary obligation, (b) advance or supply funds (i) for the purchase or payment of any such primary obligation or (ii) to maintain working capital or equity capital of the primary obligor or otherwise to maintain the net worth or solvency or any balance sheet condition of the primary obligor, (c) purchase property, securities or services primarily for the purpose of assuring the owner of any such primary obligation of the ability of the primary obligor to make payment of such primary obligation, (d) protect the beneficiary of such arrangement from loss (other than product warranties given in the ordinary course of business) or (e) indemnify the owner of such primary obligation against loss in respect thereof. The amount of any Guaranteed Indebtedness at any time shall be deemed to be an amount equal to the lesser at such time of (x) the stated or determinable amount of the primary obligation in respect of which such Guaranteed Indebtedness is incurred and (y) the maximum amount for which such Person may be liable pursuant to the terms of the instrument embodying such Guaranteed Indebtedness, or, if not stated or determinable, the maximum reasonably anticipated liability (assuming full performance) in respect thereof.

“Guarantors” means OC-PIN and PCHI, and their respective successors and assigns.

“Guaranty Agreement” means a Guaranty Agreement dated as of the Closing Date, executed by the Guarantors and Closing Date Lender, in the form of Exhibit “N” attached hereto.

“Hazardous Material” means any (a) substance, product, waste or other material of any nature whatsoever which is or becomes listed, regulated, or addressed pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. Section 9601, et seq. (“CERCLA”); the Hazardous Materials Transportation Act, 49 U.S.C. Section 5101, et seq.; the Resource Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. (“RCRA”); the Toxic Substances Control Act, 15 U.S.C. Sections 2601 et seq.; the Clean Water Act, 33 U.S.C. Sections 1251 et seq.; the Federal Water Pollution Control Act (33 U.S.C. Section 1251, et seq.) (“Clean Water Act” or “CWA”); the Atomic Energy Act of 1954 (42 U.S.C. Section 2011, et seq.) (“AEA”); the Clean Air Act (42 U.S.C. Section 7401, et seq.); the Emergency Planning and Community Right to Know Act (42 U.S.C. Section 11001, et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136, et seq.) (“FIFRA”); the Oil Pollution Act of 1990 (P.L. 101-380, 104 Stat. 486); the Safe Drinking Water Act (42 U.S.C. Sections 300f, et seq.) (“SDWA”); the Surface Mining Control and Reclamation Act of 1974 (30 U.S.C. Sections 1201, et seq.); the Toxic Substances Control Act (15 U.S.C. Section 2601, et seq.) (“TSCA”); the Uranium Mill Tailings Radiation Control Act of 1978 (42 U.S.C. Section 7901, et seq.) (“UMTRCA”); all respective regulations promulgated thereunder; and or any other federal, state or local statute, law, ordinance, resolution, code, rule, regulation, order or decree regulating, relating to, or imposing liability or standards of conduct concerning, any hazardous, toxic or dangerous waste, substance or material, as now or at any time hereafter in effect, (b) any substance, product, waste or other material of any nature whatsoever which may give rise to liability under any of the above statutes or under any statutory or common law theory based on negligence, trespass, intentional tort, nuisance or strict liability or under any reported decisions of a state or federal court, (c) petroleum or crude oil other than petroleum and petroleum products contained within regularly operated motor vehicles, and (d) asbestos.

Annex A-14

“Hazardous Material Activity” means any storage, holding, existence, release, emission, discharge, generation, processing, abatement, removal, disposition, handling or transportation of any Hazardous Material from, under, into, or across any Property or surrounding real property and improvements or any other use of or operation of any Property or surrounding real property or improvements that creates a risk of Hazardous Material contamination of said Property; provided, however, that Hazardous Material Activity shall not include reasonable incidental use, storage and disposal of Hazardous Materials on the Property provided that such use, disposal and storage complies with the following: (a) such use, disposal and storage shall be limited to customary supplies, including supplies and materials customarily used, stored and disposed of in the normal operations of medical facilities; (b) no such products or supplies create any risk of harm to persons or property including any Collateral under this Agreement and the other Loan Documents; and (c) all such products and supplies are used, stored and disposed of in material compliance with all applicable Environmental Laws.

“Hazardous Material Claim” means any and all enforcement, clean-up, removal, remedial or other governmental or regulatory actions, agreements, or orders threatened, instituted or completed pursuant to any Environmental Laws and any all other actions, proceedings, claims, demands or causes of action, whether meritorious or not (including, without limitation, third party claims for contribution, indemnity, personal injury or real or personal property damage), which directly or indirectly relate to, arise from or are based in whole or in part on: (i) the occurrence or alleged occurrence of any Hazardous Material Activity, (ii) any violation or alleged violation of any applicable Environmental Laws relating to a Property or to the ownership, use, occupation or operation thereof; and (iii) any investigation, inquiry, order, hearing, action or other proceeding by or before any Governmental Authority in connection with any Hazardous Material Activity.

“Hospital Facilities” and/or “Hospital Facility” means Western Medical Center-Anaheim, the Western Medical Center-Santa Ana, the Coastal Communities Hospital and the Chapman Medical Center.

“Hospital Landlord” has the meaning assigned to such term in the definition of “Chapman Leases.”

“IHHI” means Integrated Healthcare Holdings, Inc., a Nevada corporation.

Annex A-15

“Indebtedness” means, with respect to any Person, without duplication, (a) all indebtedness of such Person for borrowed money or for the deferred purchase price of property payment for which is deferred six (6) months or more, but excluding obligations to trade creditors incurred in the ordinary course of business that are unsecured and not overdue by more than six (6) months unless being contested in good faith, (b) all reimbursement and other obligations with respect to letters of credit, bankers’ acceptances and surety bonds, whether or not matured, (c) all obligations evidenced by note, bonds, debentures or similar instruments, (d) all indebtedness created or arising under any conditional sale or other title retention agreement with respect to property acquired by such Person (even though the rights and remedies of the seller or lender under such agreement in the event of default are limited to repossession or sale of such property), (e) all Capital Lease Obligations and the present value of future rental payments under all synthetic leases, (f) all obligations of such Person under commodity purchase or option agreements or other commodity price hedging arrangements, in each case whether contingent or matured, (g) all obligations of such Person under any foreign exchange contract, currency swap agreement, interest rate swap, cap or collar agreement or other similar agreement or arrangement designed to alter the risks of that Person arising from fluctuations in currency values or interest rates, in each case whether contingent or matured, (h) all Indebtedness referred to above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien upon or in property or other assets (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness, and (i) the Obligations.

“Independent Director(s)” means a Person or Persons who are or who become members of IHHI’s board of directors and who (a) are independent of all Borrowers and all Credit Parties, (b) are not now and never have been affiliated with any Borrower or any Credit Party, (c) are not now and never have been employed by or have performed consulting or other services for any Borrower or any Credit Party, (d) are not now and never have been paid or compensated, or received consideration of any kind from, any Borrower or any Credit Party, (e) are not now and never have been directly or indirectly engaged in the full-time practice of clinical medicine (i.e., said Persons are not doctors), and (f) are experienced in the administration and management of acute care hospital facilities such as the Hospital Facilities.

“Instruments” means all instruments, as such term is defined in the Code, now owned or hereafter acquired by Borrowers, wherever located, and, in any event, including all certificated securities, all certificates of deposit, and all promissory notes and other evidences of indebtedness, other than instruments that constitute, or are a part of a group of writings that constitute, Chattel Paper.

“Intellectual Property” means any and all Licenses, Patents, Copyrights, Trademarks, and the goodwill associated with such Trademarks.

“Intercreditor Agreement” means an Intercreditor Agreement dated as of the Closing Date, executed by the Closing Date Lender and Borrowers in the form of Exhibit “O” attached hereto.

Annex A-16

“Interest Payment Date” means the first Business Day of each calendar month to occur while any Loan is outstanding, and provided further that, in addition to the foregoing, the Maturity Date shall be deemed to be an Interest Payment Date with respect to any interest that has then accrued under this Agreement.

“Interest Rate” means, at any time, the rate per annum equal to the LIBOR Rate plus 10%.

“Interest Period” means an interest period of one, two or three months, as selected by IHHI in the Notice of Interest Period, (i) initially, commencing on the Restatement Effective Date; and (ii) thereafter, commencing on the day on which the immediately preceding Interest Period expires; provided, (a) if an Interest Period would otherwise expire on a day that is not a Business Day, such Interest Period shall expire on the next succeeding Business Day unless no further Business Day occurs in such month, in which case such Interest Period shall expire on the immediately 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, subject to clause (c) of this definition, end on the last Business Day of a calendar month; and (c) the final Interest Period shall conclude on the Maturity Date.

“Inventory” means all inventory, as such term is defined in the Code, now owned or hereafter acquired by Borrowers, wherever located, and in any event including inventory, merchandise, goods and other personal property that are held by or on behalf of Borrowers for sale or lease or are furnished or are to be furnished under a contract of service, or that constitute raw materials, work in process, finished’ goods, returned goods, or materials or supplies of any kind, nature or description used or consumed or to be used or consumed in Borrower’s business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software.

“Investment Property” means all investment property as such term is defined in the Code now owned or hereafter acquired by Borrowers, wherever located, including (a) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (b) all securities entitlements of Borrowers, including the rights of Borrowers to any securities account and the financial assets held by a securities intermediary in such securities account and any free credit balance or other money owing by any securities intermediary with respect to that account; (c) all securities accounts of Borrowers; (d) all commodity contracts of Borrowers; and (e) all commodity accounts held by Borrowers.

“IP Security Agreement” means an IP Security Agreement dated as of the Closing Date, between Borrowers and Closing Date Lender in the form of Exhibit “L” attached hereto.

“IRC” means the Internal Revenue Code of 1986 and all regulations promulgated thereunder.

“IRS” means the Internal Revenue Service.

Annex A-17

“Landlord’s Consent and Estoppel Certificate (Chapman Leases)” means each of the following:

a Landlord’s Consent and Estoppel Certificate (Chapman MOB Lease) executed by the MOB Landlord in favor of Closing Date Lender, in the form of Exhibit “S” attached hereto; and

a Landlord’s Consent and Estoppel Certificate (Chapman Hospital Lease) executed by the Chapman Hospital Landlord in favor of Closing Date Lender, in the form of Exhibit “S” attached hereto.

“Landlord’s Consent and Estoppel Certificate (Triple Net Lease)” means that certain Landlord’s Consent and Estoppel Certificate (Triple Net Lease) executed by PCHI, in the form of Exhibit “T” attached hereto.

“Lender” means SPCP Group IV, LLC, a Delaware limited liability company and SPCP Group LLC, a Delaware limited liability company, and, in each case, if either shall decide to assign all or any portion of the Obligations, such term shall include any assignee(s) of such Lender.

“Lender Agent” means Silver Point Finance, LLC, a Delaware limited liability company, and its successors and assigns, in its capacity as agent for the Lenders.

“Lender’s Costs” means all fees and expenses of Lender in connection with the Loans and all Loan Documents including, but not limited to, all attorneys’ fees, costs and expenses paid or incurred by Lender in connection with any application or engagement letter, or term sheet, or any Loan Documents, the fees and disbursements of Lender’s counsel, the travel expenses of Lender’s personnel and legal counsel related to the Loans, note intangible taxes, if any, and all Closing, escrow, recording and filing fees, expenses and taxes.

“LIBOR Rate” means for any Interest Payment Date with respect to an Interest Period, the rate per annum determined on the basis of the rate for deposits in Dollars for a period equal to such Interest Period commencing on the first day of such Interest Period appearing on the Reuters Screen LIBOR01 Page as of 11:00 A.M., London time, two Business Days prior to the beginning of such Interest Period. In the event that such rate does not appear on such page (or otherwise on such screen), the “LIBOR Rate” shall be determined by reference to such other comparable publicly available service for displaying eurodollar rates as may be selected by the Lender Agent or, in the absence of such availability, the rate for that Interest Period will be determined by such alternate method as reasonably selected by Lender Agent in accordance with prevailing customary market practices; provided that, notwithstanding the foregoing, in no event shall the LIBOR Rate at any time be less than 2.00% per annum.

“License” means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by Borrowers.

Annex A-18

“Lien(s)” means any agreement or deed of trust, mortgage, pledge, hypothecation, assignment, deposit arrangement, lien, charge, claim, security interest, easement or encumbrance, or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any lease or title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing, and the filing of, or agreement to give, any financing statement perfecting a security interest under the Code or comparable law of any jurisdiction).

“Litigation” means any action, claim, lawsuit, demand, investigation or proceeding now pending or, to the knowledge of Borrowers or Credit Parties or Guarantors, threatened against Borrowers or Credit Parties or Guarantors, whether before any Governmental Authority or before any arbitrator or panel of arbitrators, or otherwise.

“Loan Account” means an account maintained by Lender in its books to record all Advances made by Lender to Borrowers, all payments made by Borrowers to Lender, and all other debits and credits as provided in this Agreement with respect to the Loans or any other Obligations. All entries in the Loan Account shall be made in accordance with Lender’s customary accounting practices as in effect from time to time.

“Loan” means the all real estate term loans made by Lender to Borrowers pursuant to this Agreement.

“Loan Documents” means, together, this Agreement, the Notes, the Guaranty Agreement, the Collateral Documents, the Environmental Indemnity Agreement, the Control Agreement, the Post-Closing Agreement, the Side Letter, the Collateral Assignment of Contracts, and all other agreements, instruments, documents and certificates identified in the Closing and Funding Checklist executed and delivered to, or in favor of, Lender and including all other pledges, powers of attorney, consents, assignments, contracts, notices, letter of credit agreements and all other written matter whether heretofore, now or hereafter executed by or on behalf of Borrowers or Credit Parties or Guarantors, or any employee of Borrowers or Credit Parties or Guarantors, and delivered to Lender in connection with this Agreement or the transactions contemplated thereby. Any reference in this Agreement or any other Loan Document to a Loan Document shall include all exhibits and schedules thereto, and all amendments, restatements, supplements or other modifications thereto, and shall refer to the Agreement or such Loan Document as the same may be in effect at any and all times such reference becomes operative.

“Material Adverse Effect” means any circumstance or event, as determined by Lender in the exercise of its reasonable discretion, which (a) has or may reasonably be expected to have any material adverse effect whatsoever upon the validity, performance, perfection or enforceability of the Loan Documents, (b) is, or is reasonably expected to be, material and adverse to the financial condition of the business operations of any Borrower, any Credit Party and/or any Guarantor, (c) is, or is reasonably expected to, materially impair the ability of any Borrower or any Credit Party or any Guarantor to fulfill their respective obligations under the Loan Documents, or (d) would with the passage of time or giving of notice, or both, result in or cause a Default or an Event of Default, or (e) materially impairs or is reasonably expected to materially impair any of the Collateral, or any of Lender Agent’s Liens on any of the Collateral, or the priority of such Liens, or (f) materially impairs or is reasonably expected to materially impair Lender’s rights and remedies under this Agreement and the other Loan Documents.

Annex A-19

“Maturity Date” means the date which is the first to occur of (i) the Stated Maturity Date, and (ii) the occurrence or existence of a Default or an Event of Default under any of the Loan Documents with respect to which Lender has exercised its option to accelerate the Maturity Date pursuant to Section 8.2(a) hereof.

“Maximum Lawful Rate” means the interest rate that a court of competent jurisdiction determines in a final unappealable order to be the highest rate of interest permissible under applicable law.

“Membership Certificates” means all certificates evidencing the ownership of membership interests in a limited liability company.

“Membership Power” means the Irrevocable Membership Power dated as of the Closing Date, executed by Ganesha in favor of Closing Date Lender, in the form if Exhibit “R” attached hereto.

“MOB Landlord” has the meaning assigned to such term in the definition of “Chapman Leases.”

“Multiemployer Plan” means a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of ERISA, and to which any Borrower is making, is obligated to make or has made or been obligated to make, contributions on behalf of participants who are or were employed by any of them.

“Net QAF Funds” has the meaning set forth in Section 1.4(b).

“Note” means the Term Note.

“Notice of Interest Period” means a notice delivered to the Lender Agent by Borrower’s Representative of the applicable Interest Period determined by IHHI, in form and substance reasonably satisfactory to Lender Agent.

“Notice of Request for Advance” means a notice delivered to Closing Date Lender by Borrower’s Representative requesting an Advance, in the form of Exhibit “D” attached hereto.

“Obligations” means, collectively, the Loans, all Advances, debts, liabilities and obligations for the performance of covenants, tasks or duties or for payment of monetary amounts (whether or not such performance is then required or contingent, or such amounts are liquidated or determinable) owing by Borrowers or Credit Parties or Guarantors to Lender, and all covenants and duties regarding such amounts, of any kind or nature, present or future, whether or not evidenced by any note, agreement, letter of credit agreement or other instrument, arising under this Agreement or any of the other Loan Documents. This term includes all principal, interest (including all interest that accrues after the commencement of any case or proceeding by or against Borrowers or Credit Parties or Guarantors in bankruptcy, whether or not allowed in such case or proceeding), fees, expenses, attorneys’ fees and any other sum chargeable to Borrowers or Credit Parties or Guarantors under the Agreement or any of the other Loan Documents.

Annex A-20

“OC-PIN” means Orange County Physicians Investment Network, LLC, a Nevada limited liability company.

“Original Credit Agreement” means the original Credit Agreement dated as of October 9, 2007 among Borrowers, Credit Parties and the Closing Date Lender (as amended by Amendment No. 1 dated April 2, 2009 and the Acknowledgment, Waiver and Consent and Amendment to Credit Agreements dated April 2, 2009, the Omnibus Credit Agreement Amendment dated as of April 13, 2010, Amendment to $80,000,000 Credit Agreement dated August 30, 2010, and Amendment No. 4 to Credit Agreement and Consent dated as of August 1, 2012).

“Origination Fees” means the sum of each of the following:

With respect to the Existing Real Estate Term Loan, an origination fee in the amount of SIX HUNDRED SEVENTY FIVE THOUSAND AND NO/100 DOLLARS ($675,000.00) (1.5% of $45,000,000); plus

With respect to the $35,000,000 Non-Revolving Line of Credit Loan, an origination fee in the amount of FIVE HUNDRED TWENTY FIVE THOUSAND AND NO/100 DOLLARS ($525,000.00) (1.5% of $35,000,000).

“Participation Agreement” means that certain Participation Agreement dated as of April 13, 2010 among Lenders, KPC Resolution Company, LLC and Silver Point Finance, LLC, as participation agent.

“Patent License” means rights under any written agreement now owned or hereafter acquired by Borrowers granting any right with respect to any invention on which a Patent is in existence.

“Patents” means all of the following in which Borrowers now hold or hereafter acquire any interest: (a) all letters patent of the United States or of any other country, all registrations and recordings thereof, and all applications for letters patent of the United States or of any other country, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State, or any other country, and (b) all reissues, continuations, continuations-in-part or extensions thereof.

“PBGC” means the Pension Benefit Guaranty Corporation.

“PCHI” means Pacific Coast Holdings Investment, LLC, a California limited liability company.

“Pension Plan” means a Plan described in Section 3(2) of ERISA.

Annex A-21

“Permitted Encumbrances” means, for each Property, the following encumbrances relating thereto: (a) Liens for taxes or assessments or other governmental Charges not yet due and payable or which are being contested in accordance with Section 5.2(b) (Right to Contest Charges); (b) pledges or deposits of money securing statutory obligations under workmen’s compensation, unemployment insurance, social security or public liability laws or similar legislation (excluding Liens under ERISA); (c) zoning restrictions, easements, licenses, or other restrictions on the use of any real estate or other minor irregularities in title (including leasehold title) thereto, so long as the same do not create a Material Adverse Effect, as determined by Lender in its sole discretion; (d) currently existing or hereafter created Liens in favor of Lender Agent or its Affiliates; (e) any Lien held by an equipment lessor in the equipment so leased; (f) all encumbrances shown in any Title Policy issued on the Closing Date to Lender; (g) inchoate and unperfected workers’ compensation, mechanics’ or similar Liens arising in the ordinary course of business, provided, that the same are satisfied in the ordinary course of business; (h) carriers’, warehousemen’s, suppliers’ or other similar possessory liens arising in the ordinary course of business; (i) such other liens arising in the ordinary course of business so long as such liens do not create a Material Adverse Effect; and (j)) such endorsements to said Title Policies as Lender deems necessary or appropriate, in its sole discretion.

“Permitted Refinancing” means, with respect to any Person, any modification, refinancing, refunding, renewal or extension of any Indebtedness of such Person (the “Refinanced Indebtedness”); provided that (a) the principal amount (or accreted value, if applicable) thereof does not exceed the principal amount (or accreted value, if applicable) of the Indebtedness so modified, refinanced, refunded, renewed or extended except by an amount equal to unpaid accrued interest and premium thereon plus other reasonable amounts paid, and fees and expenses reasonably incurred, in connection with such modification, refinancing, refunding, renewal or extension and by any amount equal to any existing commitments unutilized thereunder, (b) such modification, refinancing, refunding, renewal or extension has a final maturity date equal to or later than the final maturity date of the Refinanced Indebtedness, (c) any Lien pledged or granted in connection with such modification, refinancing, refunding, renewal or extension shall be subject to the terms of any intercreditor or subordination documentation governing the Refinanced Indebtedness and (d) any Refinanced Indebtedness shall be subject to the terms and conditions of the A/R Facility Intercreditor Agreement.

“Person” means any individual, sole proprietorship, partnership, limited liability partnership, joint venture, unincorporated organization, trust, business trust, association, corporation, limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county, city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).

“Plan” means, at any time, an employee benefit plan, as defined in Section 3(3) of ERISA, that Borrowers or any ERISA Affiliate maintain, contribute to or have an obligation to contribute to or have maintained, contributed to or had an obligation to contribute to at any time within the past seven (7) years on behalf of participants who are or were employed by Borrowers or ERISA Affiliate.

“Plan Regarding Engagement of Independent Directors” means a written statement outlining IHHI’s plan as to how it intends to identify, engage, nominate and elect Independent Directors to IHHI’s board of directors within the time periods required by this Agreement.

“Pledge Agreement” means the Pledge Agreement dated as of the Closing Date, by and between IHHI, Ganesha and Closing Date Lender, in the form of Exhibit “P” attached hereto.

Annex A-22

“Pledged Entity” means a Person whose Stock or Membership Interests are pledged pursuant to the Pledge Agreement.

“Previous Accounts Receivable Purchase Agreement” means that certain Accounts Purchase Agreement dated as of March 3, 2005, by and between Medical Provider Financial Corporation I (as Buyer) and Borrowers (as Sellers).

“Previous $50,000,000 Acquisition Loan” means the $50,000,000 acquisition loan made by Closing Date Lender to Borrowers pursuant to the First Credit Agreement.

“Previous $50,000,000 Acquisition Note” means the $50,000,000 acquisition note executed by Borrowers in favor of Closing Date Lender pursuant to the First Credit Agreement.

“Previous $30,000,000 Line of Credit Loan” means the $30,000,000 line of credit loan made by Closing Date Lender to Borrowers pursuant to the First Credit Agreement.

“Previous $30,000,000 Line of Credit Note” means the $30,000,000 line of credit note executed by Borrowers in favor of Closing Date Lender pursuant to the First Credit Agreement.

“Previous $10,700,000 Term Loan” means the $10,700,000 term loan made by Medical Provider Financial Corporation III to Borrowers pursuant to the Second Credit Agreement.

“Previous $10,700,000 Term Note” means the $10,700,000 term note executed by Borrowers in favor of Medical Provider Financial Corporation III pursuant to the Second Credit Agreement.

“Previous Loans” means, collectively, the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan and the Previous $10,700,000 Term Loan.

“Previous UCC-1 Financing Statements (Fixture Filings)” means the UCC-1 Financing Statements (Fixture Filings) recorded against each of the Properties in conjunction with the Previous $50,000,000 Acquisition Loan, the Previous $30,000,000 Line of Credit Loan, the Previous $10,700,000 Term Loan and the Previous Accounts Receivable Purchase Agreement.

“Proceeds” means proceeds, as such term is defined in the Code, including (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to Borrowers from time to time with respect to any of the Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to Borrowers from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Collateral by any Governmental Authority (or any Person acting under color of governmental authority), (c) any claim of Borrowers against third parties (i) for past, present or future infringement of any Patent or Patent License, or (ii) for past, present or future infringement or dilution of any Copyright, Copyright License, Trademark or Trademark License, or for injury to the goodwill associated with any Trademark or Trademark License, (d) any recoveries by Borrowers against third parties with respect to any litigation or dispute concerning any of the Collateral including claims arising out of the loss or nonconformity of, interference with the use of, defects in, or infringement of rights in, or damage to, Collateral, (e) all amounts collected on, or distributed on account of, other Collateral, including dividends, interest, distributions and Instruments with respect to Investment Property and pledged Stock, and (f) any and all other amounts, rights to payment or other property acquired upon the sale, lease, license, exchange or other disposition of Collateral and all rights arising out of Collateral.

Annex A-23

“Projections” means, for Borrowers, its forecasted consolidated: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a cash basis, if applicable, and otherwise consistent with the historical Financial Statements of Borrowers with certain normalizing assumptions made by Borrowers, together with appropriate supporting details and a statement of underlying assumptions.

“Property” means any of the Hospital Facilities, and “Properties” means each of the Hospital Facilities taken together.

“Qualified Assignee” means (a) any Lender, any Affiliate of Lender and, with respect to a Lender that is an investment fund that invests in commercial loans, any other investment fund that invests in commercial loans and that is managed or advised by the same investment advisor or by an Affiliate of such investment advisor of such Lender and which is not a competitor or an Affiliate of a competitor of Borrowers, and (b) any commercial bank, savings and loan association or savings bank or any other entity which is an “accredited investor” (as defined in Regulation D under the Securities Act of 1933) which extends credit or buys loans as one of its businesses, including insurance companies, mutual funds, lease financing companies and commercial finance companies, in each case, which has a rating of BBB or higher from S&P and a rating of Baa2 or higher from Moody’s at the date that it becomes a Lender and which, through its applicable lending office, is capable of lending to Borrowers without the imposition of any withholding or similar taxes; provided that no Person proposed to become a Lender after the Closing Date and determined by Lender to be acting in the capacity of a vulture fund or distressed debt purchaser shall be a Qualified Assignee, and no Person or Affiliate of such Person proposed to become a Lender after the Closing Date that holds Subordinated Debt or Stock issued by Borrowers shall be a Qualified Assignee.

“Qualified Cash” means, as of any date of determination, the amount of Certified Cash that is subject to perfection in favor of Lender pursuant to any Control Agreement in form and substance satisfactory to Lender, which Control Agreement shall provide, among other things, that the bank or securities intermediary executing such agreement (a) has no rights of setoff or recoupment or any other claim against such account, as the case may be, other than for payment of its service fees and other charges directly related to the administration of such account and, as applicable, for returned checks or other items of payment, and (b) agrees to follow the instructions or entitlement orders of Lender without further consent by Borrowers, including, with respect to funds in any such account, upon the instructions of Lender, to immediately forward by daily sweep all such funds to the Collection Account or as otherwise directed by Lender.

“Qualified Cash Account” means any deposit account or securities account that is subject to a Control Agreement in form and substance satisfactory to Lender and holds Qualified Cash.

“Qualified Plan” means a Pension Plan that is intended to be tax-qualified under Section 401(a) of the IRC.

Annex A-24

“Recitals” means the Recitals set forth on the first page of this Agreement.

“Related Transactions” means the borrowing of the Loans on the Closing Date, the payment of all fees, costs and expenses associated with all of the foregoing and the execution and delivery of all of the Related Transactions Documents.

“Related Transactions Documents” means the Loan Documents and all other agreements or instruments executed in connection with the Related Transactions.

“Release” means any release, threatened release, spill, emission, leaking, pumping, pouring, emitting, emptying, escape, injection, deposit, disposal, discharge, dispersal, dumping, leaching or migration of Hazardous Material in the indoor or outdoor environment, including the movement of Hazardous Material through or in the air, soil, surface water, ground water or property.

“Releasing Parties” and individually, a “Releasing Party” means each Borrower, each Credit Party, each Guarantor, and each of their respective predecessors, successors and assigns, and each of their respective officers, directors, shareholders, members, managers, partners (general and limited), employees, agents, representatives, attorneys and assigns.

“Repurchase Agreement” has the meaning assigned to such term in the Amendment and Restatement Agreement.

“Restatement Effective Date” means the date on which the conditions precedent specified in Section 6 of the Amendment and Restatement Agreement are satisfied (or waived in accordance therewith).

“Restricted Payment” means (a) the declaration or payment of any dividend or the incurrence of any liability to make any other payment or distribution of cash or other property or assets in respect of Stock; (b) any payment on account of the purchase, redemption, defeasance, sinking fund or other retirement of Stock or any other payment or distribution made in respect thereof, either directly or indirectly; (c) any payment or prepayment of principal of, premium, if any, or interest, fees or other charges on or with respect to, and any redemption, purchase, retirement, defeasance, sinking fund or similar payment and any claim for rescission with respect to, any Subordinated Debt; (d) any payment made to redeem, purchase, repurchase or retire, or to obtain the surrender of, any outstanding warrants, options or other rights to acquire Stock now or hereafter outstanding; (e) any payment of a claim for the rescission of the purchase or sale of, or for material damages arising from the purchase or sale of, any shares of Stock or of a claim for reimbursement, indemnification or contribution arising out of or related to any such claim for damages or rescission; and (f) any payment of management fees (or other fees of a similar nature).

“Retiree Welfare Plan” means, at any time, a welfare plan (within the meaning of Section 3(1) of ERISA) that provides for continuing coverage or benefits for any participant or any beneficiary of a participant after such participant’s termination of employment, other than continuation coverage provided pursuant to Section 4980B of the IRC or other similar state law and at the sole expense of the participant or the beneficiary of the participant.

Annex A-25

“Second Credit Agreement” means that certain Credit Agreement by and between Medical Provider Financial Corporation III, the Credit Parties and the Borrowers dated to be effective as of December 12, 2005. Pursuant to the Second Credit Agreement, Medical Provider Financial Corporation III made the Previous $10,700,000 Term Loan to Borrowers.

“Security Agreement” means the Security Agreement dated as of the Closing Date, by and between Borrowers and Closing Date Lender, in the form if Exhibit “G” attached hereto.

“Shareholder” means, with respect to any Person, each holder of Stock of such Person.

“Shareholder Blocking Rights” shall mean any rights of any owner (direct or indirect) of any Pledged Entity which, pursuant to the terms of any agreement or organizational document, has the right to consent, or the effect of requiring such consent, to any foreclosure by Lender under any Security Agreement or Pledge Agreement or otherwise to the exercise of any of Lender’s rights and remedies thereunder or otherwise has the right to restrain, delay, impair or otherwise interfere with Lender in the event of Lender’s exercise of its rights under any Security Agreement or Pledge Agreement.

“Side Letter” means the side letter agreement dated as of February 7, 2013, among SPCP Group IV, LLC, SPCP Group, LLC, Lender Agent, Borrowers, PCHI and Ganesha.

“Software” means all software as such term is defined in the Code, now owned or hereafter acquired by Borrowers, other than software embedded in any category of Goods, including all computer programs and all supporting information provided in connection with a transaction related to any program.

“Solvent” means, with respect to any Person on a particular date, 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; and (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 as such debts and liabilities mature. The amount of contingent liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at the time, represents the amount that can be reasonably be expected to become an actual or matured liability.

“Stated Maturity Date” means April 13, 2016.

“Stock” means all shares, options, warrants, general or limited partnership interests, Membership Interests or other equivalents (regardless of how designated) of or in a Person, whether voting or nonvoting, including stock, preferred stock or any other equity security (as such term is defined in Rule 3a11-1 of the General Rules and Regulations promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934).

Annex A-26

“Stock Certificates” means all certificates evidencing the ownership of Stock in a Person.

“Stock Power” means the Irrevocable Stock Power dated as of the Closing Date, executed by IHHI in favor of Closing Date Lender, in the form if Exhibit “Q” attached hereto.

“Subordinated Debt” means any unsecured Indebtedness of Borrowers incurred after the Closing Date that is subordinated to the Obligations in a manner and form reasonably satisfactory to Lender, as to right and time of payment and as to any other rights and remedies thereunder.

“Subsidiary” means, with respect to any Person, (a) any corporation of which an aggregate of more than 50% of the outstanding Stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, Stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, owned legally or beneficially by such Person or one or more Subsidiaries of such Person, or with respect to which any such Person has the right to vote or designate the vote of 50% or more of such Stock whether by proxy, agreement, operation of law or otherwise, and (b) any partnership or limited liability company in which such Person and/or one or more Subsidiaries of such Person shall have a Membership Interest (whether in the form of voting or participation in profits or capital contribution) of more than 50% or of which any such Person is a general partner or manager or may exercise the powers of a general partner.

“Supporting Obligations” means all supporting obligations as such term is defined in the Code, including letters of credit and guaranties issued in support of Accounts, Chattel Paper, Documents, General Intangibles, Instruments, or Investment Property.

“Taxes” means taxes, levies, imposts, deductions, Charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender.

“Term Note” means, collectively, promissory notes of even date herewith, in the aggregate principal amount of $47,277,000, executed by Borrowers in favor of Lenders, each in the form of Exhibit “A” attached hereto.

“Termination Date” means the date on which (a) the Loans have been repaid in full, (b) all other Obligations (other than indemnification Obligations) due and payable under this Agreement and the other Loan Documents have been discharged, and (c) Borrowers shall have no further right to borrow any monies under this Agreement.

“Title Commitment(s)” means, with respect to each Property, an irrevocable commitment issued by the Title Company to Lender in form and content acceptable to Lender, committing to issue the Title Policy with respect to each such Property to Lender on the Closing Date.

“Title Company” means Chicago Title Insurance Company, 700 South Flower Street, Suite 800, Los Angeles, California 90017, Attn: Jeffrey L. Hurd (“Sr. Title Officer”), telephone: 213-488-4365; facsimile: 213-243-9168; email: jeff.hurd@ctt.com; and Chicago Title Insurance Company, Division Counsel, 700 South Flower Street, Suite 3305, Los Angeles, California 90017, Attn: Scott M. Green, Associate Counsel (“Title Attorney”), telephone: 213-488-4342; facsimile: 213-891-0834; email: greens@ctt.com.

Annex A-27

“Title Policy” means an ALTA Loan Policy of Title Insurance issued by Title Company to Lender on the Closing Date, with a stated liability in the amount of $80,000,000, insuring that (a) the fee simple interest in the Western Medical Center - Anaheim is vested in PCHI and that the Deed of Trust constitutes a first Lien and encumbrance against the fee simple interest in such Property, subject only to the applicable Permitted Exceptions and with such endorsements as Lender may require in its sole and absolute discretion; (b) the fee simple interest in the Western Medical Center — Santa Ana is vested in PCHI and that the Deed of Trust constitutes a first Lien and encumbrance against the fee simple interest in such Property subject only to the applicable Permitted Exceptions and with such endorsements as Lender may require in its sole and absolute discretion; (c) the fee simple interest in the Coastal Community Hospital is vested in PCHI and that the Deed of Trust constitutes a first Lien and encumbrance against the fee simple interest in such Property subject only to the applicable Permitted Exceptions and with such endorsements as Lender may require in its sole and absolute discretion; (d) the tenant’s interest in the Chapman MOB Lease is vested in IHHI and that the Deed of Trust constitutes a first Lien and encumbrance against IHHI’s interest, as MOB Tenant, in the Chapman MOB Lease, subject only to the applicable Permitted Encumbrances and with such endorsements as Lender may require in its sole, absolute and unfettered discretion; and (e) the tenant’s interest in the Chapman Hospital Lease is vested in IHHI and that the Deed of Trust constitutes a first Lien and encumbrance against IHHI’s interest, as Hospital Tenant, in the Chapman Hospital Lease, subject only to the applicable Permitted Encumbrances and with such endorsements as Lender may require in its sole, absolute and unfettered discretion.

“Title IV Plan” means a Pension Plan (other than a Multiemployer Plan), that is subject to Title IV of ERISA or Section 412 of the IRC, and that Borrowers or ERISA Affiliate maintains, contributes to or has an obligation to contribute to on behalf of participants who are or were employed by any of them.

“Trademark License” means rights under any written agreement now owned or hereafter acquired by Borrowers granting any right to use any Trademark.

“Trademarks” means all of the following now owned or hereafter existing or adopted or acquired by Borrowers: (a) all trademarks, trade names, corporate names, business names, trade styles, service marks, logos, other source or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles of like nature (whether registered or unregistered), all registrations and recordings thereof, and all applications in connection therewith, including registrations, recordings and applications in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or territory thereof, or any other country or any political subdivision thereof; (b) all reissues, extensions or renewals thereof; and (c) all goodwill associated with or symbolized by any of the foregoing.

Annex A-28

“Triple Net Lease” means that certain Triple Net Lease dated as of March 3, 2005 (as amended by that certain Amendment #1 to Triple Net Lease dated as of March 3, 2005) by and between PCHI, as lessor, and IHHI, as lessee, pursuant to which PCHI leased the Western Medical Center - Anaheim, the Western Medical Center - Santa Ana, and the Coastal Community Hospital, to IHHI.

“UCC Financing Statements” means all UCC-1 Financing Statements (fixture filings and personal property) required by Lender to be filed or recorded pursuant to this Agreement to secure repayment of the Loans and performance of the Obligations.

“Unfunded Pension Liability” means, at any time, the aggregate amount, if any, of the sum of (a) the amount by which the present value of all accrued benefits under each Title IV Plan exceeds the fair market value of all assets of such Title IV Plan allocable to such benefits in accordance with Title IV of ERISA, all determined as of the most recent valuation date for each such Title IV Plan using the actuarial assumptions for funding purposes in effect under such Title IV Plan, and (b) for a period of five (5) years following a transaction which might reasonably be expected to be covered by Section 4069 of ERISA, the liabilities (whether or not accrued) that could be avoided by Borrowers or any ERISA Affiliate as a result of such transaction.

“Voting Stock” means, with respect to any Person, any class or classes of capital stock or other ownership interests pursuant to which the holders thereof have the general voting power under ordinary circumstances to elect directors, managers or trustees (as applicable) of such Person (irrespective of whether or not, at the time, stock of any other class or classes has, or might have, voting power by reason of the happening of any contingency).

“Warrant” means the Common Stock Warrant issued by IHHI to Healthcare Financial Management & Acquisitions, Inc., a Nevada corporation (an Affiliate of Closing Date Lender) in the form of Exhibit “U” attached hereto.

“West Coast” means West Coast Holdings, LLC, a California limited liability company.

“Western Medical Center - Anaheim” means the real property and hospital improvements located at 1025 South Anaheim Boulevard, Anaheim, California.

“Western Medical Center-Santa Ana” means the real property and hospital improvements located at 1001 North Tustin Avenue and at 1301 North Tustin in Santa Ana, California.

“WMC-A” means WMC-A, INC., a California corporation.

“WMC-SA” means WMC-SA, INC., a California corporation.

Annex A-29

Unless otherwise specifically provided herein, any accounting term used in the Agreement shall have the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed in accordance with GAAP consistently applied. That certain items or computations are explicitly modified by the phrase “in accordance with GAAP” shall in no way be construed to limit the foregoing. All other undefined terms contained in any of the Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the Code to the extent the same are used or defined therein; in the event that any term is defined differently in different Articles or Divisions of the Code, the definition contained in Article or Division 9 shall control. Unless otherwise specified, references in the Agreement or any of the Appendices to a Section, subsection or clause refer to such Section, subsection or clause as contained in the Agreement. The words “herein,” “hereof” and “hereunder” and other words of similar import refer to the Agreement as a whole, including all Annexes, Exhibits and Schedules, as the same may from time to time be amended, restated, modified or supplemented, and not to any particular Section, subsection or clause contained in the Agreement or any such Annex, Exhibit or Schedule.

Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, feminine and neuter genders. The words “including,” “includes” and “include” shall be deemed to be followed by the words “without limitation”; the word “or” is not exclusive; references to Persons include their respective successors and assigns (to the extent and only to the extent permitted by the Loan Documents) or, in the case of governmental Persons, Persons succeeding to the relevant functions of such Persons; and all references to statutes and related regulations shall include any amendments of the same and any successor statutes and regulations. Whenever any provision in any Loan Document refers to the knowledge (or an analogous phrase) of Borrowers or Credit Parties, such words are intended to signify that such Borrowers or such Credit Parties has actual knowledge or awareness of a particular fact or circumstance.

Annex A-30

ANNEX B
TO
AMENDED AND RESTATED
CREDIT AGREEMENT ($47,277,000 Term Note)

CASH MANAGEMENT SYSTEM

Borrowers agree to establish, and to maintain, until the Termination Date, the Cash Management System described below:

Borrowers: (i) shall not (nor shall it permit any of its Subsidiaries to) open or maintain any deposit, checking, operating or other bank account, or similar money handling account, with any bank or other financial institution except for those accounts identified in Attachment I hereto (to include a petty cash account not to exceed $10,000.00 during any fiscal month, and a payroll account not to exceed an amount equal to one regular payroll at any time, plus all other payroll obligations outstanding); and (ii) shall close or permit to be closed any of the accounts listed in Attachment I hereto, in each case without Lender’s prior written consent, and then only after Borrowers have implemented agreements with such bank or financial institution acceptable to Lender.

Commencing on the Closing Date and until the Termination Date, Borrowers shall fully comply with the terms, conditions and procedures set forth in the Deposit Account Security Agreement and the Control Agreement.

Borrowers may maintain, in their name, Disbursement Accounts at a bank or banks acceptable to Lender into which Lender shall, from time to time, deposit proceeds of Advances made pursuant to this Agreement for use solely in accordance with the provisions of this Agreement. All of the Disbursement Accounts as of the Closing Date are listed in paragraph 2 of Attachment I hereto.

Notwithstanding anything to the contrary herein or in any other Loan Documents, the provisions relating to cash management, deposit account security agreements or control agreements, including, without limitation, this Annex B, shall subject to the A/R Facility.

Annex B-1

ATTACHMENT I TO CASH MANAGEMENT SYSTEM SCHEDULE

LIST OF BANK ACCOUNTS

1

ANNEX C
TO
AMENDED AND RESTATED
CREDIT AGREEMENT ($47,277,000 Term Note)

COLLATERAL REPORTS

Collateral Reports means the following:

1. Cash Reports. A report delivered by Borrowers at the request of Lender stating, among other things: (a) the net amount of Dollars in unrestricted cash and cash equivalents that Borrowers have in their Deposit Accounts; and (b) the net amount of Dollars in unrestricted cash and cash equivalents that Borrowers have in their securities accounts.

2. Report on Cash Subject to Security Agreements. A report delivered by Borrowers at the request of Lender stating, among other things the amount of their cash that is subject to perfection in favor of Lender pursuant to any security agreements or other security instruments.

3. Further Assurances. As required by Section 5.10 (Further Assurances) of this Agreement, such further instruments and assurances as may be necessary or proper in the reasonable opinion of Lenders to carry out the purposes of the Loan Documents.

Notwithstanding anything to the contrary herein or in any other Loan Documents, the provisions in items 1 and 2 above shall subject to the A/R Facility.

Annex C-1

ANNEX D
TO
AMENDED AND RESTATED
CREDIT AGREEMENT ($47,277,000 Term Note)

NOTICE ADDRESSES

BORROWERS:

INTEGRATED HEALTHCARE HOLDINGS, INC.
1301 North Tustin Avenue
Santa Ana, California 92705

Attn: Kenneth K. Westbrook, President and Chief Executive Officer

           Steven R. Blake, Chief Financial Officer

Ph: 714-953-3575

Fax: 714-953-2595

WMC-A, INC.
c/o INTEGRATED HEALTHCARE HOLDINGS, INC.
1301 North Tustin Avenue
Santa Ana, California 92705

Attn: Kenneth K. Westbrook, President and Chief Executive Officer

           Steven R. Blake, Chief Financial Officer

Ph: 714-953-3575

Fax: 714-953-2595

WMC-SA, INC.
1301 North Tustin Avenue
Santa Ana, California 92705

Attn: Kenneth K. Westbrook, President and Chief Executive Officer

           Steven R. Blake, Chief Financial Officer

Ph: 714-953-3575

Fax: 714-953-2595

COASTAL COMMUNITIES HOSPITAL, INC.
c/o INTEGRATED HEALTHCARE HOLDINGS, INC.
1301 North Tustin Avenue
Santa Ana, California 92705

Attn: Kenneth K. Westbrook, President and Chief Executive Officer

Steven R. Blake, Chief Financial Officer

Ph: 714-953-3575

Fax: 714-953-2595

Annex D-1

CHAPMAN MEDICAL CENTER, INC.
c/o INTEGRATED HEALTHCARE HOLDINGS, INC.
1301 North Tustin Avenue
Santa Ana, California 92705

Attn: Kenneth K. Westbrook, President and Chief Executive Officer

           Steven R. Blake, Chief Financial Officer

Ph: 714-953-3575

Fax: 714-953-2595

CREDIT PARTIES:

PACIFIC COAST HOLDINGS INVESTMENTS, LLC
c/o Strategic Global Management, Inc.
6800 Indiana Avenue, Suite 130
Riverside, California 92506

Attn: Dr. Chaudhuri

           William Thomas, Esq.

           Dr. Sweidan

Ph: 951-782-8812

Fax: 951-766-9944

GANESHA REALTY, LLC
c/o Strategic Global Management, Inc.
6800 Indiana Avenue, Suite 130
Riverside, California 92506

Attn: Dr. Chaudhuri

           William Thomas, Esq.

Ph: 951-782-8812

Fax: 951-766-9944

ORANGE COUNTY PHYSICIANS INVESTMENT NETWORK, LLC 2621 South Bristol, Suite 304
Santa Ana, California 92704
Attn: Dr. Shah, Manager
Ph: 714-290-5322
Fax: 714-297-9588

LENDERS:

SPCP GROUP IV, LLC and SPCP GROUP, LLC

c/o Silver Point Finance, LLC

Two Greenwich Plaza, First Floor

Greenwich, CT 06830

Attn: Thomas Banks

Email: tbanks@silverpointcapital.com

Facsimile: 201-542-4376

Annex D-2

LENDER AGENT:

SILVER POINT FINANCE, LLC

Two Greenwich Plaza, First Floor

Greenwich, CT 06830

Attn: Thomas Banks

Email: tbanks@silverpointcapital.com

Facsimile: 201-542-4376

Annex D-3

ANNEX E
TO
AMENDED AND RESTATED
CREDIT AGREEMENT ($47,277,000 Term Note)

Fixed Charge Coverage Ratio Worksheet

“Fixed Charge Coverage Ratio” for the applicable Defined Period (as defined in Section 6.17(c)) means the ratio of Operating Cash Flow (as defined below) to Fixed Charges (as defined below) for such Defined Period.
“Fixed Charges” means:
Interest expense (including interest expense of PCHI) ($______), net of interest income ($______), interest paid in kind ($______) and amortization of capitalized fees and expenses incurred to consummate the financing transaction governed by the A/R Facility and included in interest expense ($______), included in the determination of net income of Borrowers and their consolidated Subsidiaries for the Defined Period (“Total Interest Expense”)	$___________
Plus: Any provision for (or less any benefit from) income or franchise taxes included in the determination of net income for the Defined Period	___________
Scheduled payments of principal for the Defined Period with respect to all Indebtedness (including the portion of scheduled payments under Capital Leasesa allocable to principal but excluding scheduled repayments of revolving loans and other Indebtedness subject to reborrowing to the extent not accompanied by a concurrent and permanent reduction of the revolving loan commitment in respect of such revolving loan)	___________
The amount of “Permitted Asset Dispositions” and “Permitted Distributions” as defined in and pursuant to the A/R Facility on the date hereof	___________
“Operating Cash Flow” means:
EBITDA for the Defined Period (calculated in the manner required by the definition thereof in Section 6.17)	$___________
Less: Unfinanced capital expenditures for the Defined Period	___________
To the extent not already reflected in the calculation of EBITDA, other capitalized costs, defined as the gross amount paid in cash and capitalized during the Defined Period, as long term assets, other than amounts capitalized during the Defined Period as capital expenditures for property, plant and equipment or similar fixed asset accounts	___________
Operating Cash Flow	$
Fixed Charge Coverage Ratio (Ratio of Operating Cash Flow to Fixed Charges) for the Defined Period	___ to 1.0
Minimum Fixed Charge Coverage for the Defined Period	1.00 to 1.0
In Compliance	Yes/No

^a Adjustments to exclude the effects of retroactive adjustments (if any) due to changes in accounting rules relating to operating leases to be determined by the parties.

Annex E-1

Exhibit B

Confirmation

[See attached.]

CONFIRMATION

CONFIRMATION (this “Confirmation”) dated as of February 7, 2013, among each of the companies or entities identified under the caption “BORROWERS” on the signature pages hereto (collectively, the “Borrowers”), each of the companies or entities identified under the caption “AMENDMENT PARTIES” on the signature pages hereto (“Amendment Parties”, and together with the Borrowers, the “Obligors”) and SILVER POINT FINANCE LLC, as successor lender agent for the Lenders under the Amended and Restated Credit Agreement referred to below (in such capacity, together with its successors in such capacity, the “Lender Agent”).

The Borrowers, the Amendment Parties, Orange County Physicians Investment Network, LLC (“OC-PIN”, together with the Amendment Parties, the “Credit Parties”), SPCP GROUP IV, LLC (“SP 1”), and SPCP Group, LLC (“SP 2”, and together with SP1, the “Existing Lenders”) and Lender Agent are parties to the Credit Agreement dated as of October 9, 2007 (as amended, supplemented or otherwise modified prior to the date hereof, the “Existing Credit Agreement”), providing for extensions of credit to be made by said Lenders to the Borrowers thereunder. Concurrently with the execution and delivery hereof, the Borrowers, the Amendment Parties, the Existing Lenders and the Lender Agent are entering into an Amendment and Restatement to the Credit Agreement dated as of the date hereof (the “Amendment Agreement”). Pursuant to the Amendment Agreement, the Existing Credit Agreement is being amended and restated in its entirety with an Amended and Restated Credit Agreement dated as of the date hereof (as so amended and restated, and as may be further amended, supplemented or otherwise modified from time to time, the “Amended and Restated Credit Agreement”) among the Borrowers, the Credit Parties, the “Lenders” (as defined therein) and Lender Agent. Except as otherwise defined in this Confirmation, terms defined in the Amended and Restated Credit Agreement are used herein as defined therein.

In connection with the Existing Credit Agreement, the Obligors, Existing Lenders and Lender Agent (as successor in interest to Medical Provider Financial Corporation II) have entered into certain agreements listed on Schedule A hereto (such agreements, as amended, supplemented or otherwise modified from time to time, the “Existing Loan Documents”).

Each Obligor, by its execution of this Confirmation, hereby represents, warrants and agrees as to itself and not any other Person that (i) it has full power and authority, and has taken all actions necessary, to execute and deliver this Confirmation and to continue to grant the security interests granted by it under the applicable Existing Loan Documents to which it is a party, (ii) it has received a copy of the Amended and Restated Credit Agreement and the other documents executed therewith, (iii) it consents to the Amended and Restated Credit Agreement, (iv) it unconditionally confirms and ratifies that all of its obligations under the Existing Loan Documents to which it is a party shall continue uninterrupted and in full force and effect for the benefit of the Lenders under the Amended and Restated Credit Agreement, (v) it unconditionally confirms that the security interests granted by it under each of the applicable Existing Loan Documents to which it is a party shall continue uninterrupted and in full force and effect in favor of the Lender Agent for the benefit of the Lenders under the Amended and Restated Credit Agreement, (vi) on and after the date hereof, it will continue to obtain benefits from the incurrence of Loans by the Borrowers and (vii) on and after the date hereof, all references in the Existing Loan Documents to the “Credit Agreement” shall be deemed to be and are references to the Amended and Restated Credit Agreement described above.

This Confirmation shall constitute a “Loan Document” for all purposes of the Amended and Restated Credit Agreement. This Confirmation may be executed in any number of counterparts, all of which taken together shall constitute one and the same amendatory instrument and any of the parties hereto may execute this Confirmation by signing any such counterpart. This Confirmation shall be governed by, and construed in accordance with, the law of the State of Nevada.

[Remainder of the Page Intentionally Blank]

IN WITNESS WHEREOF, each Obligor has caused this Confirmation to be duly executed and delivered as of the date first above written.

OBLIGORS

BORROWERS:

INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation

By: ________________________________

Name:______________________________

Title:_______________________________

WMC-A, INC., a California corporation

By: ________________________________

Name:______________________________

Title:_______________________________

WMC-SA, INC., a California corporation

By: ________________________________

Name:______________________________

Title:_______________________________

COASTAL COMMUNITIES HOSPITAL, INC., a California corporation

By: ________________________________

Name:______________________________

Title:_______________________________

CHAPMAN MEDICAL CENTER, INC., a California corporation

By: ________________________________

Name:______________________________

Title:_______________________________

AMENDMENT PARTIES:

PACIFIC COAST HOLDINGS INVESTMENT, LLC,

a California limited liability company

By: ________________________________

Name:______________________________

Title:_______________________________

By: ________________________________

Name:______________________________

Title:_______________________________

ganesha realty, llc, a California

limited liability company

By: ________________________________

Name:______________________________

Title:_______________________________

Accepted and Acknowledged by:

SILVER POINT FINANCE LLC,
as Lender Agent

By: ________________________________

 Name:

 Title:

Schedule A

Existing Loan Documents¹

(1) Security Agreement dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among Medical Provider Financial Corporation II, the Borrowers party thereto and Pacific Coast Holdings Investment, LLC (“PCHI”).

(2) Guaranty Agreement dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among Medical Provider Financial Corporation II, PCHI and OC-PIN.

(3) Pledge Agreement dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among Integrated Healthcare Holdings, Inc. (“IHHI”), Ganesha Realty, LLC (“Ganesha”)and Medical Provider Financial Corporation II.

(4) Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents re Western Medical Center – Anaheim dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI and Medical Provider Financial Corporation II.

(5) Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents re Western Medical Center – Santa Ana dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI and Medical Provider Financial Corporation II.

(6) Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents re Coastal Communities Hospital, Santa Ana dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI and Medical Provider Financial Corporation II.

(7) Leasehold Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents re Leasehold Interest: Chapman Medical Center – Medical Office Building Premises, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI and Medical Provider Financial Corporation II.

(8) Leasehold Deed of Trust, Security Agreement, Fixture Filing and Assignment of Rents re Leasehold Interest: Chapman Medical Center – Hospital Premises, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI and Medical Provider Financial Corporation II.

(9) Absolute Assignment of Leases and Rents with License Back re Western Medical Center – Anaheim dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI, IHHI, WMC-A, Inc. (“WMC-A”) and Medical Provider Financial Corporation II.

(10) Absolute Assignment of Leases and Rents with License Back re Western Medical Center – Santa Ana dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI, IHHI, WMC-SA, Inc. (“WMC-SA”) and Medical Provider Financial Corporation II.

¹ As of the date hereof, SP 2 and Lender Agent are successors in interest to Medical Provider Financial Corporation II under each of the Existing Loan Documents.

(11) Absolute Assignment of Leases and Rents with License Back re Coastal Communities Hospital dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among PCHI, IHHI, Coastal Communities Hospital, Inc. (“Coastal”) and Medical Provider Financial Corporation II.

(12) Absolute Assignment of Leases and Rents with License Back re Leasehold Interest: Chapman Medical Center – Medical Office Building Premises, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, Chapman Medical Center, Inc. (“Chapman”) and Medical Provider Financial Corporation II.

(13) Absolute Assignment of Leases and Rents with License Back re Leasehold Interest: Chapman Medical Center – Hospital Premises, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, Chapman and Medical Provider Financial Corporation II.

(14) Collateral Assignment of Contracts re Western Medical Center – Anaheim dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, WMC-A and Medical Provider Financial Corporation II.

(15) Collateral Assignment of Contracts re Western Medical Center – Santa Ana dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, WMC-SA and Medical Provider Financial Corporation II.

(16) Collateral Assignment of Contracts re Coastal Communities Hospital, Santa Ana dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, Coastal and Medical Provider Financial Corporation II.

(17) Collateral Assignment of Contracts re Leasehold: Chapman Medical Center – Medical Office Building, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, Chapman and Medical Provider Financial Corporation II.

(18) Collateral Assignment of Contracts re Leasehold: Chapman Medical Center – Hospital Premises, Orange dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among IHHI, Chapman and Medical Provider Financial Corporation II.

(19) Intellectual Property Security Agreement dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among Medical Provider Financial Corporation II and the Borrowers party thereto.

(20) Environmental Indemnity Agreement, dated as of October 9, 2007 (as amended, supplemented or otherwise modified as of the date hereof) among Medical Provider Financial Corporation II, the Borrowers, PCHI and OC-PIN.

(21) Intercreditor Agreement, dated as of August 30, 2010 (as amended, supplemented or otherwise modified as of the date hereof) among MidCap Financial, LLC, Lender Agent, the Borrowers and the Amendment Parties.

Exhibit C-1

Amendment No. 1 to the Common Stock Warrant for SPCP Group, LLC

[See attached.]

Exhibit C-2

Amendment No. 1 to the Common Stock Warrant for KPC Resolution Company, LLC

[See attached.]

Exhibit C-3

Amendment No. 1 to the Common Stock Warrant for Kali P. Chaudhuri, M.D.

[See attached.]

Exhibit D

Repurchase Agreement

[See attached.]

Exhibit E

Common Stock Warrant to SPCP Group LLC

[See attached.]

Schedule 5(b)

Representations and Warranties

[See attached.]

EX-10.13

Exhibit 10.13

WARRANT REPURCHASE AGREEMENT

THIS WARRANT REPURCHASE AGREEMENT (the “Agreement”), dated as of February 7, 2013, is made by and between Integrated Healthcare Holdings, Inc., a Nevada corporation (the “Purchaser”), and SPCP Group IV, LLC (the “Warrant Holder”).

R E C I T A L S

WHEREAS, on or about April 13, 2010, the Warrant Holder was issued a warrant to purchase an aggregate 16,817,365 shares of Common Stock of Purchaser at an initial exercise price of $0.07 per share, exercisable until April 13, 2013 (the “Warrant”), a copy of which is attached as Exhibit A hereto.

WHEREAS, Warrant Holder desires to sell to Purchaser, and Purchaser desires to purchase from Warrant Holder, the Warrant on the terms and conditions contained herein.

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

Section 1. Sale and Purchase of Warrant; No Further Rights.

(a) Sale of the Warrant. Concurrently with the execution hereof, Warrant Holder shall sell, transfer and assign the Warrant to Purchaser for a purchase price of $0.12 per share exercisable under the Warrant minus the exercise price of $0.07 per share, or a net purchase price of $0.05 per share, multiplied by 16,817,365 shares exercisable under the Warrant, or an aggregate purchase price of $840,868.25 (the “Purchase Price”). The parties hereto agree that the payment of the Purchase Price shall be in full satisfaction of any and all obligations owed by Purchaser with respect to the Warrant, and Purchaser shall purchase from Warrant Holder, all of the right, title, and interest of Warrant Holder in and to the Warrant.

(b) Deliveries by Purchaser. Concurrently with the execution hereof, Purchaser shall deliver to Warrant Holder the Purchase Price by wire transfer of immediately available funds to bank accounts designated by Warrant Holder or such other form of payment as the parties may agree.

(c) Deliveries by Warrant Holder. Concurrently with the execution hereof, the Warrant Holder shall deliver to Purchaser the Warrant Holder’s original Warrant, accompanied by a duly executed Form of Transfer in the form attached hereto as Exhibit B in favor of Purchaser.

(d) Termination of Warrant. At the Closing, the Warrant shall be cancelled and terminated, and Warrant Holder shall have no further rights thereunder.

Section 2. Closing. The closing of the transactions contemplated hereby (the “Closing”) shall take place concurrently with the execution hereof (the “Closing Date”), at such place or on such other date as may be mutually agreeable to Warrant Holder and Purchaser.

Section 3. Representations and Warranties of Warrant Holder. The Warrant Holder hereby represents and warrants to Purchaser as follows, and such representations and warranties shall survive the Closing:

(a) Authorization. The Warrant Holder has all requisite power and authority to enter into this Agreement and any other agreements or instruments contemplated hereby, and to perform its obligations hereunder. This Agreement and all other agreements contemplated hereby each constitutes a valid and binding obligation of the Warrant Holder, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and limitations on the availability of equitable remedies. The execution and delivery by the Warrant Holder of this Agreement and all other agreements contemplated hereby to which the Warrant Holder is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by the Warrant Holder, do not and shall not conflict with or result in a breach of the terms, conditions or provisions of, or require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, its limited liability company operating agreement or any material law, statute, rule or regulation to which the Warrant Holder is subject, or any material agreement, instrument, order, judgment or decree to which the Warrant Holder is subject, except where any such condition would not adversely affect the Warrant Holder’s ability to its obligations hereunder. The Warrant Holder has full right, power and authority to sell, assign, transfer and deliver the Warrant to be sold by the Warrant Holder hereunder.

(b) Title. The Warrant Holder has not transferred, sold, pledged or encumbered the Warrant and has good and valid title to the Warrant, free and clear of any liens, charges, claims, pledges, security interests, conditional sale agreements and other encumbrances whatsoever, whether arising by agreement, operation of law or otherwise, and there are no restrictions on the Warrant Holder’s right to transfer the Warrant to Purchaser pursuant to Section 1(c) hereof, other than those imposed by applicable federal and state securities laws. Upon delivery and payment for the Warrant Holder’s Warrant at the Closing, Purchaser shall acquire valid and unencumbered title to the Warrant Holder’s Warrant. No person other than Purchaser has any agreement, option, understanding or commitment (oral or in writing), or any right or privilege capable of becoming an agreement, option or commitment, for the purchase from the Warrant Holder of the Warrant Holder’s Warrant. The Warrant Holder has not exercised or attempted to exercise the Warrant, and shall not do so on or prior to the Closing.

(c) Access to Information; Sophistication; Lack of Reliance. The Warrant Holder (i)  is familiar with the business and financial condition, properties, operations and prospects of Purchaser, (ii) has been provided with such information, documents and other materials concerning Purchaser, including its financial condition, results of operations, prospects, properties or business, to enable the Warrant Holder to form an independent judgment regarding the advisability of the sale of the Warrant Holder’s Warrant on the terms and conditions contained herein, (iii) has had such time as the Warrant Holder deems necessary and appropriate to review and analyze such information, documents and other materials to enable it to form such independent judgment, and (iv) has been granted the opportunity to obtain any additional information that the Warrant Holder deems necessary to verify the accuracy of such information, documents and other materials and to ask questions of, and have received satisfactory answers from, representatives of Purchaser concerning Purchaser. The Warrant Holder has also had the opportunity to review the periodic and current reports filed with the United States Securities and Exchange Commission (the “SEC”) by Purchaser. The Warrant Holder’s knowledge and experience in financial and business matters is such that the Warrant Holder is capable of evaluating the merits and risks of the Warrant Holder’s sale of the Warrant Holder’s Warrant. The Warrant Holder has carefully reviewed the terms and provisions of this Agreement and has evaluated its rights and obligations contained herein, and is hereby voluntarily assuming the risks relating to the transactions contemplated hereby.

(d) Arm’s-Length Transaction. The Warrant Holder is dealing with Purchaser on a professional arm’s-length basis and neither Purchaser nor any of its respective affiliates or representatives is acting as a fiduciary or advisor to the Warrant Holder with respect to this Agreement and any of the transactions contemplated hereby.

(e) Independent Appraisal. In connection with this Agreement and the transactions contemplated hereby, the Warrant Holder has made its own independent appraisal of, and investigation into, the value of the Warrant, and, in deciding to enter into this Agreement, the Warrant Holder has not relied on Purchaser or any affiliate, representative or agent of Purchaser with respect to such matters.

(f) No Reliance. The Warrant Holder acknowledges that (i) there are no, and it is not relying upon any, representations or warranties by or on behalf of Purchaser or any of its affiliates or representatives other than those expressly set forth in this Agreement and (ii) its rights and obligations with respect to this Agreement and the events giving rise thereto are and will be solely as set forth in this Agreement.

Section 4. Representations and Warranties of Purchaser. The Purchaser hereby represents and warrants to Warrant Holder as follows, and such representations and warranties shall survive the Closing:

(a) Authorization. The Purchaser has all requisite power and authority to enter into this Agreement and any other agreements or instruments contemplated hereby, and to perform its obligations hereunder. This Agreement and all other agreements contemplated hereby each constitutes a valid and binding obligation of the Purchaser, enforceable in accordance with its terms, except as enforceability may be limited by bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and limitations on the availability of equitable remedies. The execution and delivery by the Purchaser of this Agreement and all other agreements contemplated hereby to which the Purchaser is a party, and the fulfillment of and compliance with the respective terms hereof and thereof by the Purchaser, do not and shall not conflict with or result in a breach of the terms, conditions or provisions of, or require any authorization, consent, approval, exemption or other action by or notice to any court or administrative or governmental body pursuant to, its limited liability company operating agreement or any material law, statute, rule or regulation to which the Purchaser is subject, or any material agreement, instrument, order, judgment or decree to which the Purchaser is subject, except where any such condition would not adversely affect the Purchaser’s ability to its obligations hereunder.

(b) Sophistication; Lack of Reliance. The Purchaser’s knowledge and experience in financial and business matters is such that the Purchaser is capable of evaluating the merits and risks of the Purchaser’s purchase of the Warrant. The Purchaser has carefully reviewed the terms and provisions of this Agreement and has evaluated its rights and obligations contained herein, and is hereby voluntarily assuming the risks relating to the transactions contemplated hereby.

(c) Arm’s-Length Transaction. The Purchaser is dealing with Warrant Holder on a professional arm’s-length basis and neither Warrant Holder nor any of its respective affiliates or representatives is acting as a fiduciary or advisor to the Purchaser with respect to this Agreement and any of the transactions contemplated hereby.

(d) No Reliance. The Purchaser acknowledges that (i) there are no, and it is not relying upon any, representations or warranties by or on behalf of Warrant Party or any of its affiliates or representatives other than those expressly set forth in this Agreement and (ii) its rights and obligations with respect to this Agreement and the events giving rise thereto are and will be solely as set forth in this Agreement.

Section 5. Miscellaneous.

(a) Further Assurances. From time to time after the Closing, each party shall cooperate and take such action or cause to be taken such action as may be reasonably requested by another party hereto in order to carry out the provisions and purposes of this Agreement and transactions contemplated hereby.

(b) No Assignment. The rights and obligations of the parties hereto under this Agreement shall inure to the benefit of and shall be binding upon their successors and assigns. No party hereto may assign either this Agreement (whether by operation of law of otherwise) or any of its rights, interests, benefits or obligations hereunder without the prior written approval of the other parties hereto.

(c) Choice of Law. The corporate law of the State of Nevada will govern all questions concerning the construction, validity and interpretation of this Agreement and the exhibits hereto without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Nevada or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Nevada.

(d) Entire Agreement; Amendments; Severability. This instrument constitutes the entire agreement with respect to the subject matter hereof between the parties hereto and replaces and supersedes as of the date hereof any and all prior oral or written agreements, understandings and communications between the parties hereto. This Agreement may only be amended or modified by an agreement in writing executed by each of the parties hereto. Should any provision of this Agreement be adjudged invalid to any extent by any competent tribunal, such provision will be deemed modified to the extent necessary to make it enforceable.

(e) Counterparts; Section Headings. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument. The section headings of this Agreement are for convenience of reference only. Delivery of an executed counterpart of a signature page of this Agreement by facsimile or other form of electronic communication shall be effective as delivery of a manually executed counterpart of this Agreement.

(f) No Third-Party Beneficiaries. This Agreement is for the sole benefit of the parties hereto and their permitted assigns and nothing herein expressed or implied shall give or be construed to give to any person, other than the parties hereto and such assigns, any legal or equitable rights hereunder.

[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

INTENDING TO BE LEGALLY BOUND HEREBY, the parties hereto have executed this Agreement on the date first above written.

INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO
SPCP Group IV, LLC, a Delaware limited liability company
By:	Silver Point C&I Opportunity GP, LLC
By:	/s/ Michael A. Gatto
Name:	Michael A. Gatto
Title:	Authorized Signatory

[SIGNATURE PAGE TO WARRANT REPURCHASE AGREEMENT]

EXHIBIT A

WARRANT

See attached

EXHIBIT B

FORM OF TRANSFER

(To be signed only upon transfer of Warrant)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto INTEGRATED HEALTHCARE HOLDINGS, INC. the right represented by the attached Warrant to purchase 16,817,365 shares of the Common Stock of INTEGRATED HEALTHCARE HOLDINGS, INC. (the “Company”), to which the attached Warrant relates, and appoints Scott Schoeffel as their true and lawful attorney in fact to transfer such right on the books of the Company, with full power of substitution in the premises.

Dated: _______________________

SPCP GROUP IV, LLC

By: Silver Point C&I Opportunity GP, LLC

By:_________________________________

Name:______________________________

Title: _______________________________

EX-10.14

Exhibit 10.14

NEITHER THIS WARRANT NOR THE SECURITIES INTO WHICH THIS WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

INTEGRATED HEALTHCARE HOLDINGS, INC.

COMMON STOCK WARRANT

WARRANT TO PURCHASE SHARES OF COMMON STOCK

THIS COMMON STOCK WARRANT (this “Warrant”) certifies that, for consideration received, SPCP GROUP, LLC, a Delaware limited liability company, or its successors or assigns (the “Holder” or “Holders,” as applicable), is entitled to subscribe for and purchase SIXTEEN MILLION EIGHT HUNDRED SEVENTEEN THOUSAND THREE HUNDRED SIXTY FIVE (16,817,365) fully paid and nonassessable shares (as adjusted pursuant to Section 3 hereof, the “Shares”) of the Common Stock (the “Common Stock”) of Integrated Healthcare Holdings, Inc., a Nevada corporation (the “Company”), at a price per Share equal to seven cents ($0.07) (as adjusted pursuant to Section 3 hereof, the “Exercise Price”), subject to the provisions and upon the terms and conditions hereinafter set forth.

1. Method of Exercise; Payment.

(a) Exercise. This Warrant shall be exercisable from and after February 7, 2013 through April 13, 2016 (the “Expiration Date”). This Warrant shall be exercisable by Holder in whole or in part and from time to time for the Shares (as adjusted pursuant to Section 3 hereof).

(b) Cash Exercise. The purchase rights represented by this Warrant may be exercised by the Holder, in whole or in part, by the surrender of this Warrant (with the notice of exercise form attached hereto as Exhibit A duly executed) at the principal office of the Company, and by the payment to the Company, by wire transfer or certified, cashier’s or other check acceptable to the Company (or as otherwise provided pursuant to Section 1(c) hereinbelow), of an amount equal to the aggregate Exercise Price of the Shares being purchased.

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(c) Net Issue Exercise. In combination with or in lieu of exercising this Warrant for cash pursuant to Section 1(b), the Holder may elect to receive Shares of Common Stock equal to the value of this Warrant (or any portion thereof) by surrender of this Warrant at the principal office of the Company together with notice of such election, in which event the Company shall issue to the Holder a number of Shares computed using the following formula:

X	=	Y (A-B)
		A
Where X	=	the number of the Shares to be issued to the Holder pursuant to this Section 1(c).
Y	=	the number of the Shares covered by this Warrant in respect of which the net issuance election is made pursuant to this Section 1(c).
A	=	the fair market value of one Share on the date of election under this Section 1(c), as determined in accordance with Section 1(d).
B	=	the Exercise Price in effect under this Warrant on the date of election under this Section 1(c).

(d) Fair Market Value. For purposes of this Warrant, the per share fair market value of the Shares shall mean:

(i) If the class of Shares is traded on a national securities exchange or other over-the-counter quotation system, the fair market value shall be the last reported sale price of a Share on such exchange or other over-the-counter quotation system on the last business day before the effective date of exercise of the net issuance election or if no such sale is made on such day, the mean of the closing bid and asked prices for such day on such exchange.

(ii) If the class of Shares is not so listed and bid and ask prices are not reported, the fair market value shall be the price per Share that the Company could obtain from a willing buyer for Shares sold by the Company, as such price shall be determined by either of the following (in each case, the “Appraiser”), which determination shall be conclusive and binding on the Company and the Holder for purposes of this Warrant: (A) the mutual agreement of the Company and Holder, or (B) alternatively, if in good faith the Company and the Holder are unable to reach such mutual agreement within five (5) business days, a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing selected by the Holder in its sole and absolute discretion and at the Company’s sole cost and expense.

(e) Stock Certificates. Promptly upon receipt of a notice to exercise, the Company will take all necessary actions to authorize the issuance of such Common Stock under this Warrant. In the event of any exercise of the rights represented by this Warrant, certificates for the Shares so purchased shall be delivered to the Holder within three (3) business days, or four (4) Trading Days if the Company’s Common Stock is publicly traded and the notice of exercise is received after 1:30 p.m. Pacific Time on a day in which the Company’s Common Stock is publicly traded (each a “Trading Day”) and, unless this Warrant has been fully exercised or has expired, a new Warrant representing the shares with respect to which this Warrant shall not have been exercised shall also be issued to the Holder within such time.

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2. Stock Fully Paid. All of the Shares issuable upon the exercise of the rights represented by this Warrant will, upon issuance and receipt of the Exercise Price therefor, be duly authorized, validly issued, fully paid and nonassessable, and free from all taxes, liens and charges with respect to the issue thereof (except the Holder’s income taxes, if any, that are due and payable with respect to the Shares).

3. Adjustment to the Number of Shares Issuable and/or the Exercise Price. The number of Shares issuable upon the exercise of this Warrant and the Exercise Price are subject to adjustment from time to time as set forth in this Section 3. Upon each adjustment pursuant to this Section 3, the Holder shall thereafter prior to the Expiration Date be entitled to purchase the adjusted number of Shares of Common Stock at the Exercise Price as adjusted hereby.

(a) If the Company, at any time while this Warrant is outstanding, (i) shall pay a stock dividend payable in shares of its capital stock (whether payable in shares of its Common Stock, preferred stock, or securities convertible into, or exchangeable or exercisable for, Common Stock or of other capital stock of any class), (ii) shall subdivide outstanding shares of Common Stock into a larger number of shares, or (iii) combine outstanding shares of Common Stock into a smaller number of shares, then (x) the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally increased or decreased to reflect such event, and (y) the Exercise Price shall be adjusted to an amount obtained by multiplying the Exercise Price in effect immediately prior to such event by a fraction equal to the number of Shares for which this Warrant is exercisable immediately prior to such event divided by the number of Shares for which this Warrant is exercisable immediately after such event. Any adjustment made pursuant to this Section 3(a) shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date of a subdivision, combination or reclassification.

(b) If the Company, at any time while this Warrant is outstanding, shall distribute to all holders of Common Stock, or holders of any securities convertible into, or exchangeable or exercisable for Common Stock (and not to the Holder), evidences of its indebtedness, assets or any rights or warrants to subscribe for or purchase any security (excluding those referred to in this Section 3), the number of shares of Common Stock issuable upon exercise of this Warrant (or any shares of stock or other securities at the time issuable upon exercise of this Warrant) shall be proportionally increased to reflect such event as determined by the Appraiser. The Company shall promptly provide a statement to the Holder of the portion of assets or evidences of indebtedness so distributed or such subscription rights applicable to one share of Common Stock. Such adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned above.

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(c) In case of any reclassification of the Common Stock, any consolidation or merger of the Company with or into another person, the sale or transfer of all or substantially all of the assets of the Company or any compulsory share exchange pursuant to which the Common Stock is converted into other securities, cash or property, then, subject to the terms hereof, the Holder shall have the right thereafter to exercise this Warrant into the shares of stock and other securities and property receivable upon or deemed to be held by holders of Common Stock following such reclassification, consolidation, merger, sale, transfer or share exchange, and the Holder shall be entitled upon such event to receive such amount of securities or property as the shares of the Common Stock into which this Warrant could have been exercised immediately prior to such reclassification, consolidation, merger, sale, transfer or share exchange would have been entitled. The terms of any such reclassification, consolidation, merger, sale, transfer or share exchange shall include such terms so as to continue to give to the Holder the right to receive the securities or property set forth in this Section 3(c) upon any exercise following such reclassification, consolidation, merger, sale, transfer or share exchange. This provision shall similarly apply to successive reclassification, consolidations, mergers, sales, transfers or share exchanges.

(d) If the Company, at any time while this Warrant is outstanding, shall issue additional shares of Common Stock for a consideration per share less than the Exercise Price (a “Dilutive Issuance”), then, the Exercise Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Exercise Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Company for such issue would purchase at such Exercise Price, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such additional shares of Common Stock so issued. For the purposes of this Section 3(d), all shares of Common Stock issuable upon conversion of any outstanding shares of preferred stock and the exercise and/or conversion of any other outstanding securities or rights exercisable for or convertible into shares of Common Stock shall be deemed to be outstanding. For the purposes of this Section 3(d), the following paragraphs shall also be applicable:

(i) If the Company, at any time while this Warrant is outstanding, grants any rights to subscribe for, or any rights or options to purchase, or securities convertible into, shares of Common Stock, whether or not such rights or options or rights to convert or exchange are immediately exercisable, and the price per share associated with such rights or options or rights to convert or exchange is less than the Exercise Price, then the total maximum number of shares issuable upon the exercise of such rights or options or upon conversion or exchange of the total maximum amount of such convertible securities issuable upon the exercise of such rights or options shall (as of the date of grant of such rights or options) be deemed to have been issued at such time in a Dilutive Issuance, and the Exercise Price shall be adjusted accordingly pursuant to this Section 3(d).

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(ii) If the Company, at any time while this Warrant is outstanding, issues or sells any convertible securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share associated with such convertible securities is less than the Exercise Price, then the total maximum number of shares issuable upon conversion or exchange of such convertible securities shall (as of the date of the issue or sale of such convertible securities) be deemed to have been issued at such time in a Dilutive Issuance, and the Exercise Price shall be adjusted accordingly pursuant to this Section 3(d); provided that if any such issuance or sale of such convertible securities is made upon exercise of any rights to subscribe for or to purchase or any option to purchase any such convertible securities for which adjustments of the Exercise Price have been or are to be made pursuant to Section 3(d)(i), then no further adjustment shall be made pursuant to this Section 3(d)(ii) by reason of such issuance or sale.

(e) For purposes of any computation respecting consideration received, the following shall apply:

(i) in the case of the issuance of shares of Common Stock for cash, the consideration shall be the amount of such cash, provided that in no case shall any deduction be made for any commissions, discounts or other expenses incurred by the Company for any underwriting of the issue or otherwise in connection therewith; and

(ii) in the case of the issuance of shares of Common Stock for a consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be the fair market value thereof as determined by the Appraiser, whose determination shall be conclusive.

(f) For the purposes of this Section 3, the following clauses shall also be applicable:

(i) Record Date. In case the Company shall promptly take a record of the holders of its Common Stock for the purposes of entitling them (A) to receive a dividend or other distribution payable in Common Stock or in convertible securities, or (B) to subscribe for or purchase Common Stock or securities convertible into, or exchangeable or exercisable for, Common Stock, then such record date shall be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase, as the case may be.

(ii) Treasury Shares. Except for the shares issuable pursuant to the stock purchase agreements entered into by the Company pursuant to the Settlement Agreement, General Release and Covenant Not to Sue on or about April 2, 2009 (“Purchase Rights”), the number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock for purposes of this Section 3.

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(iii) Exempt Issuance. Notwithstanding anything to the contrary contained in this Section 3, no adjustments to the number of Shares issuable upon exercise of this Warrant or the Exercise Price shall be made upon an Exempt Issuance. The term “Exempt Issuance” means the issuance of (a) shares of Common Stock in an underwritten public offering with an aggregate gross offering price of at least $50,000,000 and a minimum per share offering price of at least double the then-current Exercise Price, (b) shares of Common Stock or options to employees, officers or directors of the Company primarily for compensatory purposes pursuant to any stock or option plan or arrangement duly adopted by the Board of Directors of the Company, provided that any shares issued to any Affiliate, existing shareholder, or other related party of the Company (the “Related Parties”) in connection with such plans or arrangements are not materially greater than the shares otherwise issued to non-Related Parties for similar service under such plans or arrangements, (c) shares of common stock or options to third-party consultants to the Company who are not Related Parties pursuant to arrangements duly approved by the Board of Directors of the Company, (d) securities upon the exercise or conversion of this Warrant, the other New Warrants (defined below), the Purchase Rights, or other securities or rights exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on April 13, 2010 (the “Initial Exercise Date”), (e) securities issued as consideration for acquisitions or strategic transactions duly approved by the Board of Directors of the Company in a business synergistic with the business of the Company, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities or (f) Common Stock and/or securities convertible into or exercisable for shares of Common Stock that may be issued to Kali P. Chaudhuri, M.D. or his Affiliates in connection with one or more strategic transactions approved by the Board of Directors of the Company as being fair and reasonable and providing consideration to the Company at least commensurate with the shares or securities being issued, provided that the number of shares issued or shares into which such securities are convertible pursuant to all issuances under this clause (f) shall not exceed 55,000,000 shares in aggregate (as appropriately adjusted for stock splits, combinations and similar events).

(iv) For purposes of this Warrant, the term “Affiliate” shall have the definition given that term in Rule 12b-2 promulgated by the Securities and Exchange Commission under the Exchange Act.

(g) The Company shall not, by amendment of its articles of incorporation or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out all the provisions of this Section 3 and in taking all such action as may be necessary or appropriate to protect Holder’s rights under this Section 3 against impairment.

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4. Notice of Adjustments. Whenever the number of Shares purchasable hereunder or the Exercise Price thereof shall be adjusted pursuant to Section 3 hereof, the Company shall promptly provide notice to the Holder setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated, and the number and class of Shares which may be purchased and the Exercise Price therefor after giving effect to such adjustment.

5. Fractional Shares. This Warrant may not be exercised for fractional shares. In lieu of fractional shares the Company shall promptly make a cash payment therefor based upon the per share fair market value of a Share then in effect.

6. Pre-emptive Rights. The Company hereby grants to the Holder (so long as SPCP Group, LLC or an Affiliate thereof (which term shall include any investment fund managed by SPCP Group, LLC or its Affiliates) is and remains the Holder hereof) pre-emptive rights with respect to issuances, other than Exempt Issuances, after the Initial Exercise Date, by the Company of its equity securities or securities or rights convertible into or exercisable for equity securities, where issuance of those securities or rights would result in dilution of the Holder’s beneficial ownership (as calculated by the Holder for purposes of Section 13(d) of the Exchange Act of 1934, as amended (the “Exchange Act”)) of the Common Stock on a fully-diluted and as converted basis, taking into account all securities of the Company held by the Holder which entitle the Holder to acquire Common Stock at any time, including, without limitation, this Warrant, immediately prior to the consummation of the proposed issuance (the “Pre-Transaction Percentage”). Each time the Company proposes to issue or offer any shares of, or securities or rights convertible into or exercisable for any shares of, any class of the Company’s equity securities (the “New Shares”) that would reduce the Holder’s Pre-Transaction Percentage, other than in Exempt Issuances, the Company shall first make a written offer to the Holder of its pro rata share of the New Shares based on the Holder’s Pre-Transaction Percentage (the “Offer Notice”). The Offer Notice shall state (a) the Company’s bona fide intention to issue or offer the New Shares, (b) the identity of the person(s) to whom the New shares are to be issued or offered, (c) the number of New Shares to be issued or offered, and (d) the price and terms upon which it proposes to issue or offer the New Shares. The Holder may, by written notice to the Company delivered within ten (10) days of its receipt of the Offer Notice, elect to purchase, at the price and on the terms specified in the Offer Notice, up to its pro rata share of the New Shares. The closing of the sale to the Holder shall occur simultaneously with the issuance or sale of the New Shares to the other person(s) identified in the Offer Notice, but no earlier than fifteen (15) days following the Holder’s receipt of the Offer Notice (unless a shorter period is mutually agreed between the Company and the Holders). The Holder’s pro rata share of the New Shares shall be priced equal to the lowest price paid by any of the other person(s) identified in the Offer Notice, including any such person who may be receiving or purchasing New Shares by virtue of similar pre-emptive or other purchase rights. If the Company does not consummate the issuance or sale of the New Shares within sixty (60) days following the Holder’s receipt of the Offer Notice, then the New Shares shall not be offered, issued or sold unless again offered to the Holder in accordance with this Section 6.

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7. Representations, Warranties and Covenants of the Company.

(a) The Company represents and warrants to the Holder that all corporate actions on the part of the Company, its officers, directors and stockholders necessary for the sale and issuance of the Shares pursuant hereto and the performance of the Company’s obligations hereunder were taken prior to and are effective as of the effective date of this Warrant, except that the Company may need to obtain stockholder approval to increase its authorized capital to ensure there are sufficient shares of Common Stock available for issuance of the Shares pursuant hereto. The Company covenants and agrees to promptly increase the Company’s authorized capital as and to the extent necessary to ensure there are sufficient authorized shares of Common Stock reserved and available for issuance under this Warrant, subject to the Holder’s cooperation in approving by vote or written consent from time to time resolutions approving such increases in authorized capital. The Company will procure at its sole expense upon each such authorization and reservation of shares the listing thereof (subject to issuance or notice of issuance) on all stock exchanges on which the Common Stock is then listed or inter-dealer trading systems or markets on which the Common Stock is then traded. The Company will take all such actions as may be necessary to assure that such shares of Common Stock may be so issued without violation of any applicable law or regulation, or of any requirements of any national securities exchange upon which the Common Stock may be listed or inter-dealer trading system on which the Common Stock is then traded, free of any pre-emptive rights except as referenced in Section 7(e) hereof. In furtherance, and not in limitation, of the foregoing, prior to the date hereof, the Company prepared and filed with the Securities and Exchange Commission definitive versions of a Schedule 14C Information Statement and such other filings and mailings to the Company’s stockholders as necessary or appropriate to cause an increase in the Company’s authorized capital to a number that is sufficient to accommodate exercise of this Warrant.

(b) The Company has made available to the Holder true, correct and complete copies of its articles of incorporation and bylaws, as amended. This Warrant is not inconsistent with the Company’s articles of incorporation or bylaws, and does not contravene any law or governmental rule, regulation or order applicable to it, does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract, agreement or other instrument to which it is a party or by which it is bound, and constitutes the legal, valid and binding agreements of the Company, enforceable in accordance with its terms.

(c) No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Warrant, except for the filing of notices pursuant to Regulation D under the Securities Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

(d) All issued and outstanding shares of Common Stock or any other securities of the Company have been duly authorized and validly issued and are fully paid and nonassessable. All outstanding shares of Common Stock and any other securities were issued in full compliance with all federal and state securities laws. Except as provided (i) in favor of Kali P. Chaudhuri, M.D. and William E. Thomas in that certain Securities Purchase Agreement dated effective as of July 18, 2008, as amended, among the Company, Kali P. Chaudhuri, M.D. and William E. Thomas (“2008 SPA”) and (ii) in the New Warrants (as defined below), no stockholder of the Company has preemptive rights to purchase new issuances of the Company’s capital stock.

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(e) Except as provided in the 2008 SPA and in warrants (including this Warrant) to purchase up to four hundred five million (405,000,000) shares of Common Stock, which warrants (the “New Warrants”) were issued by the Company on the Initial Exercise Date, the Company is not, pursuant to the terms of any agreement currently in existence, under any obligation to register under the Securities Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

(f) Assuming that the Holder is an accredited investor (as defined in Rule 501(a) of Regulation D promulgated under the Securities Act (as defined in Section 8 hereof)), the issuance of the Shares upon exercise of this Warrant will constitute a transaction exempt from (i) the registration requirements of Section 5 of the Securities Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

(g) At the written request of the Holder, in the event the Holder proposes to sell Shares issuable upon the exercise of this Warrant in compliance with Rule 144 promulgated under the Securities Act by the Securities and Exchange Commission, the Company shall furnish to the Holder, within three (3) Trading Days after receipt of such request, a written statement confirming the Company’s compliance with the filing requirements of the Securities and Exchange Commission as set forth in such Rule, as such Rule may be amended from time to time.

8. Restrictive Legend. The Shares (unless registered under the Securities Act) shall be stamped or imprinted with a legend in substantially the following form:

THESE SHARES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

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9. Transfer of Warrant.

(a) This Warrant may be sold, transferred, assigned or hypothecated, in whole or in part, by the Holder without the consent of the Company; provided, in each case that any transferee or assignee agrees to be bound by the terms of this Warrant, and such transfer or assignment is in compliance with the Securities Act and the securities law of any applicable jurisdiction. The Warrant may be divided or combined, upon request to the Company by the Holder, into one or more new warrants representing the same aggregate number of Shares. For purposes of this Warrant, “person” means an individual or a corporation, association, partnership, limited liability company, joint venture, organization, business, trust or any other entity or organization, including a government or any subdivision or agency thereof. The terms and conditions of this Warrant shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties.

(b) No opinion of counsel or “no-action” letter shall be necessary for any transfer or assignment by any Holder.

9. Rights of Stockholders. No holder of this Warrant shall be entitled, as a Warrant holder, to vote or receive dividends or be deemed the holder of the Shares or any other securities of the Company which may at any time be issuable on the exercise hereof for any purpose, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, any of the rights of a stockholder of the Company or any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value, consolidation, merger, conveyance, or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or otherwise until the Warrant shall have been exercised and the Shares purchasable upon the exercise hereof shall have become deliverable, as provided herein.

10. Information Rights. The Company shall deliver to the Holder the following (which may be satisfied by the Company’s delivery of the Company’s public filings, if applicable, to Holder):

(a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, a balance sheet and income statement as of the last day of such year and a statement of cash flows for such year, such year end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) as soon as practicable, but in any event within forty five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, schedule as to the sources and application of funds for such fiscal quarter, an unaudited balance sheet and a statement of stockholder’s equity as of the end of such fiscal quarter; and

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(c) as soon as practicable, but in any event with forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, a statement showing the number of shares of each class and series of capital stock and securities convertible into or exercisable for shares of capital stock outstanding at the end of the period, the number of common shares issuable upon conversion or exercise of any outstanding securities convertible or exercisable for common shares and the exchange ratio or exercise price applicable thereto and number of shares of issued stock options and stock options not yet issued but reserved for issuance, if any, all in sufficient detail as to permit the Holder to calculate its percentage equity ownership in the Company and certified by the Chief Financial Officer or Chief Executive Officer of the Company as being true, complete and correct.

11. Reports Under Exchange Act. With a view to making available to the Holders the benefits of Rule 144 promulgated by the Securities and Exchange Commission (the “SEC”) under the Securities Act (“SEC Rule 144”) and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

(a) make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the first registration statement filed by the Company for the offering of its securities to the general public so long as the Company is subject to the periodic reporting requirements under Sections 13 or 15(d) of the Exchange Act;

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and

(c) furnish to any Holder, so long as the Holder holds this Warrant or owns any Shares, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144, the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC which permits the selling of any such securities without registration or pursuant to such form.

12. Expiration of Warrant. This Warrant shall expire and shall no longer be exercisable after 5:00 p.m., Pacific Time, on the Expiration Date.

13. Notices. All notices and other communications required or permitted hereunder shall be in writing, shall be effective when given, and shall in any event be deemed to be given upon receipt or, if earlier, (a) five (5) days after deposit with the U.S. Postal Service or other applicable postal service, if delivered by first class mail, postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day after the business day of deposit with Federal Express or similar overnight courier, freight prepaid or (d) one business day after the business day of facsimile transmission, if delivered by facsimile transmission with copy by first class mail, postage prepaid, and shall be addressed (i) if to the Holder, at the Holder’s address as set forth on the register maintained by the Company, and (ii) if to the Company, at the address of its principal corporate offices (Attention: President), which on the date hereof is 1301 N. Tustin Avenue, Santa Ana, California 92705, or at such other address as a party may designate by ten (10) days advance written notice to the other party pursuant to the provisions above.

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14. Warrant Agent.

(a) The Company shall serve as the initial warrant agent under this Warrant. The Company and the Holder may appoint a new warrant agent as mutually agreed upon by the Company and the Holder.

(b) Any corporation into which the Company or any new warrant agent may be merged or any corporation resulting from any consolidation to which the Company or any new warrant agent shall be a party or any corporation to which the Company or any new warrant agent transfers substantially all of its corporate trust or stockholders services business shall be a successor warrant agent under this Warrant without any further act. Any such successor warrant agent shall promptly cause notice of its succession as warrant agent to be mailed (by first class mail, postage prepaid) to the Holder at the Holder’s last address as shown on the register maintained by the warrant agent pursuant to this Warrant.

15. Payment of Taxes. The Company will pay all documentary stamp taxes attributable to the issuance of Shares upon the exercise of the Warrants represented by this Warrant. The Holder shall be responsible for all other tax liability that may arise as a result of holding or transferring the Warrants represented by this Warrant or receiving the Shares under this Warrant.

16. Replacement of Warrant. If the certificate evidencing this Warrant is mutilated, lost, stolen or destroyed, the Company shall issue in exchange and substitution for and upon cancellation hereof, or in lieu of and substitution for this Warrant certificate, a new warrant certificate of like tenor, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and bond or other indemnity, if requested, reasonably satisfactory to it. A Holder of a replacement warrant certificate also shall comply with such other reasonable regulations and pay such other reasonable charges attributable to the replacement of a warrant certificate.

17. Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Nevada.

18. Amendments. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

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19. Registration Rights.

(a) The Company shall file a registration statement under the Securities Act covering the resale of all Shares of the Holder as soon as practicable following the Holder’s written request to do so, and use its reasonable best efforts to have the registration statement declared effective by the SEC for distribution thereof by means of an underwriting. The underwriter will be selected by the Company and shall be reasonably acceptable to the Holder. The Holder shall (together with the Company as provided herein below) enter into an underwriting agreement in a customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of this Section 19(a), if the underwriter advises the Holder in writing that marketing factors require a limitation of the number of Shares to be underwritten, the number of Shares held by the Holder to be included in such underwriting shall not be reduced unless all other securities are first entirely excluded from the underwriting. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of the Shares with respect to the registrations pursuant to this Section for each Holder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders as selected by them.

(b) (i) The Company covenants and agrees with the Holder (and any subsequent Holders of this Warrant and/or Shares) that, in the event the Company proposes to file a registration statement under the Securities Act (including, without limitation, relating to an initial public offering of Company Common Stock or shall receive a request for registration on Form S-3 from any stockholder) with respect to any class of security which becomes or which the Company believes will become effective on or after the Initial Exercise Date and on or before the Expiration Date, then the Company shall in each case give prompt written notice of such proposed filing to the Holder (and any subsequent Holders of this Warrant and/or Shares) at least sixty (60) days before the proposed filing date and, by such notice, shall offer to such Holders the opportunity to include in such registration statement such number of Shares as they may request in writing.

(ii) The Company shall permit, or shall cause the managing underwriter of a proposed offering to permit, the Holders from whom such written requests have been received to include such number of Shares (the “Piggy-back Shares”) in the proposed offering on terms and conditions no less favorable to the Holders as the terms and conditions applicable to securities of the Company included therein or as applicable to securities of any person other than the Company and the Holders of Piggy-back Shares if the securities of any such person are included therein; provided, however, that the Company shall not be required to honor any such request that is received more than sixty (60) days after the proper giving of the Company’s notice or after the Expiration Date. Notwithstanding any other provision of this Section 19(b)(ii), if the underwriter advises the Holder in writing that marketing factors require a limitation of the number of shares to be underwritten, the number of Shares held by the Holder to be included in such underwriting shall not be reduced unless all other securities, other than securities to be registered pursuant to the registration rights granted in the 2008 SPA (the “Other Shares”) and securities to be offered for the account of the Holders of the New Warrants and the Company, are first entirely excluded from the underwriting, and unless the number of Other Shares, on the one hand, and Piggy-back Shares on the other hand, are cut back on a pro rata basis based on the number of Piggy-back Shares and Other Shares requested to be included in such offering. The Company shall bear and pay all expenses incurred in connection with any registration, filing or qualification of the Shares with respect to the registrations pursuant to this Section for each Holder, including (without limitation) all registration, filing, and qualification fees, printers and accounting fees relating or apportionable thereto and the fees and disbursements of one counsel for the selling Holders selected by them.

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(iii) The Company shall be obligated pursuant to this Section 19(b)(iii) to include in the piggy-back offering Shares that have not yet been purchased by a Holder so long as such Holder submits an undertaking to the Company that such Holder intends to exercise the Warrant for at least the number of Shares to be included in such piggy-back offering prior to the consummation of such piggy-back offering. The Company shall use its reasonable best efforts to register or qualify the Shares for offer or sale under the state securities or Blue Sky laws of such states which the Holders of such Shares shall designate.

(iv) If the Company decides not to proceed with the piggy-back offering, the Company will have no obligation to proceed with the offering of the Piggy-back Shares.

(c) (i) To the fullest extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Exchange Act, against any Violation (as defined herein below) and the Company will pay to each such Holder, underwriter, controlling person or other aforementioned person, any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability, or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this Section 19(c)(i) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability, or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld, delayed or conditioned), nor shall the Company be liable in any such case for any such loss, claim, damage, liability, or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling person or other aforementioned person. The term “Violation” means losses, claims, damages, or liabilities (joint or several) to which a party hereto may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by any other party hereto, of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under the Securities Act, the Exchange Act or any state securities law.

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(ii) Each Holder of Shares who participates in a registration pursuant to Section 19 shall indemnify and hold harmless the Company, each of its directors, each of its officers who have signed any such registration statement, and each person, if any, who controls the Company within the meaning of the Securities Act, against any losses, claims, damages or liabilities to which the Company, or any such director, officer or controlling person may become subject under the Securities Act, the Exchange Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of, or are based upon, any untrue or alleged untrue statement of any material fact contained in any such registration statement, or final prospectus, or any amendment or supplement thereto, or arise out of or are based upon the omission or the alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in any such registration statement, or final prospectus, or any amendment or supplement thereto, in reliance upon and in conformity with written information furnished by such Holder expressly for use in the preparation thereof; and will reimburse any legal or other expenses reasonably incurred by the Company, or any such director, officer or controlling person in connection with investigating or defending against any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subparagraph (ii) shall not apply to amounts paid to any claimant in settlement of any suit or claim unless such payment is first approved by such Holder; and, provided further, that the aggregate amount payable by a Holder pursuant to this Section 19(c)(ii) shall not exceed the net proceeds received by such Holder in the registered offering out of which its obligations pursuant to this Section 19(c)(ii) arise.

[signature page follows]

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Issued this 7th day of February, 2013.

Integrated Healthcare Holdings, Inc.,

a Nevada corporation

By: /s/ Kenneth K. Westbrook                                      

Kenneth K. Westbrook, Chief Executive Officer

Attachments

Exhibit A - Notice of Exercise

Exhibit B - Form of Transfer

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EXHIBIT A

NOTICE OF EXERCISE

TO: Integrated Healthcare Holdings, Inc.

Attention: President

1. The undersigned hereby elects to purchase __________ shares of the Common Stock of Integrated Healthcare Holdings, Inc. (the “Company”) pursuant to the terms of the attached Warrant.

2. Method of Exercise (Please initial the applicable blank(s)):

___ The undersigned elects to exercise the attached Warrant by means of a cash payment, and tenders herewith payment in full of $____________ for the purchase price of _____________ Shares being purchased for cash, together with all applicable transfer taxes, if any.

___ The undersigned elects to exercise the attached Warrant by means of the net exercise provisions of Section 1(c) of this Warrant, and accordingly requests delivery of a net of ______ of such Shares and a corresponding reduction in the total number of Shares available for further exercise from __________ Shares to _____________ Shares.

3. Please issue a certificate or certificates representing said Shares in the name of the undersigned or in such other name as is specified below:

(Name)

(Address)

4. The undersigned hereby represents and warrants that the aforesaid shares of Shares are being acquired for the account of the undersigned for investment and not with a view to, or for resale, in connection with the distribution thereof.

_____________________________________

                         (Signature)

Title: ________________________________

________________________________

(Date)

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EXHIBIT B

FORM OF TRANSFER

(To be signed only upon transfer of Warrant)

FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto _____________________________________________ the right represented by the attached Warrant to purchase ____________ shares of the Common Stock of Integrated Healthcare Holdings, Inc. (the “Company”), to which the attached Warrant relates, and appoints ______________ as their true and lawful attorney in fact to transfer such right on the books of the Company, with full power of substitution in the premises.

Dated: ____________________

(Signature must conform in all respects to name of Holder as specified on the face of the Warrant)

_______________________________________

_______________________________________

(Address)

Signed in the presence of:

 _______________________________________

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EX-10.15

Exhibit 10.15

NEITHER THIS AMENDMENT TO WARRANT NOR THE SECURITIES INTO WHICH THE WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC.

COMMON STOCK WARRANT (KPC RESOLUTION COMPANY, LLC)

This AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC. COMMON STOCK WARRANT (this “Amendment”) is made as of February 7, 2013, by and among KPC RESOLUTION COMPANY, LLC, a California limited liability company, or its successors or assigns (the “Holder” or “Holders,” as applicable), and Integrated Healthcare Holdings, Inc., a Nevada corporation (the “Company”).

Holder is entitled to subscribe for and purchase certain fully paid and nonassessable shares (the “Shares”) of the Common Stock (the “Common Stock”) of the Company pursuant to the terms of the Warrant to Purchase Shares of Common Stock, exercisable from and after April 13, 2010 (as amended, supplemented or otherwise modified and in effect from time to time, the “Warrant”). Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

The Company and the Holder desire to amend the Warrant in certain respects.

In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Holder hereby agree as follows:

Section 1. Definitions. Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date of this Amendment, the Warrant shall be amended as follows:

2.1. References Generally. References in the Warrant (including references to the Warrant as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Warrant as amended hereby.

2.2. Exercise. The first sentence of Section 1(a) of the Warrant Agreement is hereby amended by deleting “April 13, 2013” and replacing it with “April 13, 2016”.

Amendment No. 1 to Warrant (KPC Resolution Company, LLC)

2.3. Net Issue Exercise. Section 1(c) of the Warrant Agreement is hereby amended by deleting the reference to “Section 3(d)” and replacing it with “Section 1(d)”.

Section 3. Representations and Warranties. The Company represents and warrants to the Holder that the representations and warranties set forth in Section 7 of the Warrant are true and complete on the date of this Amendment as if made on and as of the date of this Amendment (or, if any such representation or warranty is expressly stated to have been made as of a specific date, such representation or warranty shall be true and correct as of such specific date) and as if each reference in said Section 7 to “this Agreement” included reference to this Amendment.

Section 4. Conditions Precedent. This Amendment shall become effective as of the date of this Amendment upon the receipt by Holder of counterparts of this Amendment executed by the Company.

Section 5. Effect of this Amendment. Except as expressly provided in this Amendment, the Warrant and each other Loan Document shall remain unchanged and in full force and effect.

Section 6. Miscellaneous. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of a counterpart by electronic transmission shall be effective as delivery of a manually executed counterpart hereof. This Amendment shall be governed by, and construed in accordance with, the law of the State of Nevada.

[Remainder of page intentionally blank]

Amendment No. 1 to Warrant (KPC Resolution Company, LLC)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Warrant (KPC Resolution Company, LLC) to be duly executed by their respective authorized representatives as of the day and year first above written.

INTEGRATED HEALTHCARE HOLDINGS, INC.
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

Signature Page to Amendment No. 1 to Warrant (KPC Resolution Company, LLC)

KPC RESOLUTION COMPANY, LLC
By:	/s/ Kali P. Chaudhuri
Name:	Kali P. Chaudhuri
Title:

Signature Page to Amendment No. 1 to Warrant (KPC Resolution Company, LLC)

EX-10.16

Exhibit 10.16

NEITHER THIS AMENDMENT TO WARRANT NOR THE SECURITIES INTO WHICH THE WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC.

COMMON STOCK WARRANT (Kali P. Chaudhuri, M.D.)

This AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC. COMMON STOCK WARRANT (this “Amendment”) is made as of February 7, 2013, by and among Kali P. Chaudhuri, M.D., an individual, or his successors or assigns (the “Holder” or “Holders,” as applicable), and Integrated Healthcare Holdings, Inc., a Nevada corporation (the “Company”).

Holder is entitled to subscribe for and purchase certain fully paid and nonassessable shares (the “Shares”) of the Common Stock (the “Common Stock”) of the Company pursuant to the terms of the Warrant to Purchase Shares of Common Stock, exercisable from and after April 13, 2010 (as amended, supplemented or otherwise modified and in effect from time to time, the “Warrant”). Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

The Company and the Holder desire to amend the Warrant in certain respects.

In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Holder hereby agree as follows:

Section 1. Definitions. Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date of this Amendment, the Warrant shall be amended as follows:

2.1. References Generally. References in the Warrant (including references to the Warrant as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Warrant as amended hereby.

2.2. Exercise. The first sentence of Section 1(a) of the Warrant Agreement is hereby amended by deleting “April 13, 2013” and replacing it with “April 13, 2016”.

2.3. Net Issue Exercise. Section 1(c) of the Warrant Agreement is hereby amended by deleting the reference to “Section 3(d)” and replacing it with “Section 1(d)”.

Amendment No. 1 to Warrant (Kali P. Chaudhuri, M.D.)

Section 3. Representations and Warranties. The Company represents and warrants to the Holder that the representations and warranties set forth in Section 7 of the Warrant are true and complete on the date of this Amendment as if made on and as of the date of this Amendment (or, if any such representation or warranty is expressly stated to have been made as of a specific date, such representation or warranty shall be true and correct as of such specific date) and as if each reference in said Section 7 to “this Agreement” included reference to this Amendment.

Section 4. Conditions Precedent. This Amendment shall become effective as of the date of this Amendment upon the receipt by Holder of counterparts of this Amendment executed by the Company.

Section 5. Effect of this Amendment. Except as expressly provided in this Amendment, the Warrant and each other Loan Document shall remain unchanged and in full force and effect.

Section 6. Miscellaneous. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of a counterpart by electronic transmission shall be effective as delivery of a manually executed counterpart hereof. This Amendment shall be governed by, and construed in accordance with, the law of the State of Nevada.

[Remainder of page intentionally blank]

Amendment No. 1 to Warrant (Kali P. Chaudhuri, M.D.)

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Warrant (Kali P. Chaudhuri, M.D.) to be duly executed by their respective authorized representatives as of the day and year first above written.

INTEGRATED HEALTHCARE HOLDINGS, INC.
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

Kali P. Chaudhuri, m. d.
By:	/s/ Kali P. Chaudhuri
Name:	Kali P. Chaudhuri, M. D.

Signature Page to Amendment No. 1 to Warrant (Kali P. Chaudhuri, M.D.)

EX-10.17

Exhibit 10.17

NEITHER THIS AMENDMENT TO WARRANT NOR THE SECURITIES INTO WHICH THE WARRANT IS EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION OR EXCLUSION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH APPLICABLE STATE SECURITIES LAWS.

AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC.

COMMON STOCK WARRANT (SPCP GROUP, LLC)

This AMENDMENT NO. 1 TO INTEGRATED HEALTHCARE HOLDINGS, INC. COMMON STOCK WARRANT (this “Amendment”) is made as of February 7, 2013, by and among SPCP GROUP, LLC, a Delaware limited liability company, or its successors or assigns (the “Holder” or “Holders,” as applicable), and Integrated Healthcare Holdings, Inc., a Nevada corporation (the “Company”).

Holder is entitled to subscribe for and purchase certain fully paid and nonassessable shares (the “Shares”) of the Common Stock (the “Common Stock”) of the Company pursuant to the terms of the Warrant to Purchase Shares of Common Stock, exercisable from and after April 13, 2010 (as amended, supplemented or otherwise modified and in effect from time to time, the “Warrant”). Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

The Company and the Holder desire to amend the Warrant in certain respects.

In consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Holder hereby agree as follows:

Section 1. Definitions. Except as otherwise defined in this Amendment, terms defined in the Warrant are used herein as defined therein.

Section 2. Amendments. Subject to the satisfaction of the conditions precedent specified in Section 4 below, but effective as of the date of this Amendment, the Warrant shall be amended as follows:

2.1. References Generally. References in the Warrant (including references to the Warrant as amended hereby) to “this Agreement” (and indirect references such as “hereunder”, “hereby”, “herein” and “hereof”) shall be deemed to be references to the Warrant as amended hereby.

2.2. Exercise. The first sentence of Section 1(a) of the Warrant Agreement is hereby amended by deleting “April 13, 2013” and replacing it with “April 13, 2016”.

2.3. Net Issue Exercise. Section 1(c) of the Warrant Agreement is hereby amended by deleting the reference to “Section 3(d)” and replacing it with “Section 1(d)”.

Section 3. Representations and Warranties. The Company represents and warrants to the Holder that the representations and warranties set forth in Section 7 of the Warrant are true and complete on the date of this Amendment as if made on and as of the date of this Amendment (or, if any such representation or warranty is expressly stated to have been made as of a specific date, such representation or warranty shall be true and correct as of such specific date) and as if each reference in said Section 7 to “this Agreement” included reference to this Amendment.

Section 4. Conditions Precedent. This Amendment shall become effective as of the date of this Amendment upon the receipt by Holder of counterparts of this Amendment executed by the Company.

Section 5. Effect of this Amendment. Except as expressly provided in this Amendment, the Warrant and each other Loan Document shall remain unchanged and in full force and effect.

Section 6. Miscellaneous. This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same agreement, and any of the parties hereto may execute this Amendment by signing any such counterpart. Delivery of a counterpart by electronic transmission shall be effective as delivery of a manually executed counterpart hereof. This Amendment shall be governed by, and construed in accordance with, the law of the State of Nevada.

[Remainder of page intentionally blank]

IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to Warrant (SPCP Group, LLC) to be duly executed by their respective authorized representatives as of the day and year first above written.

INTEGRATED HEALTHCARE HOLDINGS, INC.
By:	/s/ Kenneth K. Westbrook
Name:	Kenneth K. Westbrook
Title:	CEO

SPCP Group, LLC
By:	/s/ Michael A. Gatto
Name:	Michael A. Gatto
Title:	Authorized Signatory

EX-10.18

Exhibit 10.18

AMENDMENT NO. 4 TO CREDIT AND SECURITY AGREEMENT AND LIMITED CONSENT

THIS AMENDMENT NO. 4 TO CREDIT AND SECURITY AGREEMENT AND LIMITED CONSENT (this “Amendment”) is made as of this 7th day of February, 2013, by and among INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation, WMC-SA, INC., a California corporation, WMC-A, INC., a California corporation, CHAPMAN MEDICAL CENTER, INC., a California corporation, COASTAL COMMUNITIES HOSPITAL, INC., a California corporation (each individually as a “Borrower”, and collectively as “Borrowers”), and MIDCAP FUNDING IV, LLC, a Delaware limited liability company, as assigned to it from MidCap Financial, LLC (as Agent for Lenders, “Agent”, and individually as a Lender), SILICON VALLEY BANK, a California corporation, and the other financial institutions or other entities parties hereto, each as a Lender. Capitalized terms used but not defined in this Amendment shall have the meanings that are set forth in the Credit Agreement (defined below).

RECITALS

Borrowers have requested Agent and Lenders to amend the Credit and Security Agreement dated as of August 30, 2010 by and among Borrowers, other borrowers party thereto, Agent and Lenders, as amended or otherwise modified to the date hereof (as so amended and modified, the “Credit Agreement”), (i) to increase the maximum face amount of the Letter of Credit Liabilities permitted thereunder to $760,755.39 and to consent to the issuance of a Letter of Credit in the face amount of $760,755.39 by Wells Fargo Bank, National Association, (ii) to extend the Commitment Expiry Date to January 31, 2014 at Agent’s and the Lenders’ sole option at anytime prior to March 31, 2013, and (iii) to consent to the Borrowers’ entry into the Amendment and Restatement Agreement to the Credit Agreement, dated as of the date hereof, among the Borrowers, Pacific Coast Holdings Investment, LLC and Ganesha Realty, LLC, as amendment parties, SPCP Group IV, LLC and SPCP Group, LLC, as lenders, and Silver Point Finance LLC, as agent for lenders, and the Restated Credit Agreement attached as Exhibit A thereto, both of which are attached to this Amendment as Annex A (collectively, the “Silverpoint Amendment and Restatement”). Agent and Lenders have agreed to such amendments and desire to consent to the Silverpoint Amendment and Restatement and such L/C Issuer, in accordance with and subject to the terms and conditions set forth below.

NOW, THEREFORE, in consideration of the foregoing, the terms and conditions set forth in this Amendment, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Agent, Lenders and Borrowers hereby agree as follows:

1. Amendments to Credit Agreement.

(a) Definitions. The definition of “Commitment Expiry Date” is hereby deleted in its entirety and the following is substituted therefor:

1

“Commitment Expiry Date” means August 30, 2013; unless, at Agent’s and the Lenders’ sole option, with prior written notice to the Borrowers at any time prior to March 31, 2013, Agent and the Lenders elect to extend the Commitment Expiry Date to January 31, 2014.

(b) Section 2.2. Subsection 2.2(d) of the Credit Agreement is hereby amended and restated in its entirety as follows:

“(d) Prepayment Fee. If, at any time prior to the Commitment Expiry Date, (i) except to the extent permitted in Section 2.1(b)(iii)(B), any portion of the Revolving Loan is prepaid at any time, in whole or in part, for any reason other than pursuant to the mandatory repayment provisions set forth in Section 2.1(b)(ii), and such prepayment is accompanied by a corresponding permanent reduction of the Revolving Loan Commitment, whether by voluntary prepayment and/or termination by Borrowers, by reason of the occurrence of an Event of Default, or otherwise, or (ii) the Revolving Loans shall become accelerated and due and payable in full, or (iii) except to the extent permitted in Section 2.1(b)(iii)(B) and Section 2.11(d), the Lenders’ funding obligations in respect of any unfunded portion of the Revolving Loan shall terminate, then in any such event, Borrowers shall pay to Agent, for the benefit of all Lenders committed to make Revolving Loans, as compensation for the costs of such Lenders making funds available to Borrowers under this Agreement, a prepayment fee (the “Prepayment Fee”) calculated in accordance with this subsection. The Prepayment Fee shall be equal to the product of (y) $40,000,000, multiplied by (z) the following percentage: (i) two percent (2.0%) if such prepayment occurs prior to the first anniversary of the Closing Date, (ii) one and one-half percent (1.5%) if such prepayment occurs on or after the first anniversary of the Closing Date but prior to the second anniversary of the Closing Date, and (iii) one percent (1.0%) if such prepayment occurs on or after the second anniversary of the Closing Date but prior to the Commitment Expiry Date. All fees payable pursuant to this paragraph shall be deemed fully earned and non-refundable as of the Closing Date.”

(c) Section 2.5(a)(ii). Section 2.5(a)(ii) of the Credit Agreement is hereby amended by deleting “$0” set forth therein and substituting “$760,755.39” therefor.

2. Acknowledgment and Limited Consent.

(a) The Agent and each Lender acknowledges that each of them was provided with and reviewed the Silverpoint Amendment and Restatement. The Agent and each Lender consents to the consummation of the transactions under the Silverpoint Amendment and Restatement, including, without limitation, the increase in the aggregate principal amount of the loans thereunder and the extension of maturity thereof.

2

(b) Notwithstanding the last sentence of Section 2.5(a)(ii) of the Credit Agreement or anything else to the contrary set forth in the Credit Agreement or any other Financing Documents, Borrowers acknowledge and agree that the Agent may issue, or cause to be issued any such Letters of Credit, and each Lender consents that Wells Fargo Bank, National Association may be an LC Issuer under the Credit Agreement in connection with any Letter of Credit Liabilities permitted pursuant to this Amendment.

Except as expressly set forth in this Section 2, this consent shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect, the rights, remedies, powers or privileges of the Agent or any Lender under the Credit Agreement or any other Financing Documents, and shall not, except as otherwise set forth in this Amendment, alter, modify, amend or in any way affect any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Financing Documents, all of which are ratified and affirmed in all respects and shall continue in full force and effect. Nothing contained in this Section 2 shall be deemed to entitle any Borrower to a consent to, or a waiver, amendment, modification or other change of, any of the terms, conditions, obligations, covenants or agreements contained in the Credit Agreement or any other Financing Documents in similar or different circumstances.

3. Confirmation of Representations and Warranties. Each Borrower hereby confirms that all of the representations and warranties set forth in Article 3 of the Credit Agreement are true and correct in all material respects with respect to such Borrower as of the date hereof, except to the extent that such representation or warranty relates to a specific date, in which case such representation and warranty was true as of such earlier date.

4. Reaffirmation of Security Interest in the Collateral. Each Borrower confirms and agrees that (a) all security interest and Liens granted to Agent continue in full force and effect, and (b) all Collateral remains free and clear of any Liens other than those granted to Agent and Permitted Liens. Nothing herein is intended to impair or limit the validity, priority or extent of Agent’s security interests in and Liens upon the Collateral.

5. Fees and Expenses. Borrowers shall be responsible for the payment of all reasonable fees and expenses of Agent’s counsel incurred in connection with the preparation of this Amendment and any related documents. If Agent uses in-house counsel for any of these purposes, Borrowers further agree that the Obligations include reasonable allocated charges for such work performed. Borrowers hereby authorize Agent to deduct all of such fees set forth in this Section 5 from the proceeds of one or more Revolving Loans made under the Credit Agreement.

6. Conditions to Effectiveness. Sections 1(c) and 2(b) of this Amendment shall become effective as of the date on which each of the following conditions has been satisfied (the “Initial Effective Date”):

(a) Borrowers shall have delivered to Agent this Amendment, duly executed by an authorized officer of each Borrower;

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(b) Borrowers shall have Revolving Loan Availability of at at least $760,755.39;

(c) if there have been any changes to the certificates of secretary or assistant secretary of any Borrower most recently delivered to the Agent, the secretary or assistant secretary of each Borrower shall have delivered to Agent a duly executed secretary’s certificate and incumbency certificate identifying the current officers of such Borrower who are duly authorized by such Borrower’s board of directors to execute and deliver this Amendment and any related documents;

(d) all representations and warranties of Borrowers contained herein shall be true and correct in all material respects as of the Initial Effective Date, except to the extent that such representation or warranty relates to a specific date, in which case such representation and warranty was true as of such earlier date, and such parties delivery of their respective signatures hereto shall be deemed to be its certification thereof; and

(e) Agent shall have received from Borrowers all of the fees, costs and expenses owing pursuant to this Amendment as set forth in Section 5 above unless Agent elects to deduct such fees, costs and expenses from the Revolving Loan proceeds in accordance with Section 5 above.

Once the conditions to satisfy Sections 1(c) and 2(b) have been satisfied, all other Sections except for Sections 1(c) and 2(b) of this Amendment shall become effective as of the date on which each of the following conditions has been satisfied (the “Effective Date”):

(a) Borrowers shall have delivered to Agent final, execution copies of the Silverpoint Amendment and Restatement, along with all exhibits, attachments, schedules and related documents thereto, each of which shall be in form and substance acceptable to Agent in its reasonable discretion.

7. Release. Each Borrower, voluntarily, knowingly, unconditionally and irrevocably, with specific and express intent, for and on behalf of itself and all of its respective parents, subsidiaries, affiliates, members, managers, predecessors, successors, and assigns, and each of their respective current and former directors, officers, shareholders, agents, and employees (collectively, “Releasing Parties”), does hereby fully and completely release, acquit and forever discharge each Indemnitee of and from any and all actions, causes of action, suits, debts, disputes, damages, claims, obligations, liabilities, costs, expenses and demands of any kind whatsoever, at law or in equity, whether matured or unmatured, liquidated or unliquidated, vested or contingent, choate or inchoate, known or unknown that the Releasing Parties (or any of them) has against the Indemnitees or any of them (whether directly or indirectly). Each Borrower acknowledges that the foregoing release is a material inducement to Agent’s and Lenders’ decision to enter into this Amendment and to agree to the modification made contemplated hereunder.

8. No Waiver or Novation. The execution, delivery and effectiveness of this Amendment shall not, except as expressly provided in this Amendment, operate as a waiver of any right, power or remedy of Agent, nor constitute a waiver of any provision of the Credit Agreement, the Financing Documents or any other documents, instruments and agreements executed or delivered in connection with any of the foregoing. Nothing herein is intended or shall be construed as a waiver of any existing Defaults or Events of Default under the Credit Agreement or other Financing Documents or any of Agent’s rights and remedies in respect of such Defaults or Events of Default. This Amendment (together with any other document executed in connection herewith) is not intended to be, nor shall it be construed as, a novation of the Credit Agreement.

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9. Miscellaneous.

(a) Reference to the Effect on the Credit Agreement. Upon the effectiveness of this Amendment, each reference in the Credit Agreement to “this Agreement,” “hereunder,” “hereof,” “herein” or words of similar import shall mean and be a reference to the Credit Agreement as amended by this Amendment. Except as specifically amended above, the Credit Agreement, and all other Financing Documents (and all covenants, terms, conditions and agreements therein), shall remain in full force and effect, and are hereby ratified and confirmed in all respects by Borrower.

(b) Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Maryland.

(c) Headings. Section headings in this Amendment are included for convenience of reference only and shall not constitute a part of this Amendment for any other purpose.

(d) Counterparts. This Amendment may be executed in counterparts, and both counterparts taken together shall be deemed to constitute one and the same instrument.

[SIGNATURES APPEAR ON FOLLOWING PAGE(S)]

5

IN WITNESS WHEREOF, intending to be legally bound, and intending that this document constitute an agreement executed under seal, the undersigned have executed this Amendment under seal as of the day and year first hereinabove set forth.

AGENT: MIDCAP FUNDING IV, LLC, as Agent By: /s/ Brett Robinson Name: Brett Robinson
Title: Managing Director

LENDERS:	MIDCAP FUNDING IV, LLC, as a Lender By: /s/ Brett Robinson Name: Brett Robinson Title: Managing Director
	SILICON VALLEY BANK, as a Lender By: /s/ Tim Walsh Name: Tim Walsh Title: Head of Structured Products

6

BORROWERS:   INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation

By: /s/ Kenneth K. Westbrook Name: Kenneth K. Westbrook
Title: CEO   WMC-SA, INC., a California corporation

By: /s/ Kenneth K. Westbrook Name: Kenneth K. Westbrook
Title: CEO   WMC-A, INC., a California corporation

By: /s/ Kenneth K. Westbrook Name: Kenneth K. Westbrook
Title: CEO   CHAPMAN MEDICAL CENTER, INC., a California corporation

By: /s/ Kenneth K. Westbrook Name: Kenneth K. Westbrook
Title: CEO   COASTAL COMMUNITIES HOSPITAL, INC., a California corporation

By: /s/ Kenneth K. Westbrook Name: Kenneth K. Westbrook
Title: CEO

7

Annex A to Credit Agreement

Silverpoint Amendment and Restatement

See attached.

8

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Kenneth K. Westbrook, Chief Executive Officer of Integrated Healthcare Holdings, Inc., certify that:

1.            I have reviewed this Quarterly Report on Form 10-Q of Integrated Healthcare Holdings, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.            Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.            The registrant's other certifying officer 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 to ensure that material information relating to the registrant, including its consolidated, or caused such disclosure controls and procedures to be designed under our supervision, subsidiaries, is made known to us by others within those entities, particularly during the period in 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 this 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 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 the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	INTEGRATED HEALTHCARE HOLDINGS, INC.
Dated: February 12, 2013	By:	/s/ Kenneth K. Westbrook
		Kenneth K. Westbrook Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13a-14 AND 15d-14

UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED

I, Steven R. Blake, Chief Financial Officer of Integrated Healthcare Holdings, Inc., certify that:

1.            I have reviewed this Quarterly Report on Form 10-Q of Integrated Healthcare Holdings, Inc.;

2.            Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.             The registrant's other certifying officer 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 to ensure that material information relating to the registrant, including its consolidated, or caused such disclosure controls and procedures to be designed under our supervision, subsidiaries, is made known to us by others within those entities, particularly during the period in 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 this 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 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 the audit committee of registrant's board of directors (or persons performing the equivalent functions):

(a)            all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

	INTEGRATED HEALTHCARE HOLDINGS, INC.
Dated: February 12, 2013	By:	/s/ Steven R. Blake
		Steven R. Blake Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Integrated Healthcare Holdings, Inc. (the "Company") for the quarter ended December 31, 2012, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the period indicated.

This Certificate has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.

	INTEGRATED HEALTHCARE HOLDINGS, INC.
Dated: February 12, 2013	By:	/s/ Kenneth K. Westbrook
		Kenneth K. Westbrook Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Integrated Healthcare Holdings, Inc. (the "Company") for the quarter ended December 31, 2012, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(i) the Report fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates and for the period indicated.

This Certificate has not been, and shall not be deemed, "filed" with the Securities and Exchange Commission.

	INTEGRATED HEALTHCARE HOLDINGS, INC.
Dated: February 12, 2013	By:	/s/ Steven R. Blake
		Steven R. Blake Chief Financial Officer

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3. DEBT (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Dec. 31, 2012
Revolving Loan Agreement
Outstanding Balance	$ 28,800
Fixed Interest Bearing Rate + 2.5% LIBOR floor	7.50%
Credit agreement maturity date	Aug. 30, 2013
Term Loan Credit Agreement
Outstanding Balance	$ 46,350
Fixed Interest Bearing Rate + 2.5% LIBOR floor	14.50%

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9. VARIABLE INTEREST ENTITY (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Variable Interest Entity Details Narrative
VIE, arrangements			Concurrent with the close of the Acquisition, PCHI simultaneously acquired title to substantially all of the real property acquired by the Company in the Acquisition. The Company received $5.0 million and PCHI guaranteed the Company's $46.35 million term loan. The Company remains primarily liable as the borrower under the $46.35 million term loan notwithstanding its guarantee by PCHI. The $46.35 million term loan is cross-collateralized by substantially all of the Company's assets and all of the real property of the Hospitals. All of the Company's operating activities are directly affected by the real property that was sold to PCHI, which is a related party entity that is affiliated with the Company through common ownership and control.
VIE, ownership			As of December 31, 2012, PCHI was owned 51% by various physician investors and 49% by Ganesha, which is managed by Dr. Chaudhuri
VIE, Financial support			$ 46,350
Exposure amount, VIE			As noted above, PCHI is a guarantor on the $46.35 million term loan should the Company not be able to perform. PCHI's total liabilities represent the Company's maximum exposure to loss. Additionally, the Company is responsible for seismic remediation under the terms of the lease agreement (Notes 2 and 13).
Rental expense eliminated upon consolidation	$ 1,900	$ 1,900	$ 5,800	$ 5,600

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8. INCOME (LOSS) PER SHARE (Details Narrative)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Income Loss Per Share Details Narrative
Shares excluded from the calculations of diluted loss per share	411,000	411,000	413,000	412,000

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (Warrant, USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Warrant
Warrant liability - fair value measurements using significant unobservable inputs (Level 3)
Balance at March 31, 2012	$ 1,641
Change in fair value of warrant liability included in earnings	(730)
Balance at June 30, 2012	911
Change in fair value of warrant liability included in earnings	1,125
Balance at September 30, 2012	2,036
Change in fair value of warrant liability included in earnings	1,182
Balance at December 31, 2012	$ 3,218

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4. COMMON STOCK WARRANTS (Tables)

9 Months Ended

Dec. 31, 2012

Common Stock Warrants Tables

Common Stock Warrants

	December 31, 2012		March 31, 2012
Expected dividend yield		0.0%		0.0%
Risk-free interest rate		0.1%		0.2%
Expected volatility		32.5%		57.3%
Expected term (in years)		0.28		1.04

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13. COMMITMENTS AND CONTINGENCIES (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Commitments And Contingencies Details
Prepaid insurance	$ 741	$ 366
Accrued insurance premiums (Included in other current liabilities)	$ 197	$ 0

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6. STOCK INCENTIVE PLAN (Details) (USD $)	9 Months Ended
	Dec. 31, 2012
Stock Incentive Plan Tables
Outstanding, March 31, 2012, Shares	8,235
Granted, Shares
Exercised, Shares	0
Forfeited or expired, Shares	(620)
Outstanding, December 31, 2012, Shares	7,615
Exercisable at December 31, 2012, Shares	7,615
Weighted- Average Exercise Price
Outstanding, March 31, 2012, exercise price	$ 0.18
Granted, exercise price
Exercised, exercise price
Forfeited or expired, exercise price	$ 0.27
Outstanding, December 30, 2012, exercise price	$ 0.18
Exercisable at December 30, 2012, exercise price	$ 0.18
Weighted- Average remaining contractual term (years)
Outstanding, September 30, 2012, contractual term (years)	1 year 11 months
Exercisable at September 30, 2012, contractual term (years)	1 year 11 months
Aggregate intrinsic value
Outstanding, September 30, 2012, intrinsic value	$ 0
Exercisable at September 30, 2012, intrinsic value	$ 0

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2. PROPERTY AND EQUIPMENT (Details Narrative) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Property And Equipment Details Narrative
Earthquake insurance with a policy limit	$ 50,000
Ongoing development of electronic health record technology	$ 11,700	$ 4,600

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13. COMMITMENTS AND CONTINGENCIES (Details Narrative 1) (USD $)	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Commitments And Contingencies Details Narrative 1
Finance charges related to policies	$ 7	$ 7	$ 32	$ 32
Contingent loss	$ 5,200		$ 5,200

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9. VARIABLE INTEREST ENTITY (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Property, net	$ 61,861	$ 55,529
Total assets	163,998	145,102
Total liabilities	191,779	156,751
Total liabilities and accumulated deficit	163,998	145,102
PCHI [Member]
Cash	64	68
Property, net	40,018	40,984
Other	1,009	207
Total assets	41,091	41,259
Debt (as guarantor)	46,350	45,000
Other	541	641
Total liabilities	46,891	45,641
Deficiency	(5,800)	(4,382)
Total liabilities and accumulated deficit	$ 41,091	$ 41,259

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3. DEBT

9 Months Ended

Dec. 31, 2012

Debt Disclosure [Abstract]

NOTE 3 - DEBT

NOTE 3 - DEBT

On August 1, 2012, the Company entered into Amendment No. 4 to Credit Agreement and Consent (the “Credit Agreement Amendment”), which amends the Term Loan Credit Agreement.  Under the Credit Agreement Amendment, Silver Point consented to and waived certain provisions under the Term Loan Credit Agreement in connection with the Company’s execution of the Revolving Loan Amendment. In addition, the provisions in the Term Loan Credit Agreement that provide for mandatory prepayment of the Company’s outstanding “A/R Financing,” as defined, upon receipt of certain federal matching funds under the QAF program were amended to replace 65% with 80%. In connection with the Credit Agreement Amendment, the Company agreed to pay Silver Point a one-time consent and amendment fee in an aggregate amount equal to $1.8 million, of which $450 was paid upon execution of the Credit Agreement Amendment and the balance was added to the principal amount under the Term Loan Credit Agreement.

Also on August 1, 2012, the Company entered into Amendment No. 3 to Credit and Security Agreement (the “Revolving Loan Amendment”), which amends the Revolving Loan Agreement. Under the Revolving Loan Amendment, the minimum Revolving Loan Commitment Amount under the Revolving Loan Agreement was increased from $14.0 million to $30.0 million, and the Company agreed to pay to MidCap Funding IV, LLC, as assigned to it from MidCap Financial, LLC, as administrative agent and a lender, and Silicon Valley Bank, as a lender (collectively, the “Lenders”) an origination fee of 1.0% of the Lenders’ increased commitment under the Revolving Loan Amendment, or $160.

In addition, pursuant to the Revolving Loan Amendment, the lockbox requirements under the Revolving Loan Agreement were amended to provide that in the event the Revolving Loan Commitment Amounts are $30.0 million or less during any period prior to March 31, 2013, or $20.0 million or less thereafter (and assuming there is no Event of Default at the time), the Company would be permitted to transfer funds that are deposited into any Lockbox Account, as defined, to a different bank account designated by the Company, subject to the other terms and conditions contained in the Revolving Loan Agreement.

As of December 31, 2012, the Company had the following credit facilities:

● $46.35 million term loan under the Credit Agreement, dated as of October 9, 2007, as amended (the “Term Loan Credit Agreement”), by and among the Company, Silver Point, and PCHI and Ganesha Realty LLC (“Ganesha”), as Credit Parties, bearing a fixed interest rate of 14.5% per year ($46.35 million outstanding balance at December 31, 2012). If any event of default occurs and continues, the lender can increase the interest rate to 19.5% per year.

● $30.0 million revolving line of credit under the Credit and Security Agreement, dated as of August 30, 2010, as amended (the “Revolving Loan Agreement”), by and among the Company, MidCap Funding IV, LLC, as assigned to it from the Lenders, bearing an interest rate of 5.0% plus LIBOR, with a 2.5% floor, per year (7.5% at December 31, 2012) and an unused commitment fee of 0.625% per year ($28.8 million outstanding balance at December 31, 2012).  For purposes of calculating interest, all payments the Company makes on the revolving line of credit are subject to a six business day clearance period.  The stated maturity date for this Revolving Loan Agreement is August 30, 2013. At December 31, 2012, the Company had $1.2 million in additional availability under its revolving credit facility.

The Company’s credit facilities contain various affirmative and negative covenants and customary events of default, including payment defaults, breaches of representations and warranties, covenant defaults, cross-defaults to similar obligations, events of bankruptcy and insolvency, judgment defaults, the invalidity of liens on collateral, and the occurrence of events which have a material adverse effect on the Company.

As described in Note 14, the Company entered into an Amendment on February 7, 2013, which changed the measurement period for the term loan facility. The next assessment date for which the Company is required to comply with the term loan financial covenants will be for the period ended June 30, 2013.

The Company did not meet the financial covenants for its revolving line of credit for the period ended December 31, 2012.Although the Company is not required to report compliance with the financial covenant for its revolving line of credit until 50 days after the fiscal quarter end, the Company is seeking the lenders’ consent to a potential non-compliance with this financial covenant.

The Company's outstanding debt consists of the following:

	December 31,		March 31,
	2012		2012
Current:
Revolving line of credit	$	28,806	$	14,000
Noncurrent:
Term loan	$	46,350	$	45,000

On February 7, 2013, the Company amended its $46.35 million term loan (Note 14).

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6. STOCK INCENTIVE PLAN (Details Narrative)	9 Months Ended	3 Months Ended
	Dec. 31, 2012	Dec. 31, 2012 Stock Incentive 2006 Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum aggregate number of shares under the plan		23,500
Plan description		The Company's 2006 Stock Incentive Plan (the "Plan"), which is shareholder-approved, permits the grant of share options to its employees and board members for up to a maximum aggregate of 12.0 million shares of common stock. In addition, as of the first business day of each calendar year in the period 2007 through 2015, the maximum aggregate number of shares shall be increased by a number equal to one percent of the number of shares of common stock of the Company outstanding on December 31 of the immediately preceding calendar year.
Vesting rights description		Option awards generally vest based on 3 years of continuous service (1/3 of the shares vest on the twelve month anniversary of the grant date, and an additional 1/12 of the shares vest on each subsequent fiscal quarter-end of the Company following such twelve month anniversary). Certain option awards provide for accelerated vesting if there is a change of control, as defined. The option awards have 7-year contractual terms.
Options granted or exercised	0

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13. COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Dec. 31, 2012

Commitments And Contingencies Tables

INSURANCE

	December 31, 2012		March 31, 2012
Prepaid insurance	$	741	$	366
Accrued insurance premiums	$	197	$	–
(Included in other current liabilities)

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9. VARIABLE INTEREST ENTITY (Tables)

9 Months Ended

Dec. 31, 2012

Variable Interest Entity Tables

Variable Interest Entity

	December 31, 2012			March 31, 2012
Cash	$	64		$	68
Property, net		40,018			40,984
Other		1,009			207
Total assets	$	41,091		$	41,259
Debt (as guarantor)	$	46,350		$	45,000
Other		541			641
Total liabilities		46,891			45,641
Deficiency		(5,800	)		(4,382	)
Total liabilities and accumulated deficit	$	41,091		$	41,259

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7. RETIREMENT PLAN (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012
Retirement Plan Details Narrative
Retirement Plan Expenses Incurred	$ 800	$ 800	$ 2,400	$ 2,400
Accrued compensation and benefits	$ 3,200		$ 3,200		$ 3,900

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	$ 101,020	$ 123,033	$ 331,983	$ 306,398
Medicare [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	14,654	14,474	41,246	45,071
Medicaid [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	20,340	42,402	82,041	66,569
Managed Care [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	48,453	50,081	152,883	149,321
Indemnity Self Pay And Other [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	16,828	15,326	53,343	43,132
Miscellaneous [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	745	750	2,470	2,304
Total [Member]
Health Care Organization, Receivable and Revenue Disclosures [Line Items]
Sources of patient service revenues	$ 101,020	$ 123,033	$ 331,983	$ 306,398

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Accounts receivable:
Patient accounts receivable	$ 82,691	$ 71,800
Allowance for doubtful accounts	(23,656)	(18,201)
Accounts receivable, net	59,035	53,599
Due from government payers:
Settlement receivables	0	190
DSH	6,710	4,993
Total Amount due from Government	6,710	5,183
Due to government payers:
Settlement payables	414	0
Total Amount due to Government	$ 414

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2. PROPERTY AND EQUIPMENT

9 Months Ended

Dec. 31, 2012

Property And Equipment

NOTE 2 - PROPERTY AND EQUIPMENT

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

	December 31,			March 31,
	2012			2012
Buildings	$	36,536		$	35,376
Land and improvements		13,523			13,523
Equipment		25,588			18,268
Construction in progress		–			1,160
Assets under capital leases		13,129			11,218
		88,776			79,545
Less accumulated depreciation		(26,915	)		(24,016	)
Property and equipment, net	$	61,861		$	55,529

Equipment at December 31 and March 31, 2012 includes $11.7 million and $4.6 million, respectively, relating to the Company’s ongoing development of its new electronic health record technology, which has not been fully placed into service (Note 12).

The Hospitals are located in an area near active and substantial earthquake faults. The Hospitals carry earthquake insurance with a policy limit of $50.0 million. A significant earthquake could result in material damage and temporary or permanent cessation of operations at one or more of the Hospitals.

The State of California has imposed hospital seismic safety requirements. Under these requirements, the Hospitals must meet stringent seismic safety criteria in the future. In addition, there could be other remediation costs pursuant to this seismic retrofit.

The State of California has a seismic review methodology known as HAZUS. The HAZUS methodology may preclude the need for some structural modifications. All four Hospitals requested HAZUS review and received a favorable notice pertaining to structural reclassification. All Hospital buildings, with the exception of one (an administrative building), have been deemed compliant until January 1, 2030 for both structural and nonstructural retrofit. The Company does not have an estimate of the cost to remediate the seismic requirements for the administrative building as of December 31, 2012.

There are additional requirements that must be complied with by 2030. The costs of meeting these requirements have not yet been determined. Compliance with seismic ordinances will be costly and could have a material adverse effect on the Company's cash flow.  In addition, remediation could possibly result in certain environmental liabilities, such as asbestos abatement.

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012
Total
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	$ 3,218
Warrant liability, March 31, 2012	1,641
Fair Value Inputs Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	0
Warrant liability, March 31, 2012	0
Fair Value Inputs Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	0
Warrant liability, March 31, 2012	0
Fair Value Inputs Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Warrant liability	3,218
Warrant liability, March 31, 2012	$ 1,641

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4. COMMON STOCK WARRANTS (Details) (Warrant)	3 Months Ended	12 Months Ended
	Dec. 31, 2012	Mar. 31, 2012
Warrant
Expected dividend yield	0.00%	0.00%
Risk-free interest rate	0.10%	0.20%
Expected volatility	32.50%	57.30%
Expected term (in years)	3 months 13 days	1 year 14 days

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Current assets:
Cash and cash equivalents	$ 10,175	$ 11,829
Restricted cash	9	10
Accounts receivable, net of allowance for doubtful accounts of $23,656 and $18,201, respectively	59,035	53,599
Inventories of supplies, at cost	6,788	6,855
Due from governmental payers	6,710	5,183
Hospital quality assurance receivable	7,722	2,436
Prepaid insurance	741	366
Prepaid income taxes	2,238	892
Other prepaid expenses and current assets	8,719	8,339
Total current assets	102,137	89,509
Property and equipment, net	61,861	55,529
Debt issuance costs, net	0	64
Total assets	163,998	145,102
Current liabilities:
Revolving line of credit	28,806	14,000
Accounts payable	62,768	52,700
Accrued compensation and benefits	20,171	19,847
Accrued insurance retentions	11,846	14,377
Hospital quality assurance payable	7,225
Warrant liability, current	134
Due to governmental payers	414
Other current liabilities	4,043	3,242
Total current liabilities	135,407	104,166
Debt, noncurrent	46,350	45,000
Warrant liability, noncurrent	3,084	1,641
Capital lease obligations, net of current portion of $1,035 and $891, respectively	6,938	5,944
Total liabilities	191,779	156,751
Commitments and contingencies and subsequent events
Integrated Healthcare Holdings, Inc. stockholders' deficiency:
Common stock, $0.001 par value; 800,000 shares authorized; 255,307 shares issued and outstanding	255	255
Additional paid in capital	62,911	62,911
Accumulated deficit	(86,092)	(71,828)
Total Integrated Healthcare Holdings, Inc. stockholders' deficiency	(22,926)	(8,662)
Noncontrolling interests	(4,855)	(2,987)
Total stockholders' deficiency	(27,781)	(11,649)
Total liabilities and stockholders' deficiency	$ 163,998	$ 145,102

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8. INCOME (LOSS) PER SHARE (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Numerator:
Net income attributable to Integrated Healthcare Holdings, Inc.	$ (13,374)	$ 12,542	$ (14,264)	$ 10,179
Denominator:
Weighted average common shares	255,307	255,307	255,307	255,307
Dilutive options		1,532		1,541
Denominator for diluted calculation	255,307	256,839	255,307	256,848
Income per share - basic	$ (0.05)	$ 0.05	$ (0.06)	$ 0.04
Income per share - diluted	$ (0.05)	$ 0.05	$ (0.06)	$ 0.04

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011
Cash flows from operating activities:
Net income (loss)	$ (14,581)	$ 10,515
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation and amortization of property and equipment	2,947	3,164
Provision for doubtful accounts	35,430	25,851
Amortization of debt issuance costs	1,248	487
Loss on warrants	1,577	(39)
Changes in operating assets and liabilities:
Accounts receivable	(40,866)	(23,523)
Inventories of supplies	67	(572)
Due from governmental payers	(1,527)	(302)
Prepaid income taxes	(1,346)	0
Hospital quality assurance fees receivable	(5,286)	(11,681)
Electronic health records incentive program receivable	0	(4,191)
Prepaid insurance, other prepaid expenses and current assets, and other assets	21	348
Accounts payable	10,068	453
Accrued compensation and benefits	324	301
Due to governmental payers	414	0
Hospital quality assurance fees payable	7,225	0
Income taxes payable	0	(10,776)
Accrued insurance retentions and other current liabilities	(1,874)	(3,822)
Net cash used in operating activities	(6,159)	(13,787)
Cash flows from investing activities:
Decrease in restricted cash	1	13
Additions to property and equipment	(7,368)	(1,678)
Net cash used in investing activities	(7,367)	(1,665)
Cash flows from financing activities:
Proceeds from revolving line of credit	14,806	919
Debt issuance costs	(610)	0
Noncontrolling interests distributions	(1,551)	(1,414)
Payments on capital lease obligations	(773)	(724)
Payments received-receivable from stockholders	0	132
Net cash provided by (used in) financing activities	11,872	(1,087)
Net decrease in cash and cash equivalents	(1,654)	(16,539)
Cash and cash equivalents, beginning of period	11,829	20,539
Cash and cash equivalents, end of period	10,175	4,000
Supplemental information:
Cash paid for interest	7,147	6,641
Cash paid for income taxes	$ 0	$ 13,095

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative 1)	3 Months Ended		9 Months Ended			12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Dec. 31, 2012 Medicare and Medicaid	Dec. 31, 2011 Medicare and Medicaid	Dec. 31, 2012 Medicare and Medicaid	Dec. 31, 2011 Medicare and Medicaid	Dec. 31, 2012 Self-pay uninsured	Mar. 31, 2012 Self-pay uninsured	Dec. 31, 2012 Self-pay balance after insurance	Mar. 31, 2012 Self-pay balance after insurance	Dec. 31, 2012 Managed Care [Member]	Mar. 31, 2012 Managed Care [Member]
Percentage of patient service revenue	59.00%	64.00%	61.00%	59.00%
Allowance for doubtful accounts for self-pay uninsured					96.10%	90.30%	75.40%	77.40%	15.90%	16.10%

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

9 Months Ended

Dec. 31, 2012

Description Of Business And Summary Of Significant Accounting Policies Tables

PATIENT SERVICE REVENUES

	Three months ended				Nine months ended
	December 31,				December 31,
	2012		2011		2012		2011
Medicare	$	14,654	$	14,474	$	41,246	$	45,071
Medicaid		20,340		42,402		82,041		66,569
Managed care		48,453		50,081		152,883		149,321
Indemnity, self-pay and other		16,828		15,326		53,343		43,132
Miscellaneous		745		750		2,470		2,304
	$	101,020	$	123,033	$	331,983	$	306,398

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

	December 31,			March 31,
	2012			2012
Accounts receivable:
Patient accounts receivable	$	82,691		$	71,800
Allowance for doubtful accounts		(23,656	)		(18,201	)
Accounts receivable, net	$	59,035		$	53,599
Due from government payers:
Settlement receivables	$	–		$	190
DSH		6,710			4,993
	$	6,710		$	5,183
Due to government payers:
Settlement payables	$	414		$	–
	$	414		$	–

Warrant liability

	Total		Level 1		Level 2		Level 3
Warrant liability at December 31, 2012	$	3,218		–		–	$	3,218
Warrant liability at March 31, 2012	$	1,641		–		–	$	1,641

Warrant liability - fair value measurements using significant unobservable inputs

Warrant liability - fair value measurements using significant unobservable inputs (Level 3)
Balance at March 31, 2012	$	1,641
Change in fair value of warrant liability included in earnings		(730)
Balance at June 30, 2012		911
Change in fair value of warrant liability included in earnings		1,125
Balance at September 30, 2012		2,036
Change in fair value of warrant liability included in earnings		1,182
Balance at December 31, 2012	$	3,218

XML

2. PROPERTY AND EQUIPMENT (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Property, Plant and Equipment [Abstract]
Buildings	$ 36,536	$ 35,376
Land and improvements	13,523	13,523
Equipment	25,588	18,268
Construction in progress	0	1,160
Assets under capital leases	13,129	11,218
Property and equipment, gross	88,776	79,545
Less accumulated depreciation	(26,915)	(24,016)
Property and equipment, net	$ 61,861	$ 55,529

XML

3. DEBT (Tables)

9 Months Ended

Dec. 31, 2012

Debt Tables

Outstanding Debt

	December 31,		March 31,
	2012		2012
Current:
Revolving line of credit	$	28,806	$	14,000
Noncurrent:
Term loan	$	46,350	$	45,000

XML

1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Dec. 31, 2012

Description Of Business And Summary Of Significant Accounting Policies

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements of Integrated Healthcare Holdings, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, the accompanying unaudited condensed consolidated statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three and nine months ended December 31, 2012 are not necessarily indicative of the results for the entire 2013 fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 22, 2012.

The Company has determined that Pacific Coast Holdings Investment, LLC ("PCHI") (Note 9), is a variable interest entity as defined by GAAP and the Company is the primary beneficiary and, accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements.

All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise indicated, all amounts included in these notes to the condensed consolidated financial statements are expressed in thousands (except per share amounts, percentages and stock option prices and values). 

LIQUIDITY - As of December 31, 2012, the Company had a total stockholders’ deficiency of $28 million and a working capital deficit of $33 million.  For the three and nine months ended December 31, 2012, the Company had net loss of $13 million and $14 million, respectively. At December 31, 2012, the Company had $1 million in additional availability under its revolving credit facility (Note 3).

DESCRIPTION OF BUSINESS - Effective March 8, 2005, the Company acquired four hospitals from subsidiaries of Tenet Healthcare Corporation (the "Acquisition"). The Company owns and operates the four community-based hospitals (the "Hospitals") located in southern California, which are:

● 282-bed Western Medical Center in Santa Ana

● 188-bed Western Medical Center in Anaheim

● 178-bed Coastal Communities Hospital in Santa Ana

● 114-bed Chapman Medical Center in Orange

RECLASSIFICATION FOR PRESENTATION - Certain amounts previously reported have been reclassified to conform to the current period's presentation with no impact on the reported net income (loss) of the Company.

CONCENTRATION OF RISK - The Hospitals are subject to licensure by the State of California and accreditation by the Joint Commission. Loss of either licensure or accreditation would impact the ability to participate in various governmental and managed care programs, which provide the majority of the Company's revenues.

Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 59% and 64% of the patient service revenues for the three months ended December 31, 2012 and 2011, respectively, and 61% and 59% for the nine months ended December 31, 2012 and 2011, respectively. No other payers represent a significant concentration of the Company's patient service revenues.

The Company receives all of its inpatient service revenues from operations in Orange County, California. The economic conditions of this market could affect the ability of patients and third-party payers to reimburse the Company for services, through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs.

USE OF ESTIMATES - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Principal areas requiring the use of estimates include third-party cost report settlements, income taxes, accrued insurance retentions, self-insurance reserves, and net patient receivables. Management regularly evaluates the accounting policies and estimates that are used. In general, management bases the estimates on historical experience and on assumptions that it believes to be reasonable given the particular circumstances in which its Hospitals operate. Although management believes that all adjustments considered necessary for fair presentation have been included, actual results may materially vary from those estimates.

PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances.

The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for bad debts:

	Three months ended				Nine months ended
	December 31,				December 31,
	2012		2011		2012		2011
Medicare	$	14,654	$	14,474	$	41,246	$	45,071
Medicaid		20,340		42,402		82,041		66,569
Managed care		48,453		50,081		152,883		149,321
Indemnity, self-pay and other		16,828		15,326		53,343		43,132
Miscellaneous		745		750		2,470		2,304
	$	101,020	$	123,033	$	331,983	$	306,398

Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement (payables) receivables of ($414) and $190 as of December 31 and March 31, 2012, respectively.

The Hospitals receive supplemental payments from the State of California to support indigent care (Medi-Cal Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received supplemental payments of $5.5 million and $4.0 million during the three months ended December 31, 2012 and 2011, respectively, and $9.6 million and $9.9 million during the nine months ended December 31, 2012 and 2011, respectively. The related revenue recorded for the three months ended December 31, 2012 and 2011, was $4.4 million and $3.1 million, respectively, and $11.3 million and $10.5 million for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, estimated DSH receivables were $6.7 million and $5.0 million, respectively, which are included as due from government payers in the accompanying unaudited condensed consolidated balance sheets.

Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $24.4 million and $26.2 million for the three months ended December 31, 2012 and 2011, respectively, and $79.8 million and $72.3 million for the nine months ended December 31, 2012 and 2011, respectively), are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues.

The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended December 31, 2012 and 2011 were approximately $1.9 million and $2.5 million, respectively, and $6.5 million and $6.3 million for the nine months ended December 31, 2012 and 2011, respectively.

The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements.

PROVISION FOR BAD DEBTS - The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.

The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated.

Effective March 31, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which requires health care entities to present the provision for bad debts relating to patient service revenues as a deduction from patient service revenues in the statement of operations rather than as an operating expense. All periods presented have been reclassified in accordance with the provisions of ASU 2011-07.

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250 per depositor at each financial institution, and the Company’s non-interest bearing cash balances may again exceed federally insured limits.

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The following is a summary of the principal components of accounts receivable and due from government payers as of December 31 and March 31, 2012:

	December 31,			March 31,
	2012			2012
Accounts receivable:
Patient accounts receivable	$	82,691		$	71,800
Allowance for doubtful accounts		(23,656	)		(18,201	)
Accounts receivable, net	$	59,035		$	53,599
Due from government payers:
Settlement receivables	$	–		$	190
DSH		6,710			4,993
	$	6,710		$	5,183
Due to government payers:
Settlement payables	$	414		$	–
	$	414		$	–

The Company’s self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 4.9% and 11.3% as of December 31 and March 31, 2012, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay uninsured was 96.1% and 90.3%, respectively, of self-pay uninsured patient accounts receivable. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay balance after insurance was 75.4% and 77.4%, respectively, of self-pay balance after insurance patient accounts receivable, consisting primarily of co-pays and deductibles owed by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for managed care was 15.9% and 16.1%, respectively, of managed care patient accounts receivable.

Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending under the MEP, with appropriate contractual allowances recorded. If the patient does not qualify for Medicaid, the receivables are reclassified to charity care and written off, or they are reclassified to self-pay and adjusted to their net realizable value through the provision for bad debts. Reclassifications of pending Medicaid accounts to self-pay do not typically have a material impact on the results of operations as the estimated Medicaid contractual allowances initially recorded are not materially different than the estimated provision for bad debts accounts recorded when the accounts are reclassified. All accounts classified as pending Medicaid, as well as certain other governmental receivables, over the age of 90 days were reserved in contractual allowances as of December 31 and March 31, 2012 based on historical collections experience.

INVENTORIES OF SUPPLIES - Inventories of supplies are valued at the lower of weighted average cost or market.

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to property and equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Capital leases are recorded at the beginning of the lease term as property and equipment and a corresponding lease liability is recognized. The value of the property and equipment under capital lease is recorded at the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are amortized over the shorter of the lease term or their estimated useful life, where applicable.

The Company uses the straight-line method of depreciation for buildings and improvements, and equipment over their estimated useful lives of 25 years, and 3 to 15 years, respectively.

LONG-LIVED ASSETS - The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated undiscounted future cash flows. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated future net cash flows. The estimates of future net cash flows are based on assumptions and projections believed by the Company to be reasonable and supportable. These assumptions take into account patient volumes, changes in payer mix, revenue, and expense growth rates and changes in legislation and other payer payment patterns.

DEBT ISSUANCE COSTS - Debt issuance costs are amortized over the related credit facility’s life using the straight-line method. On August 1, 2012, the Company amended its debt and incurred an aggregate of $1.96 million in origination, consent, and amendment fees which are being amortized over the remaining lives of the respective credit facilities (Note 3). Debt issuance costs of $718 and $38 were amortized during the three months ended December 31, 2012 and 2011, respectively, and $1,248 and $487 during the nine months ended December 31, 2012 and 2011, respectively.  At December 31 and March 31, 2012, prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets included $929 and $153, respectively, as the current portion of debt issuance costs.

FAIR VALUE MEASUREMENTS - The Company's financial assets and liabilities recorded in the unaudited condensed consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, debt, accounts payable, and other liabilities, all of which are recorded at book value which approximates fair value.

GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1:	Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:	Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:	Unobservable inputs for the asset or liability.

The Company utilizes the best available information in measuring fair value.  Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company currently has no financial or nonfinancial assets or liabilities subject to fair value measurement on a recurring basis except for warrants issued in April 2010 (Note 4).

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy:

	Total		Level 1		Level 2		Level 3
Warrant liability at December 31, 2012	$	3,218		–		–	$	3,218
Warrant liability at March 31, 2012	$	1,641		–		–	$	1,641

Warrant liability - fair value measurements using significant unobservable inputs (Level 3)
Balance at March 31, 2012	$	1,641
Change in fair value of warrant liability included in earnings		(730)
Balance at June 30, 2012		911
Change in fair value of warrant liability included in earnings		1,125
Balance at September 30, 2012		2,036
Change in fair value of warrant liability included in earnings		1,182
Balance at December 31, 2012	$	3,218

WARRANTS - The Company has entered into complex transactions that contain warrants (Notes 3 and 4). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). The Company has concluded that the warrants should be classified as liabilities as the settlement of the warrants are not deemed to be in the control of the Company.

INCOME (LOSS) PER COMMON SHARE – Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds (Note 8).

INCOME TAXES - Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company has recorded a 100% valuation allowance on its deferred tax assets.

There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of the Company’s income tax provision.

SEGMENT REPORTING - The Company operates in one line of business, the provision of healthcare services through the operation of general hospitals and related healthcare facilities. The Company's Hospitals generate substantially all of its net patient service revenues.

The Company's four Hospitals and related healthcare facilities operate in one geographic region in Orange County, California. There are similarities in the region's economic characteristics and the nature of the Hospitals' operations, the regulatory environment in which they operate and the manner in which they are managed. This region is an operating segment, as defined by GAAP. In addition, the Company's Hospitals and related healthcare facilities share certain resources and benefit from many common clinical and management practices. Accordingly, the Company aggregates the facilities into a single reportable operating segment.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Statement of Financial Position [Abstract]
Allowance for doubtful accounts (in Dollars)	$ 23,656	$ 18,201
Current portion of Capial Lease Obligation (in Dollars)	$ 1,035	$ 891
Common stock par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares authorized	800,000	800,000
Common stock, shares issued	255,307	255,307
Common stock, shares outstanding	255,307	255,307

XML

11. HOSPITAL QUALITY ASSURANCE FEES (QAF)

9 Months Ended

Dec. 31, 2012

Hospital Quality Assurance Fees Qaf

NOTE 11 - HOSPITAL QUALITY ASSURANCE FEES ("QAF")

NOTE 11 - HOSPITAL QUALITY ASSURANCE FEES (“QAF”)

In October 2009, the Governor of California signed legislation supported by the hospital industry to impose a provider fee on general acute care hospitals that, combined with federal matching funds, would be used to provide supplemental Medi-Cal payments to hospitals. The State submitted the plan to the Centers for Medicare and Medicaid Services (“CMS”) for a required review and approval process, and certain changes in the plan were required by CMS. Legislation amending the fee program to reflect the required changes was passed by the legislature and signed by the Governor on September 8, 2010. Among other changes, the legislation leaves distribution of “pass-through” payments received by Medi-Cal managed care plans that will be paid to hospitals under the program to the discretion of the plans.  The hospital quality assurance fee program (“QAF”) created by this legislation initially provided payments for up to 21 months retroactive to April 2009 and expiring on December 31, 2010 (“2010 QAF”).  In February 2011, CMS gave final approval for the 2010 QAF. 

In December 2011, CMS gave final approval for the extension of the QAF for the period from January 1 through June 30, 2011 (“2011 QAF”).  Accordingly, for the three and nine months ended December 31, 2011 the Company recognized $31.9 million in revenue and recorded expenses of $15.9 million relating to the 2011 QAF. 

In June 2012, CMS conditionally approved the extension of the QAF for the thirty month period from July 1, 2011 through December 31, 2013 (“2013 QAF”).  In June 2012, the California State Legislature amended the hospital fee statute to recognize separate CMS approval of the fee-for-service portion and managed care portion of the 2013 QAF, which was further clarified in legislation approved by the governor of California in September 2012.  As a result, during the three and nine months ended December 31, 2012, the Company recognized revenue of $7.8 million and $46.5 million and expenses of $6.9 million and $45.3 million relating to the fee-for-service portion of the 2013 QAF for the periods from October 1, 2012 through December 31, 2012 and July 1, 2011 through December 31, 2012, respectively.

Based on the most recent modeling prepared by the California Hospital Association, the Company anticipates making payments for provider fees and other expenses relating to the 2013 QAF of approximately $105.8 million and receiving approximately $235.5 million in revenues from the State ($79.4 million from the fee-for-service portion and $156.1 million from the managed care portion). 

The Company cannot provide any assurances or estimates in connection with CMS’s final approval of the 2013 QAF or a possible continuation of the QAF program beyond December 31, 2013.

XML

Document and Entity Information	9 Months Ended
	Dec. 31, 2012
Document And Entity Information
Entity Registrant Name	Integrated Healthcare Holdings Inc
Entity Central Index Key	0001051488
Document Type	10-Q
Document Period End Date	Dec. 31, 2012
Amendment Flag	false
Current Fiscal Year End Date	--03-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding	255,307,262
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2013

XML

12. ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM

9 Months Ended

Dec. 31, 2012

Electronic Health Records Incentive Program

NOTE 12 - ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM

NOTE 12 – ELECTRONIC HEALTH RECORDS INCENTIVE PROGRAM

Provisions of the American Recovery and Reinvestment Act of 2009 provide incentive payments for the adoption and meaningful use of certified electronic health record (EHR) technology. The Medicare EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) that are meaningful users of certified EHRs. The Medicaid EHR incentive program provides incentive payments to eligible hospitals (and certain other providers) for efforts to adopt, implement, upgrade, or meaningfully use of certified EHR technology.

CMS has established the final rule which requires eligible providers in their first year of participation in the Medicaid incentive payment program to demonstrate that they have adopted (acquired, purchased, or secured access to), or implemented, or upgraded to certified EHR technology in order to qualify for an incentive payment. During the second and subsequent years of the program, eligible providers are required to meet other criteria, including meaningful use, to receive additional funds. The Company has been awarded a total amount of $13.6 million under the Medicaid EHR incentive program, which will be earned and received over a four year period. The Company adopted certified EHR technology and it recognized other income of $6.8 million relative to the first year under the Medicaid EHR incentive program during fiscal year 2012.

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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
Income Statement [Abstract]
Patient service revenues (net of contractual allowances and discounts)	$ 101,020	$ 123,033	$ 331,983	$ 306,398
Provision for bad debts	(11,995)	(9,034)	(35,430)	(25,851)
Net patient service revenues	89,025	113,999	296,553	280,547
Operating expenses:
Salaries and benefits	54,391	56,101	160,669	162,499
Supplies	13,969	14,004	41,998	40,217
Other operating expenses	28,967	32,038	97,072	61,213
Depreciation and amortization	1,029	997	2,947	3,164
Total Operating Expenses	98,356	103,140	302,686	267,093
Operating income (loss)	(9,331)	10,859	(6,133)	13,454
Other expense:
Interest expense, net	(3,389)	(2,446)	(8,838)	(7,768)
Income from electronic health records incentive program		6,802		6,802
Gain (loss) on warrants	(1,182)	256	(1,577)	39
Total Other Expense	(4,571)	4,612	(10,415)	(927)
Income (loss) before income tax provision (benefit)	(13,902)	15,471	(16,548)	12,527
Income tax provision (benefit)	(89)	2,812	(1,967)	2,012
Net income (loss)	(13,813)	12,659	(14,581)	10,515
Net (income) loss attributable to noncontrolling interests (Note 9)	439	(117)	317	(336)
Net income (loss) attributable to Integrated Healthcare Holdings, Inc.	$ (13,374)	$ 12,542	$ (14,264)	$ 10,179
Earnings (loss) per common share attributable to Integrated Healthcare Holdings, Inc. stockholders
Basic	$ (0.05)	$ 0.05	$ (0.06)	$ 0.04
Diluted	$ (0.05)	$ 0.05	$ (0.06)	$ 0.04
Weighted average shares outstanding
Basic	255,307	255,307	255,307	255,307
Diluted	255,307	256,839	255,307	256,848

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6. STOCK INCENTIVE PLAN

9 Months Ended

Dec. 31, 2012

Stock Incentive Plan

NOTE 6 - STOCK INCENTIVE PLAN

NOTE 6 - STOCK INCENTIVE PLAN

The Company's 2006 Stock Incentive Plan (the "Plan"), which is shareholder-approved, permits the grant of share options to its employees and board members for up to a maximum aggregate of 12.0 million shares of common stock. In addition, as of the first business day of each calendar year in the period 2007 through 2015, the maximum aggregate number of shares shall be increased by a number equal to one percent of the number of shares of common stock of the Company outstanding on December 31 of the immediately preceding calendar year. Accordingly, as of December 31, 2012, the maximum aggregate number of shares under the Plan was 23.5 million. The Company believes that such awards better align the interests of its employees with those of its shareholders. In accordance with the Plan, incentive stock options, nonqualified stock options, and performance based compensation awards may not be granted at less than 100 percent of the estimated fair market value of the common stock on the date of grant. Incentive stock options granted to a person owning more than 10 percent of the voting power of all classes of stock of the Company may not be issued at less than 110 percent of the fair market value of the stock on the date of grant. Option awards generally vest based on 3 years of continuous service (1/3 of the shares vest on the twelve month anniversary of the grant date, and an additional 1/12 of the shares vest on each subsequent fiscal quarter-end of the Company following such twelve month anniversary). Certain option awards provide for accelerated vesting if there is a change of control, as defined. The option awards have 7-year contractual terms.

When the measurement date is certain, the fair value of each option grant is estimated on the date of grant using the Black-Scholes valuation model. Since there is limited historical data with respect to both pre-vesting forfeiture and post-vesting termination, the expected life of the options was determined utilizing the simplified method, whereby the expected term is calculated by taking the sum of the vesting term plus the original contractual term and dividing that quantity by two.

No options were granted or exercised during the three and nine months ended December 31, 2012 and 2011. All outstanding options were fully vested as of December 31 and March 31, 2012.

A summary of stock option activity for the nine months ended December 31, 2012 is presented as follows.

	Shares		Weighted- average exercise price		Weighted- average grant date fair value		Weighted- average remaining contractual term (years)		Aggregate intrinsic value
Outstanding, March 31, 2012		8,235	$	0.18
Granted		–	$	–	$	–
Exercised		–	$	–
Forfeited or expired		(620)	$	0.27
Outstanding, December 31, 2012		7,615	$	0.18			1.9	$	–
Exercisable at December 31, 2012		7,615	$	0.18			1.9	$	–

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5. INCOME TAXES

9 Months Ended

Dec. 31, 2012

Income Tax Disclosure [Abstract]

NOTE 5 - INCOME TAXES

NOTE 5 - INCOME TAXES

The utilization of net operating loss (“NOL”) and credit carryforwards is limited under the provisions of the Internal Revenue Code (“IRC”) Section 382 and similar state provisions. Section 382 of the IRC of 1986 generally imposes an annual limitation on the amount of NOL carryforwards that may be used to offset taxable income where a corporation has undergone significant changes in stock ownership. In fiscal year 2009, the Company entered into the amended purchase agreement which resulted in a change in control. The Company conducted an analysis and determined that it is subject to significant IRC Section 382 limitations. For both Federal and State tax purposes, the Company's utilization of NOL and credit carryforwards is subject to significant IRC Section 382 limitations. The Company evaluates its ability to utilize the net operating losses each period with regard to the limitations imposed under IRC 382 and also considering the continuing expiration of statutes of limitation for prior years; and in the prior year determined that a portion of the federal and state net operating losses were no longer realizable, and removed from the schedule of deferreds those net operating losses in excess of the IRC 382 limitation and also considering prior years statutes now closed.

The difference between the reported income tax provision (benefit) and the amount computed by multiplying income before income tax provision (benefit) in the accompanying unaudited condensed consolidated statements of operations for the three and nine months ended December 31, 2012 and 2011 by the statutory federal income tax rate primarily relates to the impact of a full valuation allowance reserving the net deferred assets, permanently nondeductible expenses, state and local income taxes, and variable interest entity.

The application of FASB Interpretation Number 18 requires the Company to compute the interim period income tax provision (benefit) by applying the estimated annual effective tax rate to the income (loss) from continuing operations for the three and nine months ended December 31, 2012 which resulted in the recognition of a tax benefit for the nine months ended December 31, 2012.

The Company evaluated its historical and projected sources of income to determine the extent to which the net deferred tax assets projected at December 31, 2012 could be realized and, based on this analysis, the Company concluded that there was not sufficient positive evidence to support the realization of the net deferred tax assets, and therefore will continue to maintain a full valuation allowance against its net deferred assets as of December 31, 2012.

The Company’s California Enterprise Zone credits were recently examined by the California taxing authority, which issued a Notice of Proposed Adjusted Carryover Amount.  The Company has filed a Protest requesting an oral hearing with the taxing authority. The Protest is currently pending review by the taxing authority. As a result of the examination, during the year ended March 31, 2011, the Company recorded a liability of approximately $18.9 million for unrecognized tax benefits.  The Company's utilization of these credits is also subject to significant IRC Section 383 limitations, and these limitations have been incorporated into the tax provision calculation.

PCHI tax status – PCHI is a limited liability company. PCHI's taxable income or loss will flow through to its owners and be their separate responsibility. Accordingly, the accompanying unaudited condensed consolidated financial statements do not include any amounts for the income tax expense or benefit, or liabilities related to PCHI's income or loss.

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2. PROPERTY AND EQUIPMENT (Tables)

9 Months Ended

Dec. 31, 2012

Property And Equipment Tables

Property and Equipment

	December 31,			March 31,
	2012			2012
Buildings	$	36,536		$	35,376
Land and improvements		13,523			13,523
Equipment		25,588			18,268
Construction in progress		–			1,160
Assets under capital leases		13,129			11,218
		88,776			79,545
Less accumulated depreciation		(26,915	)		(24,016	)
Property and equipment, net	$	61,861		$	55,529

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13. COMMITMENTS AND CONTINGENCIES

9 Months Ended

Dec. 31, 2012

Commitments And Contingencies

NOTE 13 - COMMITMENTS AND CONTINGENCIES

NOTE 13 - COMMITMENTS AND CONTINGENCIES

INFORMATION TECHNOLOGY SYSTEMS – On July 1, 2011, the Company entered into software and services agreements with McKesson Technologies Inc. (“McKesson”) to upgrade the Company’s information technology systems.

Under the agreements, McKesson will provide the Company with a variety of services, including new software implementation and education/training services for the Company’s personnel, software maintenance services and professional services related to movement and migration of data from legacy systems.  McKesson will also furnish to the Company and maintain new hardware to accommodate the upgraded software and systems.  The new hardware will include computers and servers, among other things, and will include installation, testing, and ongoing maintenance.  The Company has entered into the arrangement to enhance its clinical information systems and upgrade its billing and revenue management information systems.

The agreements will initially run for a period of five years, and the recurring services may be renewed by the Company for successive periods.  The agreements do not provide that they may be terminated by the Company prior to the initial expiration date.  The agreements provide for one-time fees and recurring fees which aggregate a total of $22.0 million.  Approximately 60% of the fees are for one-time charges, while the balance is for recurring services. During the three months ended December 31, 2012 the Company commenced conversion of one of its facilities to the McKesson system and is concurrently completing testing and developing system applications where necessary.

LONG TERM LEASE COMMITMENT WITH VARIABLE INTEREST ENTITY – On April 13, 2010, the Company and PCHI entered into a Second Amendment to Amended and Restated Triple Net Hospital Building Lease (the “2010 Lease Amendment”).  Under the 2010 Lease Amendment, the annual base rent to be paid by the Company to PCHI was increased from $5.4 million to $7.3 million. The base rent is subject to an annual Consumer Price Index increase on January 1 of each year; such increase shall not be less than 2% or more than 6% per year. As a result, the annual base rent as of January 1, 2012 is $7.7 million. If PCHI refinances the $46.35 million term loan, the annual base rent will increase to $8.3 million. This lease commitment with PCHI is eliminated in consolidation.

CAPITAL LEASES - In connection with the Acquisition, the Company also assumed the leases for the Chapman facility, which include buildings and land with terms that were extended concurrently with the assignment of the leases to December 31, 2023. The Company leases equipment under capital leases expiring at various dates through December 2015. Assets under capital leases with a net book value of $7.2 million and $6.2 million are included in the accompanying unaudited condensed consolidated balance sheets as of December 31 and March 31, 2012, respectively. Interest rates used in computing the net present value of the lease payments are based on the interest rates implicit in the leases.

INSURANCE - The Company accrues for estimated general and professional liability claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The Company has purchased as primary coverage a claims-made form insurance policy for general and professional liability risks. Estimated losses within general and professional liability retentions from claims incurred and reported, along with incurred but not reported (“IBNR”) claims, are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of December 31 and March 31, 2012, the Company had accrued $9.3 million and $11.5 million, respectively, which is comprised of $4.2 million and $4.5 million, respectively, in incurred and reported claims, along with $5.1 million and $7.0 million, respectively, in estimated IBNR. Estimated insurance recoveries of $2.7 million and $3.0 million are included in other prepaid expenses and current assets as of December 31 and March 31, 2012, respectively.

The Company has also purchased occurrence coverage insurance to fund its obligations under its workers compensation program. The Company has a "paid loss plan" policy, under which the carrier pays all workers compensation claims, with no deductible or reimbursement required of the Company. The Company accrues for estimated workers compensation claims, to the extent not covered by insurance, when they are probable and reasonably estimable. The ultimate costs related to this program include expenses for deductible amounts associated with claims incurred and reported in addition to an accrual for the estimated expenses incurred in connection with IBNR claims. Claims are accrued based upon projections and are discounted to their net present value using a weighted average risk-free discount rate of 5%. To the extent that subsequent claims information varies from estimates, the liability is adjusted in the period such information becomes available. As of December 31 and March 31, 2012, the Company had accrued $593 and $673, respectively, comprised of $282 and $338, respectively, in incurred and reported claims, along with $311 and $335, respectively, in estimated IBNR.

In addition, the Company has a self-insured health benefits plan for its employees. As a result, the Company has established and maintains an accrual for IBNR claims arising from self-insured health benefits provided to employees. The Company's IBNR accruals at December 31 and March 31, 2012 were based upon projections. The Company determines the adequacy of this accrual by evaluating its limited historical experience and trends related to both health insurance claims and payments, information provided by its insurance broker and third party administrator, and industry experience and trends. The accrual is an estimate and is subject to change. Such change could be material to the Company's unaudited condensed consolidated financial statements. As of December 31 and March 31, 2012, the Company had accrued $2.0 million and $2.2 million, respectively, in estimated IBNR.

The Company has also purchased umbrella liability policies with aggregate limits of $25 million. The umbrella policies provide coverage in excess of the primary layer and applicable retentions for insured liability risks such as general and professional liability, auto liability, and workers compensation (employers liability).

As of December 31, 2012, the Company finances various insurance policies at an interest rate of 4.39% per annum. The Company incurred finance charges relating to such policies of $7 and $7 for the three months ended December 31, 2012 and 2011, respectively, and $32 and $32 for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, the accompanying unaudited condensed consolidated balance sheets include the following balances relating to the financed insurance policies.

	December 31, 2012		March 31, 2012
Prepaid insurance	$	741	$	366
Accrued insurance premiums	$	197	$	–
(Included in other current liabilities)

CLAIMS AND LAWSUITS – The Company and the Hospitals are subject to various legal proceedings, most of which relate to routine matters incidental to operations. The results of these claims cannot be predicted, and it is possible that the ultimate resolution of these matters, individually or in the aggregate, may have a material adverse effect on the Company's business (both in the near and long term), financial position, results of operations, or cash flows. Although the Company defends itself vigorously against claims and lawsuits and cooperates with investigations, these matters (1) could require payment of substantial damages or amounts in judgments or settlements, which individually or in the aggregate could exceed amounts, if any, that may be recovered under insurance policies where coverage applies and is available, (2) cause substantial expenses to be incurred, (3) require significant time and attention from the Company's management, and (4) could cause the Company to close or sell the Hospitals or otherwise modify the way its business is conducted. The Company accrues for claims and lawsuits when an unfavorable outcome is probable and the amount is reasonably estimable.

Fitzgibbons v. IHHI

The second phase of trial before a jury commenced on January 22, 2013. When submitted to the jury, three of Dr. Fitzgibbons’ four original causes of action had been dismissed, leaving the jury to decide Dr. Fitzgibbons’ claim for intentional infliction of emotional distress. On February 8, 2013 the jury returned a verdict in Dr. Fitzgibbons’ favor for $5.2 million. The jury is scheduled to consider whether to award any additional sum as punitive damages on February 13, 2013. The Company has reserved the contingent loss as of December 31, 2012. Management currently is unable to estimate unfavorable outcomes of the punitive damages hearing beyond the amount accrued. Accordingly, management cannot express an opinion as to the ultimate amount, if any, of the Company’s liability, nor is it possible to estimate what litigation-related costs will be in future periods.  

There have been no other material developments in the matters identified in the Company’s Form 10-K filed with the SEC on June 22, 2012.

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9. VARIABLE INTEREST ENTITY

9 Months Ended

Dec. 31, 2012

Variable Interest Entity

NOTE 9 - VARIABLE INTEREST ENTITY

NOTE 9 - VARIABLE INTEREST ENTITY

Concurrent with the close of the Acquisition, PCHI simultaneously acquired title to substantially all of the real property acquired by the Company in the Acquisition. The Company received $5.0 million and PCHI guaranteed the Company's $46.35 million term loan. The Company remains primarily liable as the borrower under the $46.35 million term loan notwithstanding its guarantee by PCHI. The $46.35 million term loan is cross-collateralized by substantially all of the Company's assets and all of the real property of the Hospitals. All of the Company's operating activities are directly affected by the real property that was sold to PCHI, which is a related party entity that is affiliated with the Company through common ownership and control. As of December 31, 2012, PCHI was owned 51% by various physician investors and 49% by Ganesha, which is managed by Dr. Chaudhuri.

The Company entered into a lease agreement dated March 7, 2005 (amended and restated as of April 13, 2010) under which it leased back from PCHI all of the real estate that it transferred to PCHI (Note 13). The amended lease terminates on the 25-year anniversary of the original lease (March 7, 2005), grants the Company the right to renew for one additional 25-year period, and requires combined annual base rental payments of $8.3 million for all the properties. However, until PCHI refinances the related $46.35 million term loan, the annual base rental payments are reduced to $7.3 million. In addition, the Company offsets, against its rental payments owed to PCHI, interest payments that it makes on the related $46.35 million term loan. Lease payments to PCHI and offsetting interest payments are eliminated in consolidation.

GAAP defines variable interest entities (“VIE”) as entities with a level of invested equity that is not sufficient to fund future activities to permit them to operate on a stand-alone basis, or whose equity holders lack certain characteristics of a controlling financial interest. Then, for entities identified as a VIE, the guidance sets forth a model to a primary beneficiary based on an assessment of which party to a VIE, if any, bears a majority of the exposure to expected losses, or stands to gain from a majority of its expected returns and has the power to direct activities of the VIE that impacts economic performance. The primary beneficiary of a VIE should consolidate the VIE.

The Company determined that it provides the majority of financial support to PCHI through various sources including lease payments, remaining primarily liable under the $46.35 million term loan, and cross-collateralization of the Company's non-real estate assets to secure the $46.35 million term loan. The Company concluded that PCHI is a VIE and it is the primary beneficiary. Accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements.

PCHI's assets, liabilities, and deficiency are set forth below.

	December 31, 2012			March 31, 2012
Cash	$	64		$	68
Property, net		40,018			40,984
Other		1,009			207
Total assets	$	41,091		$	41,259
Debt (as guarantor)	$	46,350		$	45,000
Other		541			641
Total liabilities		46,891			45,641
Deficiency		(5,800	)		(4,382	)
Total liabilities and accumulated deficit	$	41,091		$	41,259

As noted above, PCHI is a guarantor on the $46.35 million term loan should the Company not be able to perform.  PCHI's total liabilities represent the Company's maximum exposure to loss. Additionally, the Company is responsible for seismic remediation under the terms of the lease agreement (Notes 2 and 13).

PCHI rental income and the Company’s related rental expense of $1.9 million and $1.9 million were eliminated upon consolidation for the three months ended December 31, 2012 and 2011, respectively, and $5.8 and $5.6 million for the nine months ended December 31, 2012 and 2011, respectively.

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7. RETIREMENT PLAN

9 Months Ended

Dec. 31, 2012

Retirement Plan

NOTE 7 - RETIREMENT PLAN

NOTE 7 - RETIREMENT PLAN

The Company has a 401(k) plan for its employees. All employees with 90 days of service are eligible to participate, unless they are covered by a collective bargaining agreement which precludes coverage. The Company matches employee contributions up to 3% of the employee's compensation, subject to IRS limits. During the three months ended December 31, 2012 and 2011, the Company incurred expenses of $0.8 and $0.8 million, respectively, and $2.4 million and $2.4 million for the nine months ended December 31, 2012 and 2011, respectively. These costs are included in salaries and benefits in the accompanying unaudited condensed consolidated statements of operations.  At December 31 and March 31, 2012, accrued compensation and benefits in the accompanying unaudited condensed consolidated balance sheets included $3.2 million and $3.9 million, respectively, in accrued employer contributions.

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8. INCOME (LOSS) PER SHARE

9 Months Ended

Dec. 31, 2012

Income Loss Per Share

NOTE 8 - INCOME (LOSS) PER SHARE

NOTE 8 - INCOME (LOSS) PER SHARE

Income (loss) per share is calculated under two different methods, basic and diluted. Basic income per share is calculated by dividing the net income by the weighted average shares of common stock outstanding during the period. Diluted income per share is calculated by dividing the net income by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds.

Income per share for the three and nine months ended December 31, 2011 was computed as shown below. Stock options and warrants aggregating approximately 411 and 412 million shares were not included in the diluted calculations since they were anti-dilutive.

	Three months ended		Nine months ended
	December 31, 2011		December 31, 2011
Numerator:
Net income attributable to Integrated Healthcare Holdings, Inc.	$	12,542	$	10,179
Denominator:
Weighted average common shares		255,307		255,307
Dilutive options		1,532		1,541
Denominator for diluted calculation		256,839		256,848
Income per share - basic	$	0.05	$	0.04
Income per share - diluted	$	0.05	$	0.04

Since the Company incurred a loss for the three and nine months ended December 31, 2012, the potential shares of common stock consisting of approximately 411 and 413 million shares, respectively, issuable under warrants and stock options were not included in the diluted calculations since they were anti-dilutive.

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10. RELATED PARTY TRANSACTIONS

9 Months Ended

Dec. 31, 2012

Related Party Transactions [Abstract]

NOTE 10 - RELATED PARTY TRANSACTIONS

NOTE 10 - RELATED PARTY TRANSACTIONS

The Company leases substantially all of the real property of the acquired Hospitals from PCHI which is owned by various physician investors and Ganesha, which is managed by Dr. Chaudhuri. As of December 31 and March 31, 2012, Dr. Chaudhuri and Mr. William E. Thomas are the beneficial holders of an aggregate of 447.5 million shares of the outstanding stock of the Company. As described in Note 9, PCHI is a variable interest entity and the Company is the primary beneficiary, accordingly, the Company has consolidated the financial statements of PCHI in the accompanying unaudited condensed consolidated financial statements.

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011	Mar. 31, 2012
Description Of Business And Summary Of Significant Accounting Policies Details Narrative
Working capital	$ (33,000)		$ (33,000)
Supplemental payments from the California Medical Assistance Commission to support indigent care DSH	5,500	4,000	9,600	9,900
Revenue related to supplemental payments	4,400	3,100	11,300	10,500
DSH receivables included in due from government payers	6,700		6,700		5,000
Patient service revenues under managed care plans, including Medicare and Medicaid managed care plans	24,400	26,200	79,800	72,300
Estimated costs of charity care	1,900	2,500	6,500	6,300
Company's self-pay collection rate (blended collection rate for uninsured and balance after insurance accounts receivable)	4.90%		4.90%		11.30%
Current portion of debt issuance costs included in prepaid expenses and other current assets	$ 929		$ 929		$ 153

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13. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
General Professional Liability
Accrued liability	$ 9,300	$ 11,500
Reported Claim Liability	4,200	4,500
Incurred but not reported claims	5,100	7,000
Estimated insurance recoveries	2,700	3,000
Workers Compensation
Accrued liability	593	673
Reported Claim Liability	282	338
Incurred but not reported claims	331	335
Self-insured health benefits
Incurred but not reported claims	$ 2,000	$ 2,200

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1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Dec. 31, 2012

Description Of Business And Summary Of Significant Accounting Policies Policies

BASIS OF PRESENTATION

BASIS OF PRESENTATION - The accompanying unaudited condensed consolidated financial statements of Integrated Healthcare Holdings, Inc. and its wholly owned subsidiaries (the "Company") have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the Securities and Exchange Commission ("SEC") for interim financial reporting. Accordingly, the accompanying unaudited condensed consolidated statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, these statements include all adjustments that are of a normal and recurring nature necessary to present fairly the Company’s consolidated financial position, results of operations and cash flows. The results of operations for the three and nine months ended December 31, 2012 are not necessarily indicative of the results for the entire 2013 fiscal year. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in the Company’s Annual Report on Form 10-K for the year ended March 31, 2012 filed with the SEC on June 22, 2012.

The Company has determined that Pacific Coast Holdings Investment, LLC ("PCHI") (Note 9), is a variable interest entity as defined by GAAP and the Company is the primary beneficiary and, accordingly, the financial statements of PCHI are included in the accompanying unaudited condensed consolidated financial statements.

All significant intercompany accounts and transactions have been eliminated in consolidation. Unless otherwise indicated, all amounts included in these notes to the condensed consolidated financial statements are expressed in thousands (except per share amounts, percentages and stock option prices and values). 

LIQUIDITY

LIQUIDITY - As of December 31, 2012, the Company had a total stockholders’ deficiency of $28 million and a working capital deficit of $33 million.  For the three and nine months ended December 31, 2012, the Company had net loss of $13 million and $14 million, respectively. At December 31, 2012, the Company had $1 million in additional availability under its revolving credit facility (Note 3).

DESCRIPTION OF BUSINESS

DESCRIPTION OF BUSINESS - Effective March 8, 2005, the Company acquired four hospitals from subsidiaries of Tenet Healthcare Corporation (the "Acquisition"). The Company owns and operates the four community-based hospitals (the "Hospitals") located in southern California, which are:

● 282-bed Western Medical Center in Santa Ana

● 188-bed Western Medical Center in Anaheim

● 178-bed Coastal Communities Hospital in Santa Ana

● 114-bed Chapman Medical Center in Orange

RECLASSIFICATION FOR PRESENTATION

RECLASSIFICATION FOR PRESENTATION - Certain amounts previously reported have been reclassified to conform to the current period's presentation with no impact on the reported net income (loss) of the Company.

CONCENTRATION OF RISK

CONCENTRATION OF RISK - The Hospitals are subject to licensure by the State of California and accreditation by the Joint Commission. Loss of either licensure or accreditation would impact the ability to participate in various governmental and managed care programs, which provide the majority of the Company's revenues.

Substantially all patient service revenues come from external customers. The largest payers are Medicare and Medicaid (including Medicare and Medicaid managed care plans), which combined accounted for 59% and 64% of the patient service revenues for the three months ended December 31, 2012 and 2011, respectively, and 61% and 59% for the nine months ended December 31, 2012 and 2011, respectively. No other payers represent a significant concentration of the Company's patient service revenues.

The Company receives all of its inpatient service revenues from operations in Orange County, California. The economic conditions of this market could affect the ability of patients and third-party payers to reimburse the Company for services, through its effect on disposable household income and the tax base used to generate state funding for Medicaid programs.

USE OF ESTIMATES

USE OF ESTIMATES - The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with GAAP. The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Principal areas requiring the use of estimates include third-party cost report settlements, income taxes, accrued insurance retentions, self-insurance reserves, and net patient receivables. Management regularly evaluates the accounting policies and estimates that are used. In general, management bases the estimates on historical experience and on assumptions that it believes to be reasonable given the particular circumstances in which its Hospitals operate. Although management believes that all adjustments considered necessary for fair presentation have been included, actual results may materially vary from those estimates.

PATIENT SERVICE REVENUES

PATIENT SERVICE REVENUES – Patient service revenues are recognized in the period in which services are performed and are recorded based on established billing rates (gross charges) less contractual allowances and discounts, principally for patients covered by Medicare, Medicaid, managed care, and other health plans. Gross charges are retail charges. They are not the same as actual pricing, and they generally do not reflect what a hospital is ultimately paid and therefore are not displayed in the consolidated statements of operations. Hospitals are typically paid amounts that are negotiated with insurance companies or are set by the government. Gross charges are used to calculate Medicare outlier payments and to determine certain elements of payment under managed care contracts (such as stop-loss payments). Since Medicare requires that a hospital's gross charges be the same for all patients (regardless of payer category), gross charges are also what the Hospitals charge all other patients prior to the application of discounts and allowances.

The following is a summary of sources of patient service revenues (net of contractual allowances and discounts) before provision for bad debts:

	Three months ended				Nine months ended
	December 31,				December 31,
	2012		2011		2012		2011
Medicare	$	14,654	$	14,474	$	41,246	$	45,071
Medicaid		20,340		42,402		82,041		66,569
Managed care		48,453		50,081		152,883		149,321
Indemnity, self-pay and other		16,828		15,326		53,343		43,132
Miscellaneous		745		750		2,470		2,304
	$	101,020	$	123,033	$	331,983	$	306,398

Revenues under the traditional fee-for-service Medicare and Medicaid programs are based primarily on prospective payment systems. Discounts for retrospectively cost based revenues and certain other payments, which are based on the Hospitals' cost reports, are estimated using historical trends and current factors. Cost report settlements for retrospectively cost-based revenues under these programs are subject to audit and administrative and judicial review, which can take several years until final settlement of such matters are determined and completely resolved. Estimates of settlement receivables or payables related to a specific year are updated periodically and at year end and at the time the cost report is filed with the fiscal intermediary. Typically no further updates are made to the estimates until the final Notice of Program Reimbursement is received, at which time the cost report for that year has been audited by the fiscal intermediary. There could be a time lag of several years between the submission of a cost report and receipt of the Final Notice of Program Reimbursement. Since the laws, regulations, instructions and rule interpretations governing Medicare and Medicaid reimbursement are complex and change frequently, the estimates recorded by the Hospitals could change by material amounts. The Company has established settlement (payables) receivables of ($414) and $190 as of December 31 and March 31, 2012, respectively.

The Hospitals receive supplemental payments from the State of California to support indigent care (Medi-Cal Disproportionate Share Hospital payments or "DSH") and from the California Medical Assistance Commission ("CMAC") under the SB 1100 and SB 1255 programs. The Hospitals received supplemental payments of $5.5 million and $4.0 million during the three months ended December 31, 2012 and 2011, respectively, and $9.6 million and $9.9 million during the nine months ended December 31, 2012 and 2011, respectively. The related revenue recorded for the three months ended December 31, 2012 and 2011, was $4.4 million and $3.1 million, respectively, and $11.3 million and $10.5 million for the nine months ended December 31, 2012 and 2011, respectively. As of December 31 and March 31, 2012, estimated DSH receivables were $6.7 million and $5.0 million, respectively, which are included as due from government payers in the accompanying unaudited condensed consolidated balance sheets.

Revenues under managed care plans, including Medicare and Medicaid managed care plans (with patient service revenues of $24.4 million and $26.2 million for the three months ended December 31, 2012 and 2011, respectively, and $79.8 million and $72.3 million for the nine months ended December 31, 2012 and 2011, respectively), are based primarily on payment terms involving predetermined rates per diagnosis, per-diem rates, discounted fee-for-service rates and/or other similar contractual arrangements. These revenues are also subject to review and possible audit by the payers. The payers are billed for patient services on an individual patient basis. An individual patient's bill is subject to adjustment on a patient-by-patient basis in the ordinary course of business by the payers following their review and adjudication of each particular bill. The Hospitals estimate the discounts for contractual allowances utilizing billing data on an individual patient basis. Management believes the estimation and review process allows for timely identification of instances where such estimates need to be revised. The Company does not believe there were any adjustments to estimates of individual patient bills that were material to patient service revenues.

The Hospitals provide charity care to patients whose income level is below 300% of the Federal Poverty Level. Patients with income levels between 300% and 350% of the Federal Poverty Level qualify to pay a discounted rate under AB 774 based on various government program reimbursement levels. Patients without insurance are offered assistance in applying for Medicaid and other programs they may be eligible for, such as state disability, Victims of Crime, or county indigent programs. Patient advocates from the Hospitals' Medical Eligibility Program ("MEP") screen patients in the hospital and determine potential linkage to financial assistance programs. They also expedite the process of applying for these government programs. The estimated costs of charity care (based on direct and indirect costs as a ratio of gross uncompensated charges associated with providing care to charity patients) for the three months ended December 31, 2012 and 2011 were approximately $1.9 million and $2.5 million, respectively, and $6.5 million and $6.3 million for the nine months ended December 31, 2012 and 2011, respectively.

The Company is not aware of any material claims, disputes, or unsettled matters with any payers that would affect revenues that have not been adequately provided for in the accompanying unaudited condensed consolidated financial statements.

PROVISION FOR DOUBTFUL ACCOUNTS

PROVISION FOR BAD DEBTS - The Company provides for accounts receivable that could become uncollectible by establishing an allowance to reduce the carrying value of such receivables to their estimated net realizable value. The Hospitals estimate this allowance based on the aging of their accounts receivable, historical collections experience for each type of payer and other relevant factors. There are various factors that can impact the collection trends, such as changes in the economy, which in turn have an impact on unemployment rates and the number of uninsured and underinsured patients, volume of patients through the emergency department, the increased burden of copayments to be made by patients with insurance and business practices related to collection efforts. These factors continuously change and can have an impact on collection trends and the estimation process.

The Company's policy is to attempt to collect amounts due from patients, including copayments and deductibles due from patients with insurance, at the time of service while complying with all federal and state laws and regulations, including, but not limited to, the Emergency Medical Treatment and Labor Act ("EMTALA"). Generally, as required by EMTALA, patients may not be denied emergency treatment due to inability to pay. Therefore, until the legally required medical screening examination is complete and stabilization of the patient has begun, services are performed prior to the verification of the patient's insurance, if any. In nonemergency circumstances or for elective procedures and services, it is the Hospitals' policy, when appropriate, to verify insurance prior to a patient being treated.

Effective March 31, 2012, the Company adopted Accounting Standards Update (“ASU”) 2011-07, “Health Care Entities (Topic 954): Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities,” which requires health care entities to present the provision for bad debts relating to patient service revenues as a deduction from patient service revenues in the statement of operations rather than as an operating expense. All periods presented have been reclassified in accordance with the provisions of ASU 2011-07.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS - The Company considers all highly liquid debt investments purchased with a maturity of three months or less to be cash equivalents.

Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally insured limits. The Company has never experienced any losses related to these balances. All of the non-interest bearing cash balances were fully insured at December 31, 2012 due to a temporary federal program in effect from December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts. Beginning 2013, insurance coverage will revert to $250 per depositor at each financial institution, and the Company’s non-interest bearing cash balances may again exceed federally insured limits.

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

RECEIVABLES AND ALLOWANCE FOR DOUBTFUL ACCOUNTS – The following is a summary of the principal components of accounts receivable and due from government payers as of December 31 and March 31, 2012:

	December 31,			March 31,
	2012			2012
Accounts receivable:
Patient accounts receivable	$	82,691		$	71,800
Allowance for doubtful accounts		(23,656	)		(18,201	)
Accounts receivable, net	$	59,035		$	53,599
Due from government payers:
Settlement receivables	$	–		$	190
DSH		6,710			4,993
	$	6,710		$	5,183
Due to government payers:
Settlement payables	$	414		$	–
	$	414		$	–

The Company’s self-pay collection rate, which is the blended collection rate for uninsured and balance after insurance accounts receivable, was approximately 4.9% and 11.3% as of December 31 and March 31, 2012, respectively. These self-pay collection rates include payments made by patients, including co-payments and deductibles paid by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay uninsured was 96.1% and 90.3%, respectively, of self-pay uninsured patient accounts receivable. As of December 31 and March 31, 2012, the allowance for doubtful accounts for self-pay balance after insurance was 75.4% and 77.4%, respectively, of self-pay balance after insurance patient accounts receivable, consisting primarily of co-pays and deductibles owed by patients with insurance. As of December 31 and March 31, 2012, the allowance for doubtful accounts for managed care was 15.9% and 16.1%, respectively, of managed care patient accounts receivable.

Receivables from patients who are potentially eligible for Medicaid are classified as Medicaid pending under the MEP, with appropriate contractual allowances recorded. If the patient does not qualify for Medicaid, the receivables are reclassified to charity care and written off, or they are reclassified to self-pay and adjusted to their net realizable value through the provision for bad debts. Reclassifications of pending Medicaid accounts to self-pay do not typically have a material impact on the results of operations as the estimated Medicaid contractual allowances initially recorded are not materially different than the estimated provision for bad debts accounts recorded when the accounts are reclassified. All accounts classified as pending Medicaid, as well as certain other governmental receivables, over the age of 90 days were reserved in contractual allowances as of December 31 and March 31, 2012 based on historical collections experience.

INVENTORIES OF SUPPLIES

INVENTORIES OF SUPPLIES - Inventories of supplies are valued at the lower of weighted average cost or market.

PROPERTY AND EQUIPMENT

PROPERTY AND EQUIPMENT - Property and equipment are stated at cost, less accumulated depreciation and any impairment write-downs related to assets held and used. Additions and improvements to property and equipment are capitalized at cost. Expenditures for maintenance and repairs are charged to expense as incurred. Capital leases are recorded at the beginning of the lease term as property and equipment and a corresponding lease liability is recognized. The value of the property and equipment under capital lease is recorded at the lower of either the present value of the minimum lease payments or the fair value of the asset. Such assets, including improvements, are amortized over the shorter of the lease term or their estimated useful life, where applicable.

The Company uses the straight-line method of depreciation for buildings and improvements, and equipment over their estimated useful lives of 25 years, and 3 to 15 years, respectively.

LONG-LIVED ASSETS

LONG-LIVED ASSETS - The Company evaluates its long-lived assets for possible impairment whenever circumstances indicate that the carrying amount of the asset, or related group of assets, may not be recoverable from estimated undiscounted future cash flows. Fair value estimates are derived from established market values of comparable assets or internal calculations of estimated future net cash flows. The estimates of future net cash flows are based on assumptions and projections believed by the Company to be reasonable and supportable. These assumptions take into account patient volumes, changes in payer mix, revenue, and expense growth rates and changes in legislation and other payer payment patterns.

DEBT ISSUANCE COSTS

DEBT ISSUANCE COSTS - Debt issuance costs are amortized over the related credit facility’s life using the straight-line method. On August 1, 2012, the Company amended its debt and incurred an aggregate of $1.96 million in origination, consent, and amendment fees which are being amortized over the remaining lives of the respective credit facilities (Note 3). Debt issuance costs of $718 and $38 were amortized during the three months ended December 31, 2012 and 2011, respectively, and $1,248 and $487 during the nine months ended December 31, 2012 and 2011, respectively.  At December 31 and March 31, 2012, prepaid expenses and other current assets in the accompanying unaudited condensed consolidated balance sheets included $929 and $153, respectively, as the current portion of debt issuance costs.

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS - The Company's financial assets and liabilities recorded in the unaudited condensed consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, debt, accounts payable, and other liabilities, all of which are recorded at book value which approximates fair value.

GAAP has established a hierarchy for ranking the quality and reliability of the information used to determine fair values and requires that assets and liabilities carried at fair value be classified and disclosed in one of the following three categories:

Level 1:	Unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2:	Unadjusted quoted prices in active markets for similar assets or liabilities, unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.
Level 3:	Unobservable inputs for the asset or liability.

The Company utilizes the best available information in measuring fair value.  Assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company currently has no financial or nonfinancial assets or liabilities subject to fair value measurement on a recurring basis except for warrants issued in April 2010 (Note 4).

The following table sets forth the Company’s financial assets and liabilities measured at fair value on a recurring basis and where they are classified within the hierarchy:

	Total		Level 1		Level 2		Level 3
Warrant liability at December 31, 2012	$	3,218		–		–	$	3,218
Warrant liability at March 31, 2012	$	1,641		–		–	$	1,641

Warrant liability - fair value measurements using significant unobservable inputs (Level 3)
Balance at March 31, 2012	$	1,641
Change in fair value of warrant liability included in earnings		(730)
Balance at June 30, 2012		911
Change in fair value of warrant liability included in earnings		1,125
Balance at September 30, 2012		2,036
Change in fair value of warrant liability included in earnings		1,182
Balance at December 31, 2012	$	3,218

WARRANTS

WARRANTS - The Company has entered into complex transactions that contain warrants (Notes 3 and 4). If an instrument (or an embedded feature) that has the characteristics of a derivative instrument is indexed to an entity’s own stock, it is still necessary to evaluate whether it is classified in stockholders’ equity (or would be classified in stockholders’ equity if it were a freestanding instrument). The Company has concluded that the warrants should be classified as liabilities as the settlement of the warrants are not deemed to be in the control of the Company.

INCOME (LOSS) PER COMMON SHARE

INCOME (LOSS) PER COMMON SHARE – Income (loss) per share is calculated under two different methods, basic and diluted. Basic income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period. Diluted income (loss) per share is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding during the period and dilutive potential shares of common stock. Dilutive potential shares of common stock, as determined under the treasury stock method, consist of shares of common stock issuable upon exercise of stock warrants or options, net of shares of common stock assumed to be repurchased by the Company from the exercise proceeds (Note 8).

INCOME TAXES

INCOME TAXES - Deferred income tax assets and liabilities are determined based on the differences between the book and tax basis of assets and liabilities and are measured using the currently enacted tax rates and laws using the asset and liability method. The Company assesses the realization of deferred tax assets to determine whether an income tax valuation allowance is required. The Company has recorded a 100% valuation allowance on its deferred tax assets.

There is a recognition threshold and measurement attribute for recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and California. Certain tax attributes carried over from prior years continue to be subject to adjustment by taxing authorities. Any penalties or interest arising from federal or state taxes are recorded as a component of the Company’s income tax provision.

SEGMENT REPORTING

SEGMENT REPORTING - The Company operates in one line of business, the provision of healthcare services through the operation of general hospitals and related healthcare facilities. The Company's Hospitals generate substantially all of its net patient service revenues.

The Company's four Hospitals and related healthcare facilities operate in one geographic region in Orange County, California. There are similarities in the region's economic characteristics and the nature of the Hospitals' operations, the regulatory environment in which they operate and the manner in which they are managed. This region is an operating segment, as defined by GAAP. In addition, the Company's Hospitals and related healthcare facilities share certain resources and benefit from many common clinical and management practices. Accordingly, the Company aggregates the facilities into a single reportable operating segment.

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6. STOCK INCENTIVE PLAN (Tables)

9 Months Ended

Dec. 31, 2012

Stock Incentive Plan Tables

STOCK INCENTIVE PLAN

	Shares		Weighted- average exercise price		Weighted- average grant date fair value		Weighted- average remaining contractual term (years)		Aggregate intrinsic value
Outstanding, March 31, 2012		8,235	$	0.18
Granted		–	$	–	$	–
Exercised		–	$	–
Forfeited or expired		(620)	$	0.27
Outstanding, December 31, 2012		7,615	$	0.18			1.9	$	–
Exercisable at December 31, 2012		7,615	$	0.18			1.9	$	–

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10. RELATED PARTY TRANSACTIONS (Details Narrative)	Dec. 31, 2012	Mar. 31, 2012
Related Party Transactions Details Narrative
Common Stock Outstanding by beneficial owners	447,500	447,500

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4. COMMON STOCK WARRANTS (Details Narrative) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Dec. 31, 2012	Dec. 31, 2011	Dec. 31, 2012	Dec. 31, 2011
April Warrants
Class of Warrant or Right [Line Items]
Net gain (loss) related to warrants	$ (1,182)	$ 256	$ (1,577)	$ 39
Omnibus Warrants
Class of Warrant or Right [Line Items]
Fair value of the Warrants	1,900		1,900
Release Warrant
Class of Warrant or Right [Line Items]
Fair value of the Warrants	$ 1,300		$ 1,300

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CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY / DEFICIENCY (USD $) In Thousands, except Share data	Common Stock	Additional Paid-In Capital	Retained Earnings / Accumulated Deficit	Noncontrolling Interest	Total
Beginning Balance, Amount at Mar. 31, 2012	$ 255	$ 62,911	$ (71,828)	$ (2,987)	$ (11,649)
Beginning Balance, Shares at Mar. 31, 2012	255,307
Net income (loss)			(14,264)	(317)	(14,581)
Noncontrolling interest distributions				(1,551)	(1,551)
Ending Balance, Amount at Dec. 31, 2012	$ 255	$ 62,911	$ (86,092)	$ (4,855)	$ (27,781)
Ending Balance, Shares at Dec. 31, 2012	255,307

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4. COMMON STOCK WARRANTS

9 Months Ended

Dec. 31, 2012

Common Stock Warrants

NOTE 4 - COMMON STOCK WARRANTS

NOTE 4 - COMMON STOCK WARRANTS

On April 13, 2010, the Company issued warrants (the “Omnibus Warrants”) to purchase its common stock for a period of three years at an exercise price of $0.07 per share in the following denominations: 139.0 million shares to KPC Resolution Company (a company owned and controlled by Kali P. Chaudhuri, M.D., the Company’s majority shareholder) or its designees and 96.0 million shares to the $46.35 million term loan lender or its designees. The Omnibus Warrants also provide the holders with certain pre-emptive, information and registration rights. On April 13, 2010, the Company recorded warrant expense and the related warrant liability of $2.9 million, representing fair value.  As of December 31, 2012, the fair value of the Omnibus Warrants was $1.9 million.

In addition, on April 13, 2010, the Company issued a three-year warrant (the “Release Warrant”) to acquire up to 170.0 million shares of its common stock at $0.07 per share to Dr. Chaudhuri who facilitated a release enabling the Company to recover amounts due from the Company’s prior lender and a $1.0 million reduction in principal of its outstanding debt, among other benefits to the Company. As a result, the Company recorded the fair value of the Release Warrant ($2.1 million) as an offsetting cost of the recovery of amounts due from the Company’s prior lender. The Release Warrant also provides the holder with certain pre-emptive, information and registration rights. As of December 31, 2012, the fair value of the Release Warrant was $1.3 million.

The Omnibus Warrants and the Release Warrant are collectively referred to as the “April Warrants.” The net gain (loss) recorded related to the April Warrants for the three months ended December 31, 2012 and 2011 was $(1,182) and $256, respectively, and $(1,577) and $39 for the nine months ended December 31, 2012 and 2011, respectively.

The fair value of warrants issued by the Company is estimated using the Black-Scholes valuation model, which the Company believes is the appropriate valuation method under the circumstances. Since the Company’s stock is thinly traded, the expected volatility is based on an analysis of the Company's stock and the stock of eight other publicly traded companies that own hospitals.

The risk-free interest rate is based on the average yield on U.S. Treasury notes with maturity commensurate with the terms of the warrants. The dividend yield reflects that the Company has not paid any cash dividends since inception and does not anticipate paying cash dividends in the foreseeable future.  The assumptions used in the Black-Scholes valuation model are as follows.

	December 31, 2012		March 31, 2012
Expected dividend yield		0.0%		0.0%
Risk-free interest rate		0.1%		0.2%
Expected volatility		32.5%		57.3%
Expected term (in years)		0.28		1.04

On February 7, 2013, the Company amended its $46.35 million term loan and in connection therewith extended the term of related warrants (Note 14).

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8. INCOME (LOSS) PER SHARE (Tables)

9 Months Ended

Dec. 31, 2012

Income Loss Per Share Tables

Schedule of Earnings Per Share

	Three months ended		Nine months ended
	December 31, 2011		December 31, 2011
Numerator:
Net income attributable to Integrated Healthcare Holdings, Inc.	$	12,542	$	10,179
Denominator:
Weighted average common shares		255,307		255,307
Dilutive options		1,532		1,541
Denominator for diluted calculation		256,839		256,848
Income per share - basic	$	0.05	$	0.04
Income per share - diluted	$	0.05	$	0.04

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3. DEBT (Details) (USD $) In Thousands, unless otherwise specified	Dec. 31, 2012	Mar. 31, 2012
Current:
Revolving line of credit	$ 28,806	$ 14,000
Noncurrent:
Term loan	$ 46,350	$ 45,000

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14. SUBSEQUENT EVENTS

9 Months Ended

Dec. 31, 2012

Subsequent Events [Abstract]

14. SUBSEQUENT EVENTS

NOTE 14 – SUBSEQUENT EVENTS

Amendment to Credit Agreement with Silver Point

On February 7, 2013, Integrated Healthcare Holdings, Inc. (“IHHI”) and its subsidiaries WMC-A, Inc., WMC-SA, Inc., Chapman Medical Center, Inc. and Coastal Communities Hospital, Inc. (together with IHHI, the “Company”), entered into an “Amendment and Restatement to the Credit Agreement” (the “Amendment”) with SPCP Group IV, LLC, SPCP Group, LLC, and Silver Point Finance, LLC, as the Lender Agent (collectively, the “Silver Point Entities”), Pacific Coast Holdings Investment, LLC (“PCHI”) and Ganesha Realty, llc (“Ganesha”).

Under the Amendment, the $80,000,000 Credit Agreement, dated as of October 9, 2007, as amended, to which IHHI and the Silver Point Entities are parties (the “Credit Agreement”) was amended and restated in its entirety in the form of the “Amended and Restated Credit Agreement ($47,277,000 Term Loan)” attached as Exhibit A to the Amendment (the “Restated Credit Agreement”). The Restated Credit Agreement reflects changes to the terms of the Credit Agreement that were previously made under various amendments entered into by the Company since inception of the Credit Agreement in October 2007.

In addition, the following new amendments were made to the Credit Agreement and reflected in the Restated Credit Agreement:

· The Stated Maturity Date was extended to April 13, 2016. The Credit Agreement was previously due to mature on April 13, 2013.

· The annual interest rate applicable to the loans under the Credit Agreement was modified from the previous fixed rate of 14.5% to LIBOR plus 10%, with the LIBOR floor set at 2% (the effective interest rate is currently 12%), except upon an Event of Default. The Company may elect from one, two or three months LIBOR interest periods, except in an Event of Default when the interest period may not exceed one month.

· The principal balance under the Credit Agreement was increased from $46,350,000 to $47,277,000 to reflect new borrowings by the Company under the Restated Credit Agreement.

· The Company repaid all amounts owing to SPCP Group IV, LLC under the Credit Agreement, consisting of a principal balance of $8,119,634 plus accrued interest of $19,622, and increased the principal amount owing to SPCP Group, LLC under the Credit Agreement by $9,046,634 to reflect the repayment to SPCP Group IV, LLC and other new borrowings.

· The financial covenants applicable to the Company under the Credit Agreement were amended, including the covenants requiring the Company to maintain minimum levels of EBITDA (as defined in the Restated Credit Agreement).

· Upon receipt by the Company of enhanced federal matching funds from Medi-Cal under the Quality Assurance Fee Program (defined as “Net QAF Funds” under the Restated Credit Agreement), the Company is required to make certain prepayments of principal under its Revolving Loan Agreement with MidCap Financial, LLC.

· A prepayment fee was established for voluntary prepayments under the Credit Agreement equal to 5% for prepayments made on or prior to December 31, 2013, and 2% for prepayments made after January 1, 2014 and before December 31, 2014.

Warrant Transactions

In connection with the Amendment, on February 7, 2013, IHHI entered into the following transactions involving warrants:

IHHI entered into a Warrant Repurchase Agreement with SPCP Group IV, LLC pursuant to which IHHI repurchased the outstanding Common Stock Warrant issued to SPCP Group IV, LLC on or about April 13, 2010 (the “Cancelled Warrant”). The Cancelled Warrant entitled the holder to purchase an aggregate of 16,817,365 shares of IHHI Common Stock at an exercise price of $0.07 per share. The Cancelled Warrant was repurchased by IHHI for a purchase price of $0.12 per share minus the exercise price of $0.07 per share, or a net purchase price of $0.05 per share, multiplied by 16,817,365 shares exercisable under the Warrant, or an aggregate purchase price of $840,868.25.

Immediately following the warrant repurchase, IHHI issued a new Common Stock Warrant to SPCP Group, LLC for a price of $0.05 per share, on the same terms as the Cancelled Warrant entitling the holder to purchase an aggregate of 16,817,365 shares of Common Stock at an exercise price of $0.07 per share, except that the new warrant expires on April 13, 2016.

Also simultaneous with the transactions described above, IHHI extended the expiration date from April 13, 2013 to April 13, 2016 for (i) the warrant held by SPCP Group, LLC to purchase 79,182,635 shares at an exercise price of $0.07 per share, (ii) the warrant held by Dr. Kali P. Chaudhuri, M.D. to purchase 170,000,000 shares at an exercise price of $0.07 per share, and (iii) the warrant held by KPC Resolution Company, LLC to purchase 139,000,000 shares at an exercise price of $0.07 per share. The extension of the warrant expiration date was intended to conform the term of the warrants to that of the Restated Credit.

Amendment to Revolving Loan Facility with MidCap

On February 7, 2013, the Company entered into “Amendment No. 4 to Credit and Security Agreement and Limited Consent” (the “Revolving Loan Amendment”) with MidCap Funding IV, LLC and Silicon Valley Bank, as lenders (the “Lenders”), and MidCap Financial, LLC, as agent (the “Agent”).

The Revolving Loan Amendment amends the Credit and Security Agreement, dated as of August 30, 2010, as amended, to which the Company, the Lenders and the Agent are parties (the “ Revolving Loan Agreement”), to reflect the following changes:

· The maximum face amount of the Letter of Credit Liabilities permitted under the Revolving Loan Agreement was increased to $760,755.39, and the Lenders consented to the issuance of a Letter of Credit in the same amount by Wells Fargo Bank, National Association.

· The Commitment Expiry Date under the Revolving Loan Agreement was amended to allow for an extension from August 30, 2013 to January 31, 2014 at Agent’s and Lenders’ sole option, which option can be exercised at any time prior to March 31, 2013.

· The period during which the Prepayment Fee of 1% is applicable was extended from three years from the original closing date to the Commitment Expiry Date (if it is extended by the Agent and Lenders).

· The Agent and Lenders consented to the Company’s entry into the Amendment with the Silver Point Entities and the Restated Credit Agreement thereunder.