-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Lb4Ysp9my8yyhRzq+6KO9BZR3B2T9f2nCO5X5JM9JJOIe9UjF9GCMSYOMqG7BEuo +mhGRPaI9JVG1jLfZdnxSw== 0001144204-05-007527.txt : 20050314 0001144204-05-007527.hdr.sgml : 20050314 20050314171750 ACCESSION NUMBER: 0001144204-05-007527 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20050303 ITEM INFORMATION: Entry into a Material Definitive Agreement ITEM INFORMATION: Completion of Acquisition or Disposition of Assets ITEM INFORMATION: Other Events ITEM INFORMATION: Financial Statements and Exhibits FILED AS OF DATE: 20050314 DATE AS OF CHANGE: 20050314 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Integrated Healthcare Holdings CENTRAL INDEX KEY: 0001051488 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 870412182 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-23511 FILM NUMBER: 05679210 BUSINESS ADDRESS: STREET 1: 695 TOWN CENTER DRIVE STREET 2: SUITE 260 CITY: COSTA MESA STATE: CA ZIP: 92626 BUSINESS PHONE: 714-434-9191 MAIL ADDRESS: STREET 1: 695 TOWN CENTER DRIVE STREET 2: SUITE 260 CITY: COSTA MESA STATE: CA ZIP: 92626 FORMER COMPANY: FORMER CONFORMED NAME: FIRST DELTAVISION INC DATE OF NAME CHANGE: 19971216 8-K 1 v014292_8k.txt ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of report (Date of earliest event reported): MARCH 3, 2005 INTEGRATED HEALTHCARE HOLDINGS, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER) NEVADA 0-23511 87-0412182 (STATE OR OTHER (COMMISSION FILE (IRS EMPLOYER JURISDICTION OF NUMBER) IDENTIFICATION NO.) INCORPORATION) 695 TOWN CENTER DRIVE, SUITE 260, COSTA MESA, CALIFORNIA 92626 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) Registrant's telephone number, including area code: (714) 434-9191 ----------------------- (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions: |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) ================================================================================ ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT. On March 8, 2005, Integrated Healthcare Holdings, Inc. (the "Company") announced the completion of its $70-million acquisition (the "Hospital Acquisition") of four Orange County, California hospitals and associated real estate from subsidiaries of Tenet Healthcare Corporation ("Tenet"). The four hospitals that were acquired are: (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"). The Hospitals were assigned to four wholly-owned subsidiaries of the Company (the "Subsidiaries") formed for the purpose of completing the Hospital Acquisition. The Company 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 92705, a fee interest in the administration building at 1301 North Tustin Avenue, Santa Ana, CA 92705, certain rights to acquire condominium suites located in the medical office building at 999 North Tustin Avenue, Santa Ana, CA, and the business known as the West Coast Breast Cancer Center; (ii) a fee interest in the Western Medical Center at 1025 South Anaheim Blvd., Anaheim, CA 92805; (iii) a fee interest in the Coastal Communities Hospital at 2701 South Bristol Street, Santa Ana, CA 92704, 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 92869, and a lease for the medical office building at 2617 East Chapman Avenue, Orange, CA; and (v) the furniture, fixtures and contract rights associated with the Hospitals. As part of the Company's previously announced agreement to obtain equity financing and financing commitments of up to $30 million from Orange County Physicians Investment Network, LLC ("OC-PIN"), at the closing of the Hospital Acquisition the Company transferred all of the fee interests in real estate described in the preceding paragraph (the "Transferred Properties") to Pacific Coast Holdings Investments, LLC ("PCHI"). PCHI is 51% owned by West Coast Holdings, LLC (owned in part by Dr. Anil Shah) and 49% by Ganesha Realty LLC (owned in part by Dr. Kali Chaudhuri). The Company then entered into a triple net lease under which it leased back from PCHI all of the real estate that it transferred to PCHI. OC-PIN is a majority shareholder of the Company and is managed by Dr. Anil V. Shah. OC-PIN is owned by Dr. Shah and a number of physicians practicing at the Hospitals. The Company obtained borrowings to complete the Hospital Acquisition from affiliates of Medical Capital Corporation of Anaheim, CA. The Company obtained a $50 million acquisition loan and a working capital non-revolving line of credit of up to $30 million from Medical Provider Financial Corporation II (the "Lender"). Each of OC-PIN and PCHI guaranteed the Company's obligations under these credit agreements, and PCHI subordinated to the Lender its rights to receive payments from the Company. The Company also sold its accounts receivable associated with the Hospitals to Medical Provider Financial Corporation I. In connection with the transactions described above, the Company, OC-PIN and/or PCHI entered into a number of material agreements as follows: o Second Amendment to Asset Sale Agreement, effective as of January 1, 2005, between the Company and subsidiaries of Tenet Healthcare Corporation. o Third Amendment to Asset Sale Agreement, effective as of March 8, 2005, between the Company and subsidiaries of Tenet Healthcare Corporation. o Guaranty Agreement, dated as of March 3, 2005, by OC-PIN in favor of the Lender. o Guaranty Agreement, dated as of March 3, 2005, by PCHI in favor of the Lender. o Subordination Agreement, dated as of March 3, 2005, among the Company, the Subsidiaries, PCHI and the Lender. 1 o Credit Agreement, dated as of March 3, 2005, among the Company, the Subsidiaries, PCHI, the members of PCHI, and the Lender. o $50 million acquisition note by the Company and the Subsidiaries. o $30 million line of credit note by the Company and the Subsidiaries. o Leases for the properties at the Chapman Medical Center, assigned to the Company by a subsidiary of Tenet Healthcare Corporation. o Triple net leases for the Transferred Properties. The forms of definitive agreements described above are furnished as exhibits to this Report. The preceding descriptions of these agreements are summary in nature and do not purport to be complete. This summary should be read in connection with the exhibits hereto. A copy of the press release announcing the Hospital Acquisition is also attached as an exhibit hereto. ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. The disclosures under Item 1.01 of this Report are hereby incorporated under this item by reference. ITEM 8.01 OTHER EVENTS Effective March 7, 2005, Milan Mehta, former HealthSouth Corporation vice president of Managed Care Contracts, joined the Company as senior vice president of Contracting. Effective March 1, 2005, Orange County-based corporate attorney Hari S. Lal, Esq. joined the Company as executive vice president and general counsel. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS. (a) Financial Statements of Business Acquired. The financial statements required under this section will be filed by amendment within the timeframe permitted under the requirements for this Form 8-K. (b) Pro Forma Financial Information. The financial information required under this section will be filed by amendment within the timeframe permitted under the requirements for this Form 8-K. (c) Exhibits. EXHIBIT DESCRIPTION NUMBER 99.1 Second Amendment to Asset Sale Agreement, effective as of January 1, 2005, between the Company and certain subsidiaries of Tenet Healthcare Corporation. 99.2 Third Amendment to Asset Sale Agreement, effective as of March 8, 2005, between the Company and certain subsidiaries of Tenet Healthcare Corporation. 99.3 Guaranty Agreement, dated as of March 3, 2005, by Orange County Physicians Investment Network, LLC in favor of Medical Provider Financial Corporation II. 99.4 Guaranty Agreement, dated as of March 3, 2005, by Pacific Coast Holdings Investments, LLC in favor of Medical Provider Financial Corporation II. 2 99.5 Subordination Agreement, dated as of March 3, 2005, by and among the Company and its subsidiaries, Pacific Coast Holdings Investments, LLC, and Medical Provider Financial Corporation II. 99.6 Credit Agreement, dated as of March 3, 2005, by and among the Company and its subsidiaries, Pacific Coast Holdings Investments, LLC and its members, and Medical Provider Financial Corporation II. 99.7 Form of $50 million acquisition note by the Company and the Subsidiaries. 99.8 Form of $30 million line of credit note by the Company and the Subsidiaries. 99.9 Triple Net Hospital and Medical Office Building Lease dated March 7, 2005, as amended by Amendment No. 1 To Triple Net Hospital And Medical Office Building Lease. 99.10 Press Release issued by the Company on March 8, 2005. 3 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Integrated Healthcare Holdings, Inc. By: /s/ Bruce Mogel ------------------------------------ Name: Bruce Mogel Title: Chief Executive Officer Date: March 14, 2005 INDEX TO EXHIBITS EXHIBIT DESCRIPTION NUMBER 99.1 Second Amendment to Asset Sale Agreement, effective as of January 1, 2005, between the Company and certain subsidiaries of Tenet Healthcare Corporation. 99.2 Third Amendment to Asset Sale Agreement, effective as of March 8, 2005, between the Company and certain subsidiaries of Tenet Healthcare Corporation. 99.3 Guaranty Agreement, dated as of March 3, 2005, by Orange County Physicians Investment Network, LLC in favor of Medical Provider Financial Corporation II. 99.4 Guaranty Agreement, dated as of March 3, 2005, by Pacific Coast Holdings Investments, LLC in favor of Medical Provider Financial Corporation II. 99.5 Subordination Agreement, dated as of March 3, 2005, by and among the Company and its subsidiaries, Pacific Coast Holdings Investments, LLC, and Medical Provider Financial Corporation II. 99.6 Credit Agreement, dated as of March 3, 2005, by and among the Company and its subsidiaries, Pacific Coast Holdings Investments, LLC and its members, and Medical Provider Financial Corporation II. 99.7 Form of $50 million acquisition note by the Company and the Subsidiaries. 99.8 Form of $30 million line of credit note by the Company and the Subsidiaries. 99.9 Triple Net Hospital and Medical Office Building Lease dated March 7, 2005, as amended by Amendment No. 1 To Triple Net Hospital And Medical Office Building Lease. 99.10 Press Release issued by the Company on March 8, 2005. 4 EX-99.1 2 v014292_ex99-1.txt Exhibit 99.1 SECOND AMENDMENT TO ASSET SALE AGREEMENT This Second Amendment to Asset Sale Agreement (this "Amendment") is made and entered into effective as of January 1, 2005 (the "Amendment Effective Date") by and among AHM CGH, Inc., a California corporation ("AHM"), Health Resources Corporation of America - California, a Delaware corporation ("HRC"), SHL/O Corp., a Delaware corporation ("SHL/O") and UWMC Hospital Corporation, a California corporation ("UWMC") (AHM, HRC, SHL/O and UWMC are collectively referred to herein as "Seller") and Integrated Healthcare Holdings, Inc., a Nevada corporation ("Purchaser"). RECITALS A. Seller and Purchaser entered into that certain Asset Sale Agreement dated as of September 29, 2004, as amended by that certain First Amendment to Asset Sale Agreement, dated as of January 28, 2005 (the "Agreement"), pursuant to which Purchaser agreed to acquire from Seller substantially all of the assets used in the operation of the Hospitals. B. Through Purchaser's countersignature to a letter from Douglas A. Jaques, counsel to Seller, to Robert Lundy and Todd Swanson, counsel to Purchaser, dated January 28, 2005 (the "Letter"), Purchaser has entered into a binding agreement with Seller with respect to certain matters relating to the transaction contemplated by the Agreement. C. The Letter contemplates that the matters addressed thereby will be reflected in a formal amendment to the Agreement to be executed by Seller and Purchaser. D. Seller and Purchaser now desire to formally incorporate as part of the Agreement those certain matters agreed to between the parties in the Letter through the execution of this Amendment. E. This Amendment, when executed by Seller and Purchaser, supercedes the Letter which Letter shall be of no further force or effect. NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. Except to the extent it is specifically indicated to the contrary in this Amendment, defined terms used in this Amendment shall have the same meanings ascribed to them in the Agreement. 2. Good Faith Deposit. Section 1.4(a) of the Agreement is hereby deleted, and replaced in its entirety with the following language: "(a) Good Faith Deposit. Purchaser has delivered to Chicago Title Insurance Company (the "Title Company"), for earnest money, a good faith deposit in the amount of Ten Million Dollars ($10,000,000) (the "Good Faith Deposit"). The Title Company shall hold the Good Faith Deposit in an interest bearing account (which interest shall be accrued to Purchaser) pursuant to the terms of the Escrow Agreement among Seller, Purchaser and the Title Company, as amended, attached as Exhibit 1.4-a. Five Million Dollars ($5,000,000) of the Good Faith Deposit is non-refundable regardless of the termination of this Agreement pursuant to Section 8.1 below, with no exceptions. The other Five Million Dollars ($5,000,000) of the Good Faith Deposit that is not subject to the immediately preceding sentence (the "Residual Good Faith Deposit") is non-refundable regardless of the termination of this Agreement pursuant to Section 8.1 below, except that Purchaser shall be entitled to the return of the Residual Good Faith Deposit, with all interest accrued on the entire Ten Million Dollars ($10,000,000) of the Good Faith Deposit, in the event that, (i) on or before 12:00 p.m. Pacific time, on February 5, 2005, (A) Seller or Purchaser terminates this Agreement because of a failure to obtain reasonable assurances from the California Department of Health Services (the "DHS") for any reason (which assurances are reasonably acceptable to Purchaser), that Purchaser's Change of Ownership ("CHOW") applications will be approved and an acute care hospital license will be issued for all four Hospitals, (B) Purchaser terminates this Agreement pursuant to Section 8.1(c), 8.1(d) (other than because of a failure to obtain reasonable assurances of approval of Purchaser's CHOW applications by the DHS), 8.1(f) or 8.1(h) (provided the failure of the applicable event or condition(s) under 8.1(c), 8.1(d), 8.1(f) or 8.1(h) giving rise to Purchaser's right to terminate under such subsection is not in any manner due to Purchaser's fault, as provided therein, including without limitation an inability of Purchaser to obtain financing or funding for the payment of the Cash Purchase Price) or (C) Seller terminates this Agreement pursuant to Section 8.1(e) (other than because of a failure to obtain reasonable assurances of approval of Purchaser's CHOW applications by the DHS) based upon the failure of a condition or a failure to close, respectively, that is not in any manner due to Purchaser's failure to perform, including without limitation an inability of Purchaser to obtain financing or funding for the payment of the Cash Purchase Price; or (ii) after 12:00 p.m. Pacific time, on February 5, 2005, Purchaser terminates this Agreement pursuant to Section 8.1(c). In the event the Closing occurs, however, the Good Faith Deposit shall be applied as a credit against the Purchase Price, payable at Closing pursuant to Section 1.7.2." 3. Closing Date. Section 1.5 of the Agreement is hereby deleted, and replaced in its entirety with the following language: "1.5 Closing Date. The consummation of the transactions contemplated by this Agreement (the "Closing") shall take place at 9:00 a.m. on February 28, 2005 (the "Closing Date"), at the offices of McDermott, Will & Emery LLP, 2049 Century Park East, Suite 3400, Los Angeles, California 90067 or such other date, time and place as the parties shall mutually agree; provided that all conditions precedent and other matters required to be completed as of the Closing Date have been or will be completed on such date. The Closing with respect to each Hospital shall be deemed to have occurred and to be effective as between the parties as of 12:01 a.m. Pacific time on the next day after the Closing Date (the "Effective Time")." 4. Drop Dead Date. Section 8.1(g) of the Agreement is hereby amended by changing the date "December 31, 2004" contained therein to "February 28, 2005". 2 5. Audit of the Hospitals. (a) New Section 9.2(h) is hereby added to the Agreement to provide as follows: "Promptly following the Closing Date, Seller and Purchaser shall use reasonable commercial efforts to retain KPMG LLP (the "Auditors"), an independent registered public accounting firm, to perform an audit of the Hospitals with respect to the period prior to the Closing Date (the "Audit Period"), to the extent reasonably necessary in developing financial statements that meet the requirements of Regulation S-X promulgated under the Securities Exchange Act of 1934, as amended (the "Audit"), which financial statements will be filed as part of federal securities filings required to be made by Purchaser or its affiliates following the Closing Date. Purchaser, its representatives, and the Auditors shall be given access by Seller during normal business hours to the extent reasonably needed for the conduct of the Audit to all documents, records and work papers retained by Seller with respect to the operation of the Hospitals during the Audit Period, all in such manner as to not interfere unreasonably with Seller's business. Seller acknowledges and agrees that it shall cooperate with Purchaser and the Auditors, on a timely basis and as reasonably requested by Purchaser, in connection with the provision of documents, records and work papers required by the Auditors and generally in connection with the conduct of the Audit. Any documents and other materials reasonably required by the Auditors for the conduct of the Audit shall be, at Seller's option, either (i) copied by Seller for Purchaser at Purchaser's expense, or (ii) removed by Purchaser from the premises, copied by Purchaser and promptly returned to Seller. Purchaser agrees and acknowledges that Seller and the Auditors shall be notified prior to any securities filings made by Purchaser based or relying upon information relating to the operations of the Hospitals during the Audit Period and the Audit, and shall prominently contain the disclosure set forth on Schedule 9.2(h) attached hereto in such securities filing. Notwithstanding anything contained in this Agreement including without limitation Section 12.12 to the contrary, Purchaser acknowledges and agrees that all costs relating to the Audit including without limitation the Auditors' fees and expenses, and any costs incurred by Seller in connection with the Audit, shall be borne by Purchaser." (b) Section 10.3.1(i) is hereby deleted, and replaced in its entirety by the following language: "(i) any securities litigation involving (i) Purchaser and/or (ii) any financing obtained by Purchaser which is utilized to fund, in whole or in part, the Cash Purchase Price, other than to the extent arising out of any willful misconduct of Seller or its employees, or intentionally false or intentionally misleading statements of Seller or its employees, (j) the preparation and/or submission of the Audit, and/or financial statements or other information arising from or related to the Audit, including without limitation any securities litigation, or any claim, suit, or other action brought by any third party or Person in connection any filing by Purchaser or its affiliates with federal or state securities regulators or any securities offering in connection therewith, without regard to any alleged fault of Seller based on the alleged acts or failure to act of Seller and"; 3 (c) Section 10.3.1(j), as in effect immediately prior to the Amendment Effective Date, shall be redesignated as Section 10.3.1(k) (d) The reference to Section 10.3.1(j) in the next to last sentence of Section 10.3.1 shall be amended to refer to Section 10.3.1(k). (e) Section 10.3.2(a)(vi) is hereby amended to add the following phrase at the end thereof: "; provided, however, the limitation that a minimum aggregate amount of Damages must be incurred before Seller is entitled to seek indemnification under Section 10.3.1(a), as set forth in this Section 10.3.2(a)(vi)(B), shall not apply to a Relevant Claim brought by Seller under Section 10.3.1(j)." 6. Effect on Agreement; General Provisions. Except as set forth in this Amendment, the terms and provisions of the Agreement are hereby ratified and declared to be in full force and effect. Except as otherwise expressly set forth herein, this Amendment shall be governed by the provisions of the Agreement including with respect to choice of law, disputes, arbitration and successors and assigns. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Captions and paragraph headings are used herein for convenience only, are not a part of this Amendment or the Agreement as amended by this Amendment and shall not be used in construing either document. Other than the reference to the Agreement contained in the first recital of this Amendment, each reference to the Agreement and any agreement contemplated thereby or executed in connection therewith, whether or not accompanied by reference to this Amendment, shall be deemed a reference to the Agreement as amended by this Amendment. 4 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed in multiple originals by their authorized officers, effective as of the Effective Time. SELLER: AHM CGH, Inc., a California corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory Health Resources Corporation of America - California, a Delaware corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory SHL/O Corp., a Delaware corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory UWMC Hospital Corporation, a California corporation By:__________________________ Name:_____________________________ Its: Authorized Signatory PURCHASER: Integrated Healthcare Holdings, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ 5 SCHEDULE 9.2(H) ALL INFORMATION IN THIS [SECURITIES FILING] CONCERNING THE HOSPITALS AND THE HOSPITALS' OPERATIONS IS BEING FURNISHED SOLELY BY ISSUER. THE INFORMATION SUPPLIED BY ISSUER (INCLUDING THE INFORMATION SET FORTH IN THIS [SECURITIES FILING]) CONCERNING THE HOSPITALS AND THE HOSPITALS' OPERATIONS HAS NOT BEEN REVIEWED BY THE PRIOR OWNER OF THE HOSPITALS OR ANY OF ITS REPRESENTATIVES FOR ACCURACY OR OTHERWISE, AND THE PRIOR OWNER OF THE HOSPITALS IS NOT RESPONSIBLE IN ANY WAY FOR ANY SUCH INFORMATION. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY UPON THEIR OWN EXAMINATION OR KNOWLEDGE OF THE HOSPITALS, ITS OPERATIONS AND ITS FINANCIAL RESULTS OR OTHERWISE RELY UPON THE REPRESENTATIONS OF ISSUER. ALL REPRESENTATIONS BY ISSUER OR ITS REPRESENTATIVES AS TO INFORMATION CONCERNING THE HOSPITALS OR THE HOSPITALS' OPERATIONS OR FINANCIAL RESULTS, AND ALL INFORMATION SET FORTH IN THIS [SECURITIES FILING] CONCERNING THE HOSPITALS OR THE HOSPITALS' OPERATIONS OR FINANCIAL RESULTS, IS THE SOLE RESPONSIBILITY OF ISSUER, AND NO SUCH REPRESENTATIONS OR INFORMATION MAY BE RELIED UPON BY ANY INVESTOR AS BEING PROVIDED OR APPROVED, EXPLICITLY OR IMPLICITLY, BY THE PRIOR OWNER OF HOSPITAL." 6 EX-99.2 3 v014292_ex99-2.txt Exhibit 99.2 THIRD AMENDMENT TO ASSET SALE AGREEMENT This Third Amendment to Asset Sale Agreement (this "Amendment") is made and entered into effective as of the Effective Time by and among AHM CGH, Inc., a California corporation ("AHM"), Health Resources Corporation of America - California, a Delaware corporation ("HRC"), SHL/O Corp., a Delaware corporation ("SHL/O") and UWMC Hospital Corporation, a California corporation ("UWMC") (AHM, HRC, SHL/O and UWMC are collectively referred to herein as "Seller") and Integrated Healthcare Holdings, Inc., a Nevada corporation ("IHH"), as assigned to WMC-SA, Inc., a California corporation, WMC-A, Inc., a California corporation, Coastal Communities Hospital, Inc., a California corporation, and Chapman Medical Center, Inc., a California corporation (collectively, the "IHH Subsidiaries") (collectively, IHH and the IHH Subsidiaries are referred to herein as "Purchaser"). RECITALS A. Seller and IHH entered into that certain Asset Sale Agreement dated as of September 29, 2004, as previously amended by the First Amendment to Asset Sale Agreement, effective as of January 28, 2005, and Second Amendment to Asset Sale Agreement, effective as of January 1, 2005, both between Seller and IHH (the "Agreement"), pursuant to which IHH agreed to acquire from Seller substantially all of the assets used in the operation of the Hospitals. B. This Amendment is being entered into immediately after the execution and delivery of that certain "Assignment and Assumption of Asset Sale Agreement," dated March 7, 2005, pursuant to which IHH has assigned, conveyed and transferred to the IHH Subsidiaries certain of IHH's rights and interests in the Agreement. C. Seller and Purchaser desire to amend the Agreement to address certain matters that have arisen since the Effective Date of the Agreement. NOW, THEREFORE, in consideration of the foregoing premises and the mutual promises and covenants contained in this Amendment, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Defined Terms. Except to the extent it is specifically indicated to the contrary in this Amendment, defined terms used in this Amendment shall have the same meanings ascribed to them in the Agreement. 2. Cash Purchase Price. Section 1.2 of the Agreement (excluding, however, Subsections 1.2.1 and 1.2.2 of Section 1.2) shall be deleted, and replaced in its entirety with the following language: "1.2 Purchase Price. Subject to the terms and conditions of this Agreement, the aggregate purchase price to be paid by Purchaser to Seller for the purchase of all of the Assets shall be (a) Seventy Million Dollars ($70,000,000) (the "Purchase Price"), minus (b) the amount of Seller's capital lease obligations with respect to the Hospitals on the Closing Date, if any, that are assumed by Purchaser pursuant to Section 1.11 of this Agreement, minus (c) the net present value on the Closing Date of the Employee Loan Liabilities, minus (d) Seven Hundred Fifty Thousand ($750,000), reflecting the credit made available to Purchaser hereunder for assuming the Sick Pay Amount at Closing; minus (e) Five Hundred Thousand Dollars $500,000), the appraised value, as determined by the appraisal by FMV Opinions, Inc., of Seller's partnership interest in the Santa Ana Radiology Center partnership (the "Santa Ana Radiology Center Amount"), which amount is the price at which Seller will sell such partnership interest to the Santa Ana radiology Center partnership, reflecting the treatment of such Santa Ana Radiology Center partnership interest as an Excluded Asset, as reflected on Schedule 1.10(y); minus (f) Five Million Dollars ($5,000,000), reflecting the treatment of the twenty two (22) condominium units owned by Seller located at 999 N. Tustin Ave., Santa Ana, CA (the "Condominium Units") as Excluded Assets, as reflected on Schedule 1.10(y); and (g) the Accrued Paid Time Off Amount on the Closing Date (the sum of (a), (b), (c), (d), (e), (f) and (g) being referred to for purposes of this Agreement as the "Cash Purchase Price"). The payment of the Cash Purchase Price at Closing shall be governed by Section 1.7." 3. Closing Date. Section 1.5 of the Agreement, as amended by the Second Amendment to Asset Sale Agreement between Seller and Purchaser, effective as of January 1, 2005, is hereby amended by changing the date "February 28, 2005" contained therein to "March 7, 2005". 4. Employee Lease Agreement. Section 1.6.16 of the Agreement is amended to read in its entirety as follows: "1.6.16 four Employee Lease Agreements, one with respect to the employees of each of the four hospitals, each in the form of Exhibit 1.6.16 attached hereto, or such other form as Seller and Purchaser shall mutually agree (collectively, the "Employee Lease Agreements");" 5. Certain Employee/Collective Bargaining Matters. The Agreement is hereby amended in the following respects with respect to certain collective bargaining matters including without limitation to reflect that collective bargaining and related agreements will be assigned by Seller and assumed by Purchaser as of the Transition Time, not the Effective Time. a. Section 1.9(f) shall be deleted and replaced in its entirety by the following language: 2 "(f) all of such Seller's interest, to the extent assignable or transferable, in and to all contracts and agreements (including, but not limited to, purchase orders) with respect to the operation of any Hospital (the "Contracts") (other than the Employment Related Contracts) including, without limitation, those Contracts described in Schedule 1.9(f), provided that Seller shall assign and Purchaser shall assume and agree to discharge, at the Transition Time, all Contracts with employees or relating to employment (including collective bargaining agreements) existing on the Effective Date (or which are entered into after the Effective Date) (the "Employment Related Contracts"), but only to the extent of the obligations arising under such Employment Related Contracts with respect to events or periods on and after the Transition Time (subject to Purchaser's obligations to Seller pursuant to the Employee Leasing Agreement); provided, however, the term Contracts as used in this Agreement shall exclude, subject to Section 9.3, (i) multi-hospital contracts as to which one of the Hospitals and one or more of Seller's or Seller's affiliates' other acute care hospitals (which are not among the Hospitals) participate including without limitation any Election Procedure Agreements (the "Multi-Facility Contracts"), (ii) all national or regional contracts of Seller or any affiliate thereof which are made available to any of the Hospitals by virtue of such Hospital being an affiliate of Tenet Healthcare Corporation ("THC") or its affiliates (the "Tenet Affiliate Contracts") (the Multi-Facility Contracts and the Tenet Affiliate Contracts collectively are referred to as the "Excluded Multi-Facility Contracts") and (iii) any contracts specifically identified on Schedule 1.9(f) as being excluded (the "Other Excluded Contracts");" b. Section 4.3 shall be amended by replacing the phrases "Effective Time" and "Closing Date" wherever such phrases appear in the last three sentences of such section (i.e., the third to last sentence of Section 4.3 that begins with the words, "Seller agrees that it shall consult") with the phrase "Transition Time". c. The first sentence of Section 5.3(b) of the Agreement is hereby amended to change the word "and" that occurs immediately following the reference to Section 2.13(b) in such sentence to the word "or". d. The first sentence of Section 5.3(i) of the Agreement is hereby amended to change the phrase beginning with "including, without limitation," and ending with a semi-colon, to read as follows: "including, without limitation, obligations thereunder to any of the Hired Employees covered by any labor union agreement between Seller or Seller's affiliates and SEIU, UNAC and/or CNA, those described on Schedule 2.13(b) and/or Section 5.15;". e. Section 5.15(a)(i) is hereby deleted in its entirety and replaced with the following language: "On and after the Transition Time, Purchaser agrees to abide by the terms of the Election Procedure Agreements between Tenet California, Inc. and SEIU, CNA and UNAC and any amendments or other agreements entered into between Tenet California, Inc. and SEIU, CNA and/or UNAC prior to the Transition Time as to Chapman Medical Center and agrees to abide by and assume any applicable collective bargaining agreement." f. Section 5.15(a)(iii) is hereby deleted in its entirety and replaced with the following language: "(iii) Upon selection of UNAC or any other labor organization as the collective bargaining representative of employees of Chapman Medical Center pursuant to a representation election under the terms of the Election Procedure Agreement between Tenet California, Inc. and UNAC, Purchaser shall recognize UNAC or such other labor organization and shall adopt and assume the applicable Western Regional Health Care Employees Model Contract and/or Western Regional Registered Nurse Model Contract (as applicable to professional employees) and all agreements related to such collective bargaining agreements. If such employees select a collective bargaining representative under the terms of the applicable Election Procedure Agreement prior to the Transition Time, Purchaser shall retain all or substantially all of the bargaining unit employees covered by the applicable collective bargaining agreement." 3 g. Section 5.15(b)(i) is hereby deleted in its entirety and replaced with the following language: "(i) On and after the Transition Time, Purchaser agrees to abide by the terms of the Election Procedure Agreements between Tenet California, Inc. and SEIU, CNA and UNAC and any amendments or other agreements entered into between Tenet California, Inc. and SEIU, CNA and/or UNAC prior to the Transition Time as to Coastal Communities Hospital and agrees to abide by and assume any applicable collective bargaining agreement." h. Section 5.15(b)(ii) is hereby amended to delete the phrase "Effective Time" contained therein and replace it with the phrase "Transition Time." i. Section 5.15(b)(iii) is hereby deleted in its entirety and replaced with the following language: "(iii) Upon selection of UNAC or any other labor organization as the collective bargaining representative of employees of Coastal Communities Hospital pursuant to a representation election under the terms of the Election Procedure Agreement between Tenet California, Inc. and UNAC, Purchaser shall recognize UNAC or such other labor organization and shall adopt and assume the applicable Western Regional Health Care Employees Model Contract and/or Western Regional Registered Nurse Model Contract (as applicable to professional employees) and all agreements related to such collective bargaining agreements. If such employees select a collective bargaining representative under the terms of the applicable Election Procedure Agreement prior to the Transition Time, Purchaser shall retain all or substantially all of the bargaining unit employees covered by the applicable collective bargaining agreement." j. Section 5.15(c)(i) is hereby deleted in its entirety and replaced with the following language: "(i) On and after the Transition Time, Purchaser agrees to abide by the terms of the Election Procedure Agreements between Tenet California, Inc. and SEIU, CNA, and UNAC and any amendments or other agreements entered into between Tenet California, Inc. and SEIU, CNA and/or UNAC prior to the Transition Time as to Western Medical Center - Anaheim and agrees to abide by and assume any applicable collective bargaining agreement." k. Section 5.15(c)(ii) is hereby amended to delete the phrase "Effective Time" contained therein and replace it with the phrase "Transition Time." 4 l. The first sentence of Section 5.15(c)(iii) is hereby amended to delete the reference to "skilled maintenance" employees such that the reference to employees contained in such sentence states as follows: "full-time, part-time and per diem service and maintenance, technical and business office clerical employees employed by Western Medical Center - Anaheim". m. Section 5.15(c)(iii) is hereby amended to delete the phrase "Effective Time" contained therein and replace it with the phrase "Transition Time." n. Section 5.15(c)(iv) of the Agreement is hereby renumbered as Section 5.15(c)(v) and a new Section 5.15(iv) is added that provides in its entirety as follows: "(iv) Upon selection of UNAC or any other labor organization as the collective bargaining representative of employees of Western Medical Center - Anaheim pursuant to a representation election under the terms of the Election Procedure Agreement between Tenet California, Inc. and UNAC, Purchaser shall recognize UNAC or such other labor organization and shall adopt and assume the applicable Western Regional Health Care Employees Model Contract and/or Western Regional Registered Nurse Model Contract (as applicable to professional employees) and all agreements related to such collective bargaining agreements. If such employees select a collective bargaining representative under the terms of the applicable Election Procedure Agreement prior to the Transition Time, Purchaser shall retain all or substantially all of the bargaining unit employees covered by the applicable collective bargaining agreement." o. Section 5.15(d)(i) of the Agreement is hereby deleted in its entirety and replaced with the following: "(i) On and after the Transition Time, Purchaser agrees to abide by the terms of the Election Procedure Agreements between Tenet California, Inc. and Service Employees International Union SEIU, CNA and UNAC and any amendments or other agreements entered into between Tenet California, Inc. and SEIU, CNA and/or UNAC prior to the Transition Time as to Western Medical Center - Santa Ana and agrees to abide by and assume any applicable collective bargaining agreement." p. Section 5.15(d)(ii) of the Agreement is hereby deleted in its entirety and replaced with the following: "(ii) Purchaser agrees that nothing in this Agreement prohibits Seller and/or Seller's affiliates from agreeing with CNA prior to the Transition Time to conduct elections for registered nurses of Western Medical Center - Santa Ana covered by the applicable Election Procedure Agreement whether such elections occur prior to or after the Transition Time. Upon selection by registered nurses of CNA, UNAC or any other labor organization as their collective bargaining representative pursuant to a representation election under the terms of the applicable Election Procedure Agreement, Purchaser shall recognize such labor organization and shall adopt and assume the applicable registered nurse collective bargaining agreement and all agreements related to such collective bargaining agreement. If such registered nurses select a collective bargaining representative under the terms of the applicable Election Procedure Agreement prior to the Transition Time, Purchaser shall retain all or substantially all of the bargaining unit employees covered by the applicable collective bargaining agreement." 5 q. Section 5.15(d)(iii) of the Agreement is hereby deleted in its entirety and replaced with the following: "(iii) Purchaser agrees that nothing in this Agreement prohibits Seller and/or Seller's affiliates from agreeing with the SEIU prior to the Transition Time to conduct elections for employees of Western Medical Center - - Santa Ana covered by the applicable Election Procedure Agreement whether such elections occur prior to or after the Transition Time. Upon selection of SEIU and/or any of its affiliated local unions, including without limitation SEIU Local 399 and SEIU Local 121 RN, UNAC or any other labor organization pursuant to a representation election among employees of Western Medical Center - Santa Ana covered by the terms of the Election Procedure Agreement between Tenet California, Inc. and SEIU or UNAC, Purchaser shall recognize such labor organization as the collective bargaining representative and shall adopt and assume the applicable Western Regional Health Care Employees Model Contract and/or Western Regional Registered Nurse Model Contract (as applicable to professional employees) and all agreements related to such collective bargaining agreements. If such employees select a collective bargaining representative under the terms of the applicable Election Procedure Agreement prior to the Transition Time, Purchaser shall retain all or substantially all of the bargaining unit employees covered by the applicable collective bargaining unit." 6. Drop Dead Date. Section 8.1(g) of the Agreement, as amended by the Second Amendment to Asset Sale Agreement between Seller and Purchaser, effective as of January 1, 2005, is hereby amended by changing the date "February 28, 2005" contained therein to "March 4, 2005". 7. Post-Closing Treatment of Condominium Units. New Section 4.19 is hereby added to the Agreement to provide in its entirety as follows: "4.19 Seller has been unable to obtain a waiver of the Condominium Association's rights under the right of first refusal contained in the Condominium Association Bylaws with respect to the Condominium Units on or before Closing Date. Purchaser acknowledges and agrees that it has submitted to Seller its bona fide and binding offer (the "Offer") to acquire the Condominium Units for a purchase price of Five Million Dollars ($5,000,000), which offer is attached as Exhibit A hereto, for purposes of presentation of such offer to the Condominium Association pursuant to the right of first refusal process. Seller acknowledges and agrees that it has forwarded the Offer to the Condominium Association as required by the right of first refusal process. If, as of March 24, 2005 the Condominium Association has not exercised its first right as addressed below, Seller shall sell and Purchaser shall purchase the Condominium Units on the terms and conditions set forth in the Offer. If the Condominium Association exercises its rights under the right of first refusal, Seller shall sell the Condominium Units to the Condominium Association on the terms and conditions set forth in the Offer. In the event that, following exercise by the Condominium Association of its rights under the right of first refusal, the Condominium Association is unable or unwilling to consummate such sale in accordance with the terms of the Offer, Seller shall sell and Purchaser shall purchase the Condominium Units on the terms and conditions set forth in the offer as soon as reasonably practicable following the failure of the Condominium Association to consummate the purchase of the Condominium Units. In the event the Condominium Units are ultimately sold to the Purchaser following completion of the foregoing process, the Condominium Units shall be treated as part of the Assets sold to Purchaser under the Agreement for purposes of all of Seller's and Purchaser's respective rights and obligations with respect to such sale." 6 8. Siemens CT Scanner. Seller acknowledges that the Siemens CT Scanner at Western Medical Center - Santa Ana (the "CT Scanner") constitutes part of the Assets and Seller shall assign, transfer, convey and deliver the CT Scanner to Purchaser at Closing free and clear of any Encumbrances except for the Permitted Exceptions. 9. Chapman Medical Center Leases. New Section 4.20 is hereby added to the Agreement to provide in its entirety as follows: "4.20 In connection with assignment of the Chapman Medical Center Leases to Purchaser hereunder, IHH and Chapman Medical Center, Inc., an IHH Subsidiary ("CMC"), hereby agree as follows: (a) Tenet Healthcare Corporation, a Nevada corporation and an affiliate of Seller, in its capacity as guarantor ("Guarantor") under the Guaranty of Obligations (Hospital Lease) and under the Guaranty of Obligations (MOB Lease) executed by Guarantor in connection with the assignment of the Chapman Medical Center Leases to IHH, shall be named as a "named insured" on all policies of insurance to be obtained and maintained with respect to the premises by IHH as tenant and/or CMC as subtenant under the Chapman Medical Center Leases (collectively, the "Chapman Premises Insurance Policies"); (b) The Chapman Premises Insurance Policies shall provide that such policies shall not be subject to cancellation or modification without at least thirty (30) days calendar advance written notice to Guarantor; (c) IHH and CMC shall provide Guarantor with copies of certificates of insurance evidencing the Chapman Premises Insurance Policies and the foregoing requirements (or full copies of such policies if so requested by Guarantor) on an annual basis commencing upon the assignment of the Chapman Medical Center Leases by AHM to IHH, and at such other times as Guarantor may reasonably request; and (d) IHH and CMC shall provide to Guarantor copies of any and all Landlord Notices (as defined below) received by IHH and/or CMC, respectively, within five (5) calendar days of receipt of any such Landlord Notice. As used herein, "Landlord Notice(s)" shall mean any written notice or other written communication from or on behalf of Chapman Medical, L.P. or any successor landlord under the Chapman Medical Center Leases ("Landlord"), or any lender to Landlord, to IHH and/or CMC, relating to (i) any default under either of the Chapman Medical Center Leases, or any act or omission which would give Landlord the right either immediately or after the lapse of time to declare a default or to terminate either of the Chapman Medical Center Leases, (ii) any change or proposed change in the use of the premises under either of the Chapman Medical Center Leases, or (iii) any modification or proposed modification to the terms of either of the Chapman Medical Center Leases existing as of the date hereof, which would adversely affect or increase the obligations of IHH and/or CMC as tenant or subtenant. 7 10. Effect on Agreement; General Provisions. Except as set forth in this Amendment, the terms and provisions of the Agreement are hereby ratified and declared to be in full force and effect. Except as otherwise expressly set forth herein, this Amendment shall be governed by the provisions of the Agreement including with respect to choice of law, disputes, arbitration and successors and assigns. This Amendment may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Captions and paragraph headings are used herein for convenience only, are not a part of this Amendment or the Agreement as amended by this Amendment and shall not be used in construing either document. Other than the reference to the Agreement contained in the first recital of this Amendment, each reference to the Agreement and any agreement contemplated thereby or executed in connection therewith, whether or not accompanied by reference to this Amendment, shall be deemed a reference to the Agreement as amended by this Amendment. 8 IN WITNESS WHEREOF, the parties have caused this Amendment to be executed in multiple originals by their authorized officers, effective as of the Effective Time. SELLER: AHM CGH, Inc., a California corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory Health Resources Corporation of America - California, a Delaware corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory SHL/O Corp., a Delaware corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory UWMC Hospital Corporation, a California corporation By:_______________________________ Name:_____________________________ Its: Authorized Signatory [SIGNATURES CONTINUED ON NEXT PAGE] 9 PURCHASER: Integrated Healthcare Holdings, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ WMC-SA, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ WMC-A, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ Chapman Medical Center, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ Coastal Communities Hospital, Inc. a California corporation By:_______________________________ Name:_____________________________ Its:_______________________________ 10 Exhibit A.__ Bona Fide Offer with respect to Condominium Units See attached. EX-99.3 4 v014292_ex99-3.txt Exhibit 99.3 GUARANTY AGREEMENT (OC-PIN) This Guaranty Agreement (as the same may be amended, modified, or supplemented from time to time, the "GUARANTY") is made as of March 3, 2005, by ORANGE COUNTY PHYSICIANS INVESTMENT NETWORK, LLC, a Nevada limited liability company ("GUARANTOR"), in favor of MEDICAL PROVIDER FINANCIAL CORPORATION, a Nevada corporation ("LENDER"), with reference to the following facts: RECITALS: A. This Guaranty is made in connection with a certain Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") by and among Lender and the Borrowers and certain other "Credit Parties" (as defined therein). Initially capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement. B. AHM CGH, Inc., a California corporation, HEALTH RESOURCES CORPORATION OF AMERICA- CALIFORNIA, a Delaware corporation, UWMC HOSPITAL CORPORATION, a California corporation, and SHL/O CORP., a Delaware corporation (collectively, "SELLER") are in the business of delivering acute care services to the public through the acute care hospital facilities identified in this Guaranty, and incident thereto, are also in the businesses of owning and operating certain medical office buildings ("MOB'S") and other healthcare businesses related thereto (the "BUSINESSES"). C. Pursuant to a certain Asset Sale Agreement dated as of September 29, 2004 ("ASSET SALE AGREEMENT"), IHHI is acquiring from Seller (a) the fee interest in certain real property, hospital facilities, MOB's and Businesses in three (3) separate locations in Orange County, California, and (b) the tenant's interest in certain leases of real property, hospital facility and an MOB also located in Orange County, California ("LEASED HOSPITAL FACILITY") (each a "HOSPITAL FACILITY" and together the "HOSPITAL FACILITIES"), and the business assets related to the same. To enable IHHI to make these acquisitions, Borrowers are borrowing the sum of Fifty Million Dollars ($50,000,000) from Lender (the "ACQUISITION LOAN"). D. Immediately following IHHI's acquisition of the Hospital Facilities, IHHI will transfer three (3) of the Hospital Facilities to Pacific Coast Holdings Investment, LLC, a California limited liability company ("PCHI"). Immediately after the transfer to PCHI, IHHI will transfer its ownership interest in PCHI to (a) West Coast Holdings, LLC, a California limited liability company ("WEST COAST") a fifty-one percent (51%) membership interest, and (b) Ganesha Realty, LLC, a California limited liability company ("GANESHA") a forty-nine percent (49%) interest. Then, PCHI will lease the three (3) Hospital Facilities back to IHHI pursuant to a Triple Net Hospital and Medical Office Building Lease dated March 3, 2005 (the "TRIPLE NET LEASE"). Then, IHHI will (i) sublease each of the three Hospital Facilities to three (3) of its subsidiaries (WMC-SA, WMC-A and Coastal), each of which is identified above as a Borrower, and (ii) sub-sublease the Leased Hospital Facility to another of its subsidiaries (Chapman), which is also identified above as a Borrower. 1 E. Borrowers have also requested that Lender extend a non-revolving Line of Credit facility to Borrowers of up to Thirty Million Dollars ($30,000,000) in the aggregate for the purpose of providing (a) working capital financing for Borrowers, (b) funds for other general corporate purposes of Borrowers, and (c) funds for other purposes permitted hereunder (the "LINE OF CREDIT LOAN"). F. For the purposes set forth above, Lender is willing to make the Acquisition Loan and the Line of Credit Loan and other extensions of credit to or for the benefit of Borrowers of up to such amount upon the terms and conditions set forth herein. G. Among other conditions for making the Acquisition Loan and the Line of Credit Loan (collectively, the "LOAN"), Lender has required, among other conditions, that the Guarantor guaranty the payment of the Loan and pledge its assets as additional security for the payment and performance of the Obligations, including the Loan, under the Credit Agreement. H. Guarantor will derive substantial direct and indirect economic benefits from the Loan. I. The parties intend that these Recitals are made a part of this Guaranty. NOW, THEREFORE, for and in consideration of the foregoing and of any financial accommodations or extensions of credit (including, without limitation, any loan or advance by renewal, refinancing or extension of the agreements described hereinabove or otherwise) heretofore, now or hereafter made to or for the benefit of any Borrower pursuant to the Credit Agreement or any other agreement, instrument or document executed pursuant to or in connection therewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Borrower and the Lender hereby agree as follows: AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Guaranty, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lender and Guarantor agree as follows: 1. Definitions; Certain Matters of Construction. Unless otherwise set forth herein, (a) initially capitalized terms or matters of construction defined or established in the Credit Agreement shall be applied herein as defined or established therein, (b) any reference to a "Section" shall refer to the relevant section of this Guaranty, and (c) the following terms shall have, unless otherwise provided elsewhere in this Guaranty, the meanings set forth below: "EQUITY INTEREST" means all shares of capital stock, options and warrants to purchase equity securities or other forms of equity, membership interests, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common 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). 2 "GUARANTY OBLIGATIONS" shall mean (a) the Obligations under the Credit Agreement, including the Loan and (b) all indebtedness, liabilities, and obligations of Guarantor to Lender whether now existing or hereafter arising under this Guaranty. "GUARANTY TERMINATION DATE" shall mean the date on which Borrower shall have no further right to receive any financial accommodations under the Credit Agreement and all Obligations under the Credit Agreement and the Guaranty Obligations shall have been completely satisfied. "OBLIGATIONS" has the meaning assigned to it in the Credit Agreement. "SOLVENT" shall mean, with respect to Guarantor on a particular date, that on such date (a) the fair value of the property of Guarantor is greater than the total amount of its liabilities, including contingent liabilities; (b) the present fair salable value of the assets of Guarantor is not less than the amount that will be required to pay the probable liability of Guarantor on its debts as they become absolute and matured; (c) Guarantor does not intend to, and does not reasonably believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature; and (d) Guarantor is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which its property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan 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. 2. Guaranty. 2.1 Guaranty of the Obligations. (a) In consideration of the Loan, all other financial accommodations to or for the benefit of Borrower and Guarantor, and for other valuable consideration, the receipt and sufficiency of which Guarantor hereby acknowledges, Guarantor hereby unconditionally, irrevocably and absolutely guarantees to Lender, and its respective successors, endorsees, transferees, and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Loan, together with all other Obligations, whether now or hereafter existing, and whether for principal, interest, fees, expenses, or otherwise, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereafter existing or due or to become due (including in all cases all such amounts which would become due but for the operation of the provisions of Title 11 of the United States Code or any other similar statutes). (b) This Guaranty constitutes a guaranty of payment and performance when due and not of collection, and Guarantor specifically agrees that it shall not be necessary or required that Lender, or any of its successors, endorsees, transferees, or assigns assert any claim or demand or enforce any remedy whatsoever against any Borrower, any Credit Party, or any other Person, or with respect to any collateral (provided by any Borrower or any Credit Party) (collectively, "COLLATERAL"), before or as a condition to the obligations of Guarantor under this Guaranty. 3 2.2 Absolute Guaranty. The Guaranty Obligations shall remain in full force and effect without regard to, and shall not be impaired or affected by, or be deemed to be satisfied by, and Guarantor shall not be exonerated, discharged or released by, any of the following events: (a) Lender's exercise or enforcement of, or failure or delay in exercising or enforcing, legal proceedings to collect the Loan or the Guaranty Obligations or any power, right, or remedy with respect to any of the Loan, the Guaranty Obligations, or the Collateral, including without limitation: (i) any action or inaction of Lender to perfect, protect, or enforce any lien upon any Collateral; or (ii) any change in the time, manner, or place of payment of, or in any other term of, any or all of the Loan or the Guaranty Obligations, or any other amendment to, or waiver of, the Credit Agreement, any other Loan Document, or any other agreement or instrument governing or evidencing the Loan or any of the Guaranty Obligations; (b) insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, appointment of a receiver or trustee for all or any part of Borrower's or Guarantor's assets or of the assets of any other guarantor of the Obligations, liquidation, winding-up, or dissolution of Borrower or Guarantor, or any other guarantor of the Obligations; (c) any limitation, discharge, cessation, or partial satisfaction of the Loan, the Guaranty Obligations, or the obligations of any other guarantor of the Obligations, or any invalidity, voidability, unenforceability, in whole or in part, of the Credit Agreement, this Guaranty, any other Loan Document, or any other document evidencing the Loan or Guaranty Obligations; (d) any merger, acquisition, consolidation or change in structure of Borrower or Guarantor or any other guarantor of the Obligations; or any sale, lease, transfer, or other disposition of any or all of the assets or Equity Interests of any Borrowers or Guarantor or any other guarantor of the Obligations, including, without limitation, any transfer by Borrower of all or any part of any Collateral, or termination of Borrower's existence for any reason; (e) any assignment or other transfer, in whole or in part, of Lender's interest in or rights in or under the Credit Agreement, or any other Loan Document, including, without limitation, this Guaranty, or with respect to the Loan, the Guaranty Obligations, or the Collateral; (f) any claim, defense, counterclaim, or setoff that Borrower or Guarantor or any other guarantor of the Obligations may have or assert, including, without limitation, any defense of incapacity, disability, or lack of corporate, organizational or other authority to execute any document relating to the Loan, the Guaranty Obligations, the Collateral, or any other Guaranty, other than (i) upon the occurrence of the Guaranty Termination Date, the defense of prior performance, or (ii) any defense based on any applicable provision of the Uniform Commercial Code requiring that Collateral be disposed of in a commercially reasonable manner; 4 (g) any cancellation, renunciation or surrender of any pledge, guaranty, or any debt instrument evidencing the Loan or the Guaranty Obligations; (h) the vote, claim, distribution, election, acceptance, action, or inaction of Lender in any bankruptcy or reorganization case related to the Loan, the Guaranty Obligations, or the Collateral; or (i) any other action or circumstances that might otherwise constitute a defense available to, or a legal or equitable discharge of, any surety, guarantor or Guarantor; it being agreed that the Guaranty Obligations shall not be discharged until the Guaranty Termination Date. 2.3 Demand by Lender. In addition to the terms set forth herein, and in no manner imposing any limitation on such terms, if any of the Obligations under the Credit Agreement are declared to be or otherwise becomes immediately due and payable, then Guarantor, upon demand in writing therefor by Lender, shall immediately pay the Guaranty Obligations to Lender. Payment by Guarantor shall be made to Lender to be credited and applied to the Obligations, in immediately available funds in lawful money of the United States of America to an account designated by Lender or at the address set forth below the signature of Lender hereto or at any other address that may be specified in writing from time to time by Lender as provided herein. Any payment received by Lender with respect to the Loan or other Obligations shall reduce the Guaranty Obligations by the amount of such payment. 2.4 Guarantor Waivers. In addition to any other waivers contained herein, Guarantor waives, agrees and acknowledges as follows and waives any defense based upon or arising from the following: (a) The Guaranty Obligations are the immediate, direct, primary and absolute liabilities of Guarantor, and are independent of, and not co-extensive with, the Loan, the other Obligations or the obligations of any other guarantor of the Obligations. Guarantor expressly waives any right it may have now or in the future to direct or affect the manner or timing of Lender's enforcement of its rights or remedies. Guarantor expressly waives any right it may have now or in the future to require Lender to, and Lender shall not have any liability to, pursue or enforce first against any Borrower, any of the properties or assets of any Borrower, the Collateral or any other security, guaranty or pledge that may now or hereafter be held by Lender for the Loan or for the Guaranty Obligations, or to apply such security, guaranty, or pledge to the Loan or to the Guaranty Obligations. Guarantor shall remain liable for the Guaranty Obligations, notwithstanding any judgment Lender may obtain against any Borrower or Guarantor, any other guarantor of the Obligations, or any other person or entity, or any modification, extension or renewal with respect thereto. Lender shall not be under any liability to marshal any assets in favor of Guarantor or in payment of any or all of the Loan or the Guaranty Obligations. 5 (b) Guarantor has entered into this Guaranty based solely upon its independent knowledge of each Borrower's financial condition, and Guarantor assumes full responsibility for obtaining any further information with respect to Borrowers or the conduct of its business. Guarantor represents that it is now, and during the terms of this Guaranty will be, responsible for ascertaining the financial condition of Borrowers. Guarantor hereby waives any duty on the part of Lender to disclose to Guarantor, and agrees that it is not relying upon or expecting Lender to disclose to it, any fact known or hereafter known by Lender relating to the operation or condition of any Borrower or its business or relating to the existence, liability, or financial condition of any other guarantor of the Obligations. Guarantor knowingly accepts the full range of risk encompassed in a contract of continuing guaranty, which risk includes the possibility that Borrowers may incur further indebtedness after a Borrower's financial condition or its ability to pay debts as they mature has deteriorated. (c) Except as specifically provided in this Guaranty or applicable law, Guarantor waives, to the fullest extent permitted by applicable law: (i) notice of the acceptance by Lender of this Guaranty, (ii) notice of the existence, creation, payment, nonpayment, performance or nonperformance of all or any of the Guaranty Obligations, (iii) presentment, demand and protest and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all of the Loan Documents, notes, commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which Guarantor may be liable in any way, and hereby ratifies and confirms whatever Lender may do in this regard; (iv) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; (v) all rights to receive notices from Lender with respect to, or otherwise sent to, Guarantor or any other guarantor of the Obligations, (vi) the benefit of all valuation, appraisal, stay, extension, redemption and exemption laws, (vii) the benefit of any law purporting to reduce Guarantor's obligation in proportion to the principal obligation hereby guarantied, (viii) the benefit of any law purporting to exonerate Guarantor's obligation upon performance or an offer of performance of the principal obligation, (ix) notice of any extension, modification, renewal, or amendment of any of the terms of the Credit Agreement or any other Loan Document relating to the Loan or the Guaranty Obligations; (x) notice of the occurrence of any Default or Event of Default with respect to the Loan, the Guaranty Obligations, the Collateral or otherwise; and (xi) notice of any exercise or non-exercise by Lender of any right, power, or remedy with respect to the Loan, the Guaranty Obligations or the Collateral. (d) If Lender, under applicable law, may proceed to realize its benefits under any Loan Document providing for a lien upon any Collateral, whether owned by a Borrower or by any other person or entity, either by judicial foreclosure or by nonjudicial sale or enforcement, Lender, at its sole option, may determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Guaranty. (e) Guarantor represents that the Loan and Guaranty Obligations are and shall be incurred by Borrowers for business and commercial purposes only. Any claim of Lender against Guarantor arising out of this Guaranty arises out of the conduct by Guarantor of its trade, business, or profession. Guarantor undertakes all the risks encompassed in the Credit Agreement and the other Loan Documents as they may be now or are hereafter agreed upon by Lender and Borrowers. Prior to the Guaranty Termination Date, Lender, in such manner and upon such terms and at such time as it deems best, and with or without notice to Guarantor, may release, add, subordinate or substitute security for the Loan or other Obligations. 6 (f) A separate action or actions may be brought and prosecuted against Guarantor whether or not an action is brought against any one or more Borrowers, or whether any one or more Borrowers is joined in any such action or actions. 2.5 Waivers Under Statutes. Guarantor makes the following waivers: GUARANTOR WAIVES ALL RIGHTS AND DEFENSES THAT GUARANTOR MAY HAVE BECAUSE THE OBLIGATIONS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER THINGS: (1) LENDER MAY COLLECT FROM GUARANTOR WITHOUT FIRST FORECLOSING ON ANY REAL OR PERSONAL PROPERTY COLLATERAL; (2) IF LENDER FORECLOSES ON ANY REAL PROPERTY COLLATERAL: (A) THE AMOUNT OF THE DEBT MAY BE REDUCED ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH MORE THAN THE SALE PRICE; AND (B) LENDER MAY COLLECT FROM GUARANTOR EVEN IF LENDER, BY FORECLOSING ON THE REAL PROPERTY COLLATERAL, HAS DESTROYED ANY RIGHT GUARANTOR MAY HAVE TO COLLECT FROM BORROWER. THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND DEFENSES GUARANTOR MAY HAVE BECAUSE EACH BORROWER'S DEBT IS SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES INCLUDE, BUT ARE NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON SECTION 580a, 580b, 580d or 762 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE ("CCP"). IN ADDITION, GUARANTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY LENDER, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS BY THE OPERATION OF SECTION 580d OF THE CCP OR OTHERWISE. 2.6 Additional Waivers. (a) Guarantor waives any and all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to Guarantor by reason of California Civil Code Sections 2787 to 2855, inclusive, Sections 2899 and 3433, or other statutory or decisional law. This means, among other things, that: (i) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; (ii) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that a creditor may be required to pursue the principal obligor or the security for the principal obligation before seeking enforcement against a guarantor or security pledged by the guarantor; 7 (iii) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that a guarantor's obligations may be limited or exonerated by reason of the creditor's alteration of the principal obligation or of another guaranty, or by reason of the impairment or suspension of the creditor's rights or remedies against the principal, another guarantor, or any security given for the principal obligation or given for other guaranties; (iv) Guarantor waives and will be unable to claim any right to participate in, or the benefit of, any security given for the principal obligation now or hereafter held by Lender; and (v) Guarantor waives and will be unable to claim any right of subrogation and any right to enforce any remedy which Lender may have against any one or more of the Borrowers. (b) Guarantor waives any defense based upon any lack of authority of the officers, directors, partners, members, managers, or agents acting or purporting to act on behalf of a Borrower or any principal of a Borrower or any legal disability or defect in the formation of a Borrower. (c) Guarantor waives any defense based upon the application by any Borrower of the proceeds of the Loan for purposes other than the purposes represented by such Borrower to Lender or intended or understood by Lender or Guarantor. (d) Guarantor waives the benefit of any statute of limitations affecting the liability of Guarantor hereunder or the enforcement hereof, and Guarantor further agrees that any act or event which tolls any statute of limitations applicable to the obligations of any Borrower shall similarly operate to toll the statute of limitations applicable to Guarantor's liability hereunder. (e) Guarantor waives any defense to the enforcement of the Guaranty Obligations by Lender against Guarantor by virtue of the fact that Guarantor has also executed and delivered to Lender a certain Environmental Indemnity Agreement dated as of the date hereof pursuant to which Guarantor indemnifies Lender against certain liabilities based on certain environmental laws relating to the property sold by IHHI to Guarantor as described in the Recitals to this Agreement. (f) Guarantor further waive any and all defenses which are comparable to the waivers set forth in this Guaranty which would otherwise be available to Guarantor under Nevada law (whether based on a statute or decisional law) and any other defenses available to guarantors under Nevada law, whether based on a statute or decisional law. 8 2.7 Benefits of Guaranty. The provisions of this Guaranty are for the benefit of Lender and its successors, transferees, endorsees, and assigns, and nothing herein shall impair the Loan or other Obligations, as between Borrowers, Guarantor and Lender. No such transfer, endorsement, or assignment shall increase or diminish any of the Guaranty Obligations hereunder. This Guaranty binds Guarantor, and Guarantor may not assign, transfer or endorse this Guaranty. In the event all or any part of the Loan or other Obligations are transferred, endorsed or assigned by Lender to any Person or Persons, any reference to "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.8 Continuing Guaranty. (a) This is a continuing guaranty, (b) this Guaranty shall remain in full force and effect until the Guaranty Termination Date, and (c) the Guaranty Obligations hereunder shall extend to each and every extension or renewal, if any, of the Credit Agreement, regardless of whether the Loan or other Obligations, in successive transactions, may be paid, repaid, advanced or renewed from time to time. 2.9 Subordination. Any and all present and future debts and obligations of any Borrower to Guarantor are hereby fully and absolutely subordinated to the right and time of payment in full of the Obligations to Lender under the Credit Agreement and the other Loan Documents. Any Lien, now existing or hereafter arising, on or in any of the assets of any Borrower in favor of Guarantor, whether created by contract, assignment, subrogation, reimbursement, indemnity, operation of law, principles of equity or otherwise is hereby subordinated in priority to the liens and security interests of Lender, now existing or hereafter arising. The subordination provisions of this Section 2.9 shall be effective regardless of whether demand has been made by Lender and shall remain in effect until the Guaranty Termination Date. 3. Representations and Warranties. To induce Lender to provide the consideration to Borrowers and Guarantor described above, Guarantor hereby makes the following representations and warranties, and each and all of which survive the execution and delivery of this Guaranty: 3.1 Organization. Guarantor is duly formed and validly existing under the laws of the state of its organization and has full power and authority to enter into and perform its obligations under this Guaranty. Guarantor's jurisdiction of organization and exact legal name are as set forth in the first paragraph of this Guaranty. 3.2 Due Authorization. The execution, delivery and performance by Guarantor of this Guaranty have been duly authorized by all necessary action of Guarantor. 3.3 Binding Obligation. This Guaranty constitutes the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with its terms. 3.4 No Conflicts. The execution, delivery, and performance by Guarantor of this Guaranty does not contravene any law, organizational documents of Guarantor or any contractual restriction binding on or affecting Guarantor, and does not result in or require the creation of any Lien upon or with respect to any of its properties. 3.5 Consents. No authorization or approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Guarantor of this Guaranty. 9 3.6 Articles of Organization and Operating Agreement. Guarantor has furnished to Lender a true and correct copy of the Articles of Organization and the Operating Agreement and all amendments thereto, and the Operating Agreement constitutes the valid, binding and enforceable obligation of all parties thereto, sets froth the entire agreement of the parties thereto with respect to the subject matter thereof, has not been further amended or modified, and remains in full force and effect. 3.7 Address and Location of Records. The address of Guarantor's principal place of business and chief executive office (or residence, if Guarantor is an individual) is accurately set forth on the signature page to this Guaranty. 3.8 Solvency. Guarantor is now, and will be upon the consummation of the transactions contemplated by this Guaranty and the other Loan Documents, Solvent. 3.9 No Setoff, Defense, or Counterclaim. As of the date of this Guaranty, the Guaranty Obligations are not subject to any setoff or defense of any kind against Lender or any Borrower, and Guarantor specifically waives its right to assert any such defense or right of setoff. The Guaranty Obligations shall not be subject to any counterclaims, setoffs, or defenses against Lender or any Borrower that may arise in the future, except for (a) any defense of prior performance or payment, or (b) any defense based on any applicable provision of the Uniform Commercial Code requiring that Collateral be disposed of in a commercially reasonable manner, which any Borrower, Guarantor, or other guarantor of the Obligations may have or assert. 4. Covenants. Guarantor covenants and agrees that until the Guaranty Termination Date, Guarantor shall give prompt written notice to Lender (in any event not later than 10 days prior to any change described below) of (a) any change in the location of Guarantor's principal place of business, (b) any change in the location of books and records pertaining to its business, (c) any change in its jurisdiction of organization, (d) any change in its name, identity, or structure in any manner which might make any financing statement filed hereunder incorrect or misleading. 5. Further Assurances. Guarantor agrees that, at its expense, upon the written request of Lender, it will promptly execute and deliver to Lender any additional instruments or documents reasonably considered necessary by Lender to cause this Guaranty to be, become, or remain valid and effective in accordance with its terms. Guarantor will provide Lender in writing such financial and other information with respect to its assets and liabilities as Lender shall request, in form reasonably satisfactory to Lender. 6. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective, as the case may be, if at any time payment or performance of the Loan or the Guaranty Obligations, or any part thereof, pursuant to applicable law, is avoided, rescinded, or reduced in amount, or must otherwise be restored or returned by Lender, or any other obligee of the Loan or the Guaranty 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 avoided, rescinded, reduced, restored or returned, the Loan or the Guaranty Obligations, as the case may be, shall be reinstated and deemed reduced only by such amount paid and not so avoided, rescinded, reduced, restored or returned. 10 7. Defaults and Remedies. Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, Lender may declare any or all of the Guaranty Obligations, immediately and without demand, notice or legal process of any kind, to be, and such Guaranty Obligations shall immediately become, due and payable, and then, or at any subsequent time, Lender may exercise any or all of its rights and remedies under this Guaranty, the Credit Agreement, and any other Loan Documents, including the exercise of any rights and remedies of Lender as a secured party against the Collateral, and under applicable law, and in addition may make demand upon Guarantor for the payment of the Guaranty Obligations; provided, that upon the occurrence of an Event of Default specified in Sections 8.1(a) and (b) of the Credit Agreement, the Guaranty Obligations shall become immediately due and payable without declaration, notice or demand by Lender. All Guaranty Obligations shall bear interest at the Default Rate from and after the date an Event of Default occurs under the Credit Agreement. 8. Application of Payments. Any payment made by Guarantor under this Guaranty shall be applied by Lender first, to the satisfaction of the indemnification liabilities pursuant to Section 9 and then, as set forth in the Credit Agreement. 9. Indemnification. Guarantor shall indemnify and hold Lender, and its respective officers, directors, employees, agents and representatives harmless from and against any liabilities, claims and damages, including, without limitation, reasonable costs, attorneys' fees, disbursements and other expenses incurred or arising by reason of the taking or the failure to take action by Lender, in good faith, in respect of any transaction effected under this Guaranty, including, without limitation, any action to enforce payment of the Guaranty Obligations. The liabilities of Guarantor under this Section 9 shall survive the termination of this Guaranty. 10. 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 Guaranty, 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 and three (3) Business Days after deposit in the United States Mail registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon confirmation of transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 10), (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 below such party's signature to this Guaranty 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. 11 11. Entire Agreement. This Guaranty, together with the other Loan Documents constitutes the entire agreement, and supersedes all prior and contemporaneous oral and written communications and agreements, between the parties with respect to the subject matter hereof. 12. Limitation of Liability. Neither Lender nor any of its officers, directors, employees, agents, or counsel, shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own respective gross negligence or willful misconduct. 13. Advice of Counsel. Guarantor represents and warrants that he has either obtained the advice of counsel or has had the opportunity to obtain such advice in connection with the terms and provisions of this Guaranty. 14. Amendments. No amendment or waiver of any provisions of this Guaranty, or consent to any departure by Guarantor therefrom, shall be effective in any event unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15. Consent to Loan Documents. Guarantor hereby acknowledges it has received copies of, and consents to, the Credit Agreement and all of the Loan Documents. 16. No Waiver. No failure on the part of Lender or Lender to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof; and no single or partial exercise of any right under any Loan Document shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. 17. Binding Effect. This Guaranty shall be binding upon and inure to respective benefits of Lender and Guarantor and their respective successors and assigns, except that Guarantor shall not have the right to assign its rights hereunder or any interest herein without Lender's prior written consent. 18. Severability. In the event that any one or more of the provisions contained in any of the Loan Documents shall be determined to be invalid, illegal, or unenforceable in any respect for any reason, the validity, legality, and enforceability of any such provision or provisions in every other respect, and the remaining provisions of such Loan Document, shall not be in any way impaired. 19. Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE 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. GUARANTOR AND LENDER 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 GUARANTOR AND LENDER 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 LENDER AND GUARANTOR 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. GUARANTOR AND LENDER EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GUARANTOR AND LENDER HEREBY WAIVE ANY OBJECTION THAT SUCH GUARANTOR OR 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. GUARANTOR AND LENDER HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR OR TO LENDER AT THE ADDRESS SET FORTH BELOW AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF GUARANTOR'S OR LENDER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID. 12 20. Waiver of Trial By Jury. Guarantor and Lender each hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Guaranty, any other Loan Document, or any of the transactions contemplated thereby. 21. Suretyship Waivers. The suretyship waivers contained in the Credit Agreement shall be applicable to this Agreement and to all other Loan Documents and be deemed to be remade by Guarantor. 22. Counterparts. This Guaranty may be executed in any number of identical counterparts, which shall constitute an original and collectively and separately constitute a single instrument or agreement. IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. ORANGE COUNTY PHYSICIANS INVESTMENT NETWORK, LLC a Nevada limited liability company By: --------------------------- ------------------------------ --------------------------- ------------------------------ [Printed Name] --------------------------- ------------------------------ [Title] Address 13 EX-99.4 5 v014292_ex99-4.txt Exhibit 99.4 GUARANTY AGREEMENT (PCHI) This Guaranty Agreement (as the same may be amended, modified, or supplemented from time to time, the "GUARANTY") is made as of March 3, 2005, by PACIFIC COAST HOLDINGS INVESTMENT, LLC, a California limited liability company ("GUARANTOR"), in favor of MEDICAL PROVIDER FINANCIAL CORPORATION II, a Nevada corporation ("LENDER"), with reference to the following facts: RECITALS: A. This Guaranty is made in connection with a certain Credit Agreement dated as of the date hereof (as amended, restated, supplemented or otherwise modified from time to time, the "CREDIT AGREEMENT") by and among Lender and the Borrowers and certain other "Credit Parties" (as defined therein). Initially capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to such terms in the Credit Agreement. B. AHM CGH, Inc., a California corporation, HEALTH RESOURCES CORPORATION OF AMERICA- CALIFORNIA, a Delaware corporation, UWMC HOSPITAL CORPORATION, a California corporation, and SHL/O CORP., a Delaware corporation (collectively, "SELLER") are in the business of delivering acute care services to the public through the acute care hospital facilities identified in this Guaranty, and incident thereto, are also in the businesses of owning and operating certain medical office buildings ("MOB'S") and other healthcare businesses related thereto (the "BUSINESSES"). C. Pursuant to a certain Asset Sale Agreement dated as of September 29, 2004 ("ASSET SALE AGREEMENT"), IHHI is acquiring from Seller (a) the fee interest in certain real property, hospital facilities, MOB's and Businesses in three (3) separate locations in Orange County, California, and (b) the tenant's interest in certain leases of real property, hospital facility and an MOB also located in Orange County, California ("LEASED HOSPITAL FACILITY") (each a "HOSPITAL FACILITY" and together the "HOSPITAL FACILITIES"), and the business assets related to the same. To enable IHHI to make these acquisitions, Borrowers are borrowing the sum of Fifty Million Dollars ($50,000,000) from Lender (the "ACQUISITION LOAN"). D. Immediately following IHHI's acquisition of the Hospital Facilities, IHHI will transfer three (3) of the Hospital Facilities to Pacific Coast Holdings Investment, LLC, a California limited liability company ("PCHI"). Immediately after the transfer to PCHI, IHHI will transfer its ownership interest in PCHI to (a) West Coast Holdings, LLC, a California limited liability company ("WEST COAST") a fifty-one percent (51%) membership interest, and (b) Ganesha Realty, LLC, a California limited liability company ("GANESHA") a forty-nine percent (49%) membership interest. Then, PCHI will lease the three (3) Hospital Facilities back to IHHI pursuant to a Triple Net Hospital and Medical Office Building Lease dated March 3, 2005 (the "TRIPLE NET LEASE"). Then, IHHI will (i) sublease each of the three Hospital Facilities to three (3) of its subsidiaries (WMC-SA, WMC-A and Coastal), each of which is identified above as a Borrower, and (ii) sub-sublease the Leased Hospital Facility to another of its subsidiaries (Chapman), which is also identified above as a Borrower. 1 E. Borrowers have also requested that Lender extend a non-revolving Line of Credit facility to Borrowers of up to Thirty Million Dollars ($30,000,000) in the aggregate for the purpose of providing (a) working capital financing for Borrowers, (b) funds for other general corporate purposes of Borrowers, and (c) funds for other purposes permitted hereunder (the "LINE OF CREDIT LOAN"). F. For the purposes set forth above, Lender is willing to make the Acquisition Loan and the Line of Credit Loan and other extensions of credit to or for the benefit of Borrowers of up to such amount upon the terms and conditions set forth herein. G. Among other conditions for making the Acquisition Loan and the Line of Credit Loan (collectively, the "LOAN"), Lender has required, among other conditions, that the Guarantor guaranty the payment of the Loan and pledge its assets as additional security for the payment and performance of the Obligations, including the Loan, under the Credit Agreement. H. Guarantor will derive substantial direct and indirect economic benefits from the Loan. I. The parties intend that these Recitals are made a part of this Guaranty. NOW, THEREFORE, for and in consideration of the foregoing and of any financial accommodations or extensions of credit (including, without limitation, any loan or advance by renewal, refinancing or extension of the agreements described hereinabove or otherwise) heretofore, now or hereafter made to or for the benefit of any Borrower pursuant to the Credit Agreement or any other agreement, instrument or document executed pursuant to or in connection therewith, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each Borrower and the Lender hereby agree as follows: AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Guaranty, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, Lender and Guarantor agree as follows: 1. Definitions; Certain Matters of Construction. Unless otherwise set forth herein, (a) initially capitalized terms or matters of construction defined or established in the Credit Agreement shall be applied herein as defined or established therein, (b) any reference to a "Section" shall refer to the relevant section of this Guaranty, and (c) the following terms shall have, unless otherwise provided elsewhere in this Guaranty, the meanings set forth below: "EQUITY INTEREST" means all shares of capital stock, options and warrants to purchase equity securities or other forms of equity, membership interests, general or limited partnership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common 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). 2 "GUARANTY OBLIGATIONS" shall mean (a) the Obligations under the Credit Agreement, including the Loan and (b) all indebtedness, liabilities, and obligations of Guarantor to Lender whether now existing or hereafter arising under this Guaranty. "GUARANTY TERMINATION DATE" shall mean the date on which Borrower shall have no further right to receive any financial accommodations under the Credit Agreement and all Obligations under the Credit Agreement and the Guaranty Obligations shall have been completely satisfied. "OBLIGATIONS" has the meaning assigned to it in the Credit Agreement. "SOLVENT" shall mean, with respect to Guarantor on a particular date, that on such date (a) the fair value of the property of Guarantor is greater than the total amount of its liabilities, including contingent liabilities; (b) the present fair salable value of the assets of Guarantor is not less than the amount that will be required to pay the probable liability of Guarantor on its debts as they become absolute and matured; (c) Guarantor does not intend to, and does not reasonably believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature; and (d) Guarantor is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which its property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guarantees and pension plan 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. 2. Guaranty. 2.1 Guaranty of the Obligations. (a) In consideration of the Loan, all other financial accommodations to or for the benefit of Borrower and Guarantor, and for other valuable consideration, the receipt and sufficiency of which Guarantor hereby acknowledges, Guarantor hereby unconditionally, irrevocably and absolutely guarantees to Lender, and its respective successors, endorsees, transferees, and assigns, the prompt payment (whether at stated maturity, by acceleration or otherwise) and performance of the Loan, together with all other Obligations, whether now or hereafter existing, and whether for principal, interest, fees, expenses, or otherwise, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent or now or hereafter existing or due or to become due (including in all cases all such amounts which would become due but for the operation of the provisions of Title 11 of the United States Code or any other similar statutes). (b) This Guaranty constitutes a guaranty of payment and performance when due and not of collection, and Guarantor specifically agrees that it shall not be necessary or required that Lender, or any of its successors, endorsees, transferees, or assigns assert any claim or demand or enforce any remedy whatsoever against any Borrower, any Credit Party, or any other Person, or with respect to any collateral (provided by any Borrower or any Credit Party) (collectively, "COLLATERAL"), before or as a condition to the obligations of Guarantor under this Guaranty. 3 2.2 Absolute Guaranty. The Guaranty Obligations shall remain in full force and effect without regard to, and shall not be impaired or affected by, or be deemed to be satisfied by, and Guarantor shall not be exonerated, discharged or released by, any of the following events: (a) Lender's exercise or enforcement of, or failure or delay in exercising or enforcing, legal proceedings to collect the Loan or the Guaranty Obligations or any power, right, or remedy with respect to any of the Loan, the Guaranty Obligations, or the Collateral, including without limitation: (i) any action or inaction of Lender to perfect, protect, or enforce any lien upon any Collateral; or (ii) any change in the time, manner, or place of payment of, or in any other term of, any or all of the Loan or the Guaranty Obligations, or any other amendment to, or waiver of, the Credit Agreement, any other Loan Document, or any other agreement or instrument governing or evidencing the Loan or any of the Guaranty Obligations; (b) insolvency, bankruptcy, reorganization, arrangement, adjustment, composition, assignment for the benefit of creditors, appointment of a receiver or trustee for all or any part of Borrower's or Guarantor's assets or of the assets of any other guarantor of the Obligations, liquidation, winding-up, or dissolution of Borrower or Guarantor, or any other guarantor of the Obligations; (c) any limitation, discharge, cessation, or partial satisfaction of the Loan, the Guaranty Obligations, or the obligations of any other guarantor of the Obligations, or any invalidity, voidability, unenforceability, in whole or in part, of the Credit Agreement, this Guaranty, any other Loan Document, or any other document evidencing the Loan or Guaranty Obligations; (d) any merger, acquisition, consolidation or change in structure of Borrower or Guarantor or any other guarantor of the Obligations; or any sale, lease, transfer, or other disposition of any or all of the assets or Equity Interests of any Borrowers or Guarantor or any other guarantor of the Obligations, including, without limitation, any transfer by Borrower of all or any part of any Collateral, or termination of Borrower's existence for any reason; (e) any assignment or other transfer, in whole or in part, of Lender's interest in or rights in or under the Credit Agreement, or any other Loan Document, including, without limitation, this Guaranty, or with respect to the Loan, the Guaranty Obligations, or the Collateral; (f) any claim, defense, counterclaim, or setoff that Borrower or Guarantor or any other guarantor of the Obligations may have or assert, including, without limitation, any defense of incapacity, disability, or lack of corporate, organizational or other authority to execute any document relating to the Loan, the Guaranty Obligations, the Collateral, or any other Guaranty, other than (i) upon the occurrence of the Guaranty Termination Date, the defense of prior performance, or (ii) any defense based on any applicable provision of the Uniform Commercial Code requiring that Collateral be disposed of in a commercially reasonable manner; 4 (g) any cancellation, renunciation or surrender of any pledge, guaranty, or any debt instrument evidencing the Loan or the Guaranty Obligations; (h) the vote, claim, distribution, election, acceptance, action, or inaction of Lender in any bankruptcy or reorganization case related to the Loan, the Guaranty Obligations, or the Collateral; or (i) any other action or circumstances that might otherwise constitute a defense available to, or a legal or equitable discharge of, any surety, guarantor or Guarantor; it being agreed that the Guaranty Obligations shall not be discharged until the Guaranty Termination Date. 2.3 Demand by Lender. In addition to the terms set forth herein, and in no manner imposing any limitation on such terms, if any of the Obligations under the Credit Agreement are declared to be or otherwise becomes immediately due and payable, then Guarantor, upon demand in writing therefor by Lender, shall immediately pay the Guaranty Obligations to Lender. Payment by Guarantor shall be made to Lender to be credited and applied to the Obligations, in immediately available funds in lawful money of the United States of America to an account designated by Lender or at the address set forth below the signature of Lender hereto or at any other address that may be specified in writing from time to time by Lender as provided herein. Any payment received by Lender with respect to the Loan or other Obligations shall reduce the Guaranty Obligations by the amount of such payment. 2.4 Guarantor Waivers. In addition to any other waivers contained herein, Guarantor waives, agrees and acknowledges as follows and waives any defense based upon or arising from the following: (a) The Guaranty Obligations are the immediate, direct, primary and absolute liabilities of Guarantor, and are independent of, and not co-extensive with, the Loan, the other Obligations or the obligations of any other guarantor of the Obligations. Guarantor expressly waives any right it may have now or in the future to direct or affect the manner or timing of Lender's enforcement of its rights or remedies. Guarantor expressly waives any right it may have now or in the future to require Lender to, and Lender shall not have any liability to, pursue or enforce first against any Borrower, any of the properties or assets of any Borrower, the Collateral or any other security, guaranty or pledge that may now or hereafter be held by Lender for the Loan or for the Guaranty Obligations, or to apply such security, guaranty, or pledge to the Loan or to the Guaranty Obligations. Guarantor shall remain liable for the Guaranty Obligations, notwithstanding any judgment Lender may obtain against any Borrower or Guarantor, any other guarantor of the Obligations, or any other person or entity, or any modification, extension or renewal with respect thereto. Lender shall not be under any liability to marshal any assets in favor of Guarantor or in payment of any or all of the Loan or the Guaranty Obligations. 5 (b) Guarantor has entered into this Guaranty based solely upon its independent knowledge of each Borrower's financial condition, and Guarantor assumes full responsibility for obtaining any further information with respect to Borrowers or the conduct of its business. Guarantor represents that it is now, and during the terms of this Guaranty will be, responsible for ascertaining the financial condition of Borrowers. Guarantor hereby waives any duty on the part of Lender to disclose to Guarantor, and agrees that it is not relying upon or expecting Lender to disclose to it, any fact known or hereafter known by Lender relating to the operation or condition of any Borrower or its business or relating to the existence, liability, or financial condition of any other guarantor of the Obligations. Guarantor knowingly accepts the full range of risk encompassed in a contract of continuing guaranty, which risk includes the possibility that Borrowers may incur further indebtedness after a Borrower's financial condition or its ability to pay debts as they mature has deteriorated. (c) Except as specifically provided in this Guaranty or applicable law, Guarantor waives, to the fullest extent permitted by applicable law: (i) notice of the acceptance by Lender of this Guaranty, (ii) notice of the existence, creation, payment, nonpayment, performance or nonperformance of all or any of the Guaranty Obligations, (iii) presentment, demand and protest and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all of the Loan Documents, notes, commercial paper, accounts, contract rights, documents, instruments, chattel paper and guaranties at any time held by Lender on which Guarantor may be liable in any way, and hereby ratifies and confirms whatever Lender may do in this regard; (iv) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security which might be required by any court prior to allowing Lender to exercise any of its remedies; (v) all rights to receive notices from Lender with respect to, or otherwise sent to, Guarantor or any other guarantor of the Obligations, (vi) the benefit of all valuation, appraisal, stay, extension, redemption and exemption laws, (vii) the benefit of any law purporting to reduce Guarantor's obligation in proportion to the principal obligation hereby guarantied, (viii) the benefit of any law purporting to exonerate Guarantor's obligation upon performance or an offer of performance of the principal obligation, (ix) notice of any extension, modification, renewal, or amendment of any of the terms of the Credit Agreement or any other Loan Document relating to the Loan or the Guaranty Obligations; (x) notice of the occurrence of any Default or Event of Default with respect to the Loan, the Guaranty Obligations, the Collateral or otherwise; and (xi) notice of any exercise or non-exercise by Lender of any right, power, or remedy with respect to the Loan, the Guaranty Obligations or the Collateral; provided, however, that the Lender shall provide Guarantor with written notice of an Event of Default when and if Lender is required to provide such notice to the Borrower under the Credit Agreement. (d) If Lender, under applicable law, may proceed to realize its benefits under any Loan Document providing for a lien upon any Collateral, whether owned by a Borrower or by any other person or entity, either by judicial foreclosure or by nonjudicial sale or enforcement, Lender, at its sole option, may determine which of its remedies or rights it may pursue without affecting any of its rights and remedies under this Guaranty. (e) Guarantor represents that the Loan and Guaranty Obligations are and shall be incurred by Borrowers for business and commercial purposes only. Any claim of Lender against Guarantor arising out of this Guaranty arises out of the conduct by Guarantor of its trade, business, or profession. Guarantor undertakes all the risks encompassed in the Credit Agreement and the other Loan Documents as they may be now or are hereafter agreed upon by Lender and Borrowers. Prior to the Guaranty Termination Date, Lender, in such manner and upon such terms and at such time as it deems best, and with or without notice to Guarantor, may release, add, subordinate or substitute security for the Loan or other Obligations. 6 (f) A separate action or actions may be brought and prosecuted against Guarantor whether or not an action is brought against any one or more Borrowers, or whether any one or more Borrowers is joined in any such action or actions. 2.5 Waivers Under Statutes. Guarantor makes the following waivers: GUARANTOR WAIVES ALL RIGHTS AND DEFENSES THAT GUARANTOR MAY HAVE BECAUSE THE OBLIGATIONS ARE SECURED BY REAL PROPERTY. THIS MEANS, AMONG OTHER THINGS: (1) LENDER MAY COLLECT FROM GUARANTOR WITHOUT FIRST FORECLOSING ON ANY REAL OR PERSONAL PROPERTY COLLATERAL; (2) IF LENDER FORECLOSES ON ANY REAL PROPERTY COLLATERAL: (A) THE AMOUNT OF THE DEBT MAY BE REDUCED ONLY BY THE PRICE FOR WHICH THAT COLLATERAL IS SOLD AT THE FORECLOSURE SALE, EVEN IF THE COLLATERAL IS WORTH MORE THAN THE SALE PRICE; AND (B) LENDER MAY COLLECT FROM GUARANTOR EVEN IF LENDER, BY FORECLOSING ON THE REAL PROPERTY COLLATERAL, HAS DESTROYED ANY RIGHT GUARANTOR MAY HAVE TO COLLECT FROM BORROWER. THIS IS AN UNCONDITIONAL AND IRREVOCABLE WAIVER OF ANY RIGHTS AND DEFENSES GUARANTOR MAY HAVE BECAUSE EACH BORROWER'S DEBT IS SECURED BY REAL PROPERTY. THESE RIGHTS AND DEFENSES INCLUDE, BUT ARE NOT LIMITED TO, ANY RIGHTS OR DEFENSES BASED UPON SECTION 580a, 580b, 580d or 762 OF THE CALIFORNIA CODE OF CIVIL PROCEDURE ("CCP"). IN ADDITION, GUARANTOR WAIVES ALL RIGHTS AND DEFENSES ARISING OUT OF AN ELECTION OF REMEDIES BY LENDER, EVEN THOUGH THAT ELECTION OF REMEDIES, SUCH AS A NONJUDICIAL FORECLOSURE WITH RESPECT TO SECURITY FOR A GUARANTEED OBLIGATION, HAS DESTROYED GUARANTOR'S RIGHTS BY THE OPERATION OF SECTION 580d OF THE CCP OR OTHERWISE. 2.6 Additional Waivers. (a) Guarantor waives any and all rights of subrogation, reimbursement, indemnification, and contribution and any other rights and defenses that are or may become available to Guarantor by reason of California Civil Code Sections 2787 to 2855, inclusive, Sections 2899 and 3433, or other statutory or decisional law. This means, among other things, that: (i) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal; 7 (ii) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that a creditor may be required to pursue the principal obligor or the security for the principal obligation before seeking enforcement against a guarantor or security pledged by the guarantor; (iii) Guarantor waives and will be unable to raise any defense based upon any statute or rule of law which provides that a guarantor's obligations may be limited or exonerated by reason of the creditor's alteration of the principal obligation or of another guaranty, or by reason of the impairment or suspension of the creditor's rights or remedies against the principal, another guarantor, or any security given for the principal obligation or given for other guaranties; (iv) Guarantor waives and will be unable to claim any right to participate in, or the benefit of, any security given for the principal obligation now or hereafter held by Lender; and (v) Guarantor waives and will be unable to claim any right of subrogation and any right to enforce any remedy which Lender may have against any one or more of the Borrowers. (b) Guarantor waives any defense based upon any lack of authority of the officers, directors, partners, members, managers, or agents acting or purporting to act on behalf of a Borrower or any principal of a Borrower or any legal disability or defect in the formation of a Borrower. (c) Guarantor waives any defense based upon the application by any Borrower of the proceeds of the Loan for purposes other than the purposes represented by such Borrower to Lender or intended or understood by Lender or Guarantor. (d) Guarantor waives the benefit of any statute of limitations affecting the liability of Guarantor hereunder or the enforcement hereof, and Guarantor further agrees that any act or event which tolls any statute of limitations applicable to the obligations of any Borrower shall similarly operate to toll the statute of limitations applicable to Guarantor's liability hereunder. (e) Guarantor waives any defense to the enforcement of the Guaranty Obligations by Lender against Guarantor by virtue of the fact that Guarantor has also executed and delivered to Lender a certain Environmental Indemnity Agreement dated as of the date hereof pursuant to which Guarantor indemnifies Lender against certain liabilities based on certain environmental laws relating to the property sold by IHHI to Guarantor as described in the Recitals to this Agreement. (f) Guarantor further waives any and all defenses which are comparable to the waivers set forth in this Guaranty which would otherwise be available to Guarantor under Nevada law (whether based on a statute or decisional law) and any other defenses available to guarantors under Nevada law, whether based on a statute or decisional law. 8 2.7 Benefits of Guaranty. The provisions of this Guaranty are for the benefit of Lender and its successors, transferees, endorsees, and assigns, and nothing herein shall impair the Loan or other Obligations, as between Borrowers, Guarantor and Lender. No such transfer, endorsement, or assignment shall increase or diminish any of the Guaranty Obligations hereunder. This Guaranty binds Guarantor, and Guarantor may not assign, transfer or endorse this Guaranty. In the event all or any part of the Loan or other Obligations are transferred, endorsed or assigned by Lender to any Person or Persons, any reference to "Lender" herein shall be deemed to refer equally to such Person or Persons. 2.8 Continuing Guaranty. (a) This is a continuing guaranty, (b) this Guaranty shall remain in full force and effect until the Guaranty Termination Date, and (c) the Guaranty Obligations hereunder shall extend to each and every extension or renewal, if any, of the Credit Agreement, regardless of whether the Loan or other Obligations, in successive transactions, may be paid, repaid, advanced or renewed from time to time. 2.9 Subordination. Any and all present and future debts and obligations of any Borrower to Guarantor are hereby fully and absolutely subordinated to the right and time of payment in full of the Obligations to Lender under the Credit Agreement and the other Loan Documents. Any Lien, now existing or hereafter arising, on or in any of the assets of any Borrower in favor of Guarantor, whether created by contract, assignment, subrogation, reimbursement, indemnity, operation of law, principles of equity or otherwise is hereby subordinated in priority to the liens and security interests of Lender, now existing or hereafter arising. The subordination provisions of this Section 2.9 shall be effective regardless of whether demand has been made by Lender and shall remain in effect until the Guaranty Termination Date. 3. Representations and Warranties. To induce Lender to provide the consideration to Borrowers and Guarantor described above, Guarantor hereby makes the following representations and warranties, and each and all of which survive the execution and delivery of this Guaranty: 3.1 Organization. Guarantor is duly formed and validly existing under the laws of the state of its organization and has full power and authority to enter into and perform its obligations under this Guaranty. Guarantor's jurisdiction of organization and exact legal name are as set forth in the first paragraph of this Guaranty. 3.2 Due Authorization. The execution, delivery and performance by Guarantor of this Guaranty have been duly authorized by all necessary action of Guarantor. 3.3 Binding Obligation. This Guaranty constitutes the legal, valid and binding obligations of Guarantor, enforceable against Guarantor in accordance with its terms. 3.4 No Conflicts. The execution, delivery, and performance by Guarantor of this Guaranty does not contravene any law, organizational documents of Guarantor or any contractual restriction binding on or affecting Guarantor, and does not result in or require the creation of any Lien upon or with respect to any of its properties. 9 3.5 Consents. No authorization or approval, or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by Guarantor of this Guaranty. 3.6 Articles of Organization and Operating Agreement. Guarantor has furnished to Lender a true and correct copy of the Articles of Organization and the Operating Agreement and all amendments thereto, and the Operating Agreement constitutes the valid, binding and enforceable obligation of all parties thereto, sets froth the entire agreement of the parties thereto with respect to the subject matter thereof, has not been further amended or modified, and remains in full force and effect. 3.7 Address and Location of Records. The address of Guarantor's principal place of business and chief executive office (or residence, if Guarantor is an individual) is accurately set forth on the signature page to this Guaranty. 3.8 Solvency. Guarantor is now, and will be upon the consummation of the transactions contemplated by this Guaranty and the other Loan Documents, Solvent. 3.9 No Setoff, Defense, or Counterclaim. As of the date of this Guaranty, the Guaranty Obligations are not subject to any setoff or defense of any kind against Lender or any Borrower, and Guarantor specifically waives its right to assert any such defense or right of setoff. The Guaranty Obligations shall not be subject to any counterclaims, setoffs, or defenses against Lender or any Borrower that may arise in the future, except for (a) any defense of prior performance or payment, or (b) any defense based on any applicable provision of the Uniform Commercial Code requiring that Collateral be disposed of in a commercially reasonable manner, which any Borrower, Guarantor, or other guarantor of the Obligations may have or assert. 4. Covenants. Guarantor covenants and agrees that until the Guaranty Termination Date, Guarantor shall give prompt written notice to Lender (in any event not later than 10 days prior to any change described below) of (a) any change in the location of Guarantor's principal place of business, (b) any change in the location of books and records pertaining to its business, (c) any change in its jurisdiction of organization, (d) any change in its name, identity, or structure in any manner which might make any financing statement filed hereunder incorrect or misleading. 5. Further Assurances. Guarantor agrees that, at its expense, upon the written request of Lender, it will promptly execute and deliver to Lender any additional instruments or documents reasonably considered necessary by Lender to cause this Guaranty to be, become, or remain valid and effective in accordance with its terms. Guarantor will provide Lender in writing such financial and other information with respect to its assets and liabilities as Lender shall request, in form reasonably satisfactory to Lender. 6. Reinstatement. This Guaranty shall remain in full force and effect and continue to be effective, as the case may be, if at any time payment or performance of the Loan or the Guaranty Obligations, or any part thereof, pursuant to applicable law, is avoided, rescinded, or reduced in amount, or must otherwise be restored or returned by Lender, or any other obligee of the Loan or the Guaranty 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 avoided, rescinded, reduced, restored or returned, the Loan or the Guaranty Obligations, as the case may be, shall be reinstated and deemed reduced only by such amount paid and not so avoided, rescinded, reduced, restored or returned. 10 7. Defaults and Remedies. Upon the occurrence and during the continuance of an Event of Default under the Credit Agreement, Lender may declare any or all of the Guaranty Obligations, immediately and without demand, notice or legal process of any kind, to be, and such Guaranty Obligations shall immediately become, due and payable, and then, or at any subsequent time, Lender may exercise any or all of its rights and remedies under this Guaranty, the Credit Agreement, and any other Loan Documents, including the exercise of any rights and remedies of Lender as a secured party against the Collateral, and under applicable law, and in addition may make demand upon Guarantor for the payment of the Guaranty Obligations; provided, that upon the occurrence of an Event of Default specified in Sections 8.1(a) and (b) of the Credit Agreement, the Guaranty Obligations shall become immediately due and payable without declaration, notice or demand by Lender. All Guaranty Obligations shall bear interest at the Default Rate from and after the date an Event of Default occurs under the Credit Agreement. 8. Application of Payments. Any payment made by Guarantor under this Guaranty shall be applied by Lender first, to the satisfaction of the indemnification liabilities pursuant to Section 9 and then, as set forth in the Credit Agreement. 9. Indemnification. Guarantor shall indemnify and hold Lender, and its respective officers, directors, employees, agents and representatives harmless from and against any liabilities, claims and damages, including, without limitation, reasonable costs, attorneys' fees, disbursements and other expenses incurred or arising by reason of the taking or the failure to take action by Lender, in good faith, in respect of any transaction effected under this Guaranty, including, without limitation, any action to enforce payment of the Guaranty Obligations. The liabilities of Guarantor under this Section 9 shall survive the termination of this Guaranty. 10. 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 Guaranty, 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 and three (3) Business Days after deposit in the United States Mail registered or certified mail, return receipt requested, with proper postage prepaid, (b) upon confirmation of transmission, when sent by telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 10), (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 below such party's signature to this Guaranty 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. 11 11. Entire Agreement. This Guaranty, together with the other Loan Documents constitutes the entire agreement, and supersedes all prior and contemporaneous oral and written communications and agreements, between the parties with respect to the subject matter hereof. 12. Limitation of Liability. Neither Lender nor any of its officers, directors, employees, agents, or counsel, shall be liable for any action lawfully taken or omitted to be taken by it or them hereunder or in connection herewith, except for its or their own respective gross negligence or willful misconduct. 13. Advice of Counsel. Guarantor represents and warrants that it has either obtained the advice of counsel or has had the opportunity to obtain such advice in connection with the terms and provisions of this Guaranty. 14. Amendments. No amendment or waiver of any provisions of this Guaranty, or consent to any departure by Guarantor therefrom, shall be effective in any event unless the same shall be in writing and signed by Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. 15. Consent to Loan Documents. Guarantor hereby acknowledges it has received copies of, and consents to, the Credit Agreement and all of the Loan Documents. 16. No Waiver. No failure on the part of Lender or Lender to exercise, and no delay in exercising, any right under any Loan Document shall operate as a waiver thereof; and no single or partial exercise of any right under any Loan Document shall preclude any other or further exercise thereof or the exercise of any other right. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. 17. Binding Effect. This Guaranty shall be binding upon and inure to respective benefits of Lender and Guarantor and their respective successors and assigns, except that Guarantor shall not have the right to assign its rights hereunder or any interest herein without Lender's prior written consent. 18. Severability. In the event that any one or more of the provisions contained in any of the Loan Documents shall be determined to be invalid, illegal, or unenforceable in any respect for any reason, the validity, legality, and enforceability of any such provision or provisions in every other respect, and the remaining provisions of such Loan Document, shall not be in any way impaired. 12 19. Governing Law. IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE 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. GUARANTOR AND LENDER 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 GUARANTOR AND LENDER 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 LENDER AND GUARANTOR 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. GUARANTOR AND LENDER EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND GUARANTOR AND LENDER HEREBY WAIVE ANY OBJECTION THAT SUCH GUARANTOR OR 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. GUARANTOR AND LENDER HEREBY WAIVE PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO GUARANTOR OR TO LENDER AT THE ADDRESS SET FORTH BELOW AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF GUARANTOR'S OR LENDER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID. 20. Waiver of Trial By Jury. Guarantor and Lender each hereby irrevocably waives all right to trial by jury in any action, proceeding or counterclaim arising out of or relating to this Guaranty, any other Loan Document, or any of the transactions contemplated thereby. 21. Suretyship Waivers. The suretyship waivers contained in Article 12 of the Credit Agreement shall be applicable to this Agreement and to all other Loan Documents and be deemed to be remade by Guarantor. 22. Counterparts. This Guaranty may be executed in any number of identical counterparts, which shall constitute an original and collectively and separately constitute a single instrument or agreement. IN WITNESS WHEREOF, Guarantor has executed and delivered this Guaranty as of the date first above written. PACIFIC COAST HOLDINGS INVESTMENT, LLC a California limited liability company By: --------------------------- --------------------------- [Printed Name] --------------------------- [Title] 13 EX-99.5 6 v014292_ex99-5.txt SUBORDINATION AGREEMENT THIS SUBORDINATION AGREEMENT (this "Agreement") is made as of March 3, 2005, by and among 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"), and COASTAL COMMUNITIES HOSPITAL, INC., a California corporation ("Coastal") (IHHI, WMC-SA, WMC-A, Chapman and Coastal are sometimes collectively referred to herein as "Borrowers" and individually as "Borrower"); PACIFIC COAST HOLDINGS INVESTMENT, LLC, a California limited liability company ("PCHI") (Borrowers and PCHI are sometimes collectively referred to herein as "Subordinating Parties" and individually as a "Subordinating Party"); and MEDICAL PROVIDER FINANCIAL CORPORATION II, a Nevada corporation ("Lender"). RECITALS: A. AHM CGH, Inc., a California corporation, HEALTH RESOURCES CORPORATION OF AMERICA- CALIFORNIA, a Delaware corporation, UWMC HOSPITAL CORPORATION, a California corporation, and SHL/O CORP., a Delaware corporation (collectively, "Seller") are in the business of delivering acute care services to the public through the acute care hospital facilities identified in this Agreement, and incident thereto, are also in the businesses of owning and operating certain medical office buildings ("MOB's") and other healthcare businesses related thereto (the "Businesses"). B. Pursuant to a certain Asset Sale Agreement dated as of September 29, 2004 ("Asset Sale Agreement"), IHHI is acquiring from Seller (a) the fee interest in certain real property, hospital facilities, MOB's and Businesses in three (3) separate locations in Orange County, California, and (b) the tenant's interest in certain leases of real property, hospital facility and an MOB also located in Orange County, California ("Leased Hospital Facility") (each a "Hospital Facility" and together the "Hospital Facilities"), and the business assets related to the same. To enable IHHI to make these acquisitions, Borrowers are borrowing the sum of Fifty Million Dollars ($50,000,000) from Lender (the "Acquisition Loan"). C. Immediately following IHHI's acquisition of the Hospital Facilities, IHHI will transfer three (3) of the Hospital Facilities to Pacific Coast Holdings Investment, LLC, a California limited liability company ("PCHI"). Immediately after the transfer to PCHI, IHHI will transfer its ownership interest in PCHI to (a) West Coast Holdings, LLC, a California limited liability company ("West Coast") a fifty-one percent (51%) membership interest, and (b) Ganesha Realty, LLC, a California limited liability company ("Ganesha") a forty-nine percent (49%) interest. Then, PCHI will lease the three (3) Hospital Facilities back to IHHI pursuant to a Triple Net Hospital and Medical Office Building Lease dated March 3, 2005 (the "Triple Net Lease"). Then, IHHI will (i) sublease each of the three Hospital Facilities to three (3) of its subsidiaries (WMC-SA, WMC-A and Coastal), each of which is identified above as a Borrower, 1 and (ii) sub-sublease the Leased Hospital Facility to another of its subsidiaries (Chapman), which is also identified above as a Borrower. D. Borrowers have also requested that Lender extend a non-revolving Line of Credit facility to Borrowers of up to Thirty Million Dollars ($30,000,000) in the aggregate for the purpose of providing (a) working capital financing for Borrowers, (b) funds for other general corporate purposes of Borrowers, and (c) funds for other purposes permitted hereunder (the "Line of Credit Loan"). E. Lender and Borrowers have entered into a Credit Agreement dated as of even date herewith (as from time to time modified, extended, renewed, or restated, the "Credit Agreement"), together with the other Loan Documents (as defined in the Credit Agreement), whereby Lender has made and shall make available to Borrower the Acquisition Loan and the Line of Credit Loan (collectively, the "Loan") therein set forth, which Loan is secured by certain assignments of and security interests in the assets, and all ownership and equity interests, of Borrowers, now or hereafter existing, all as more fully set forth in the Loan Documents. F. Subordinated Parties shall benefit from the execution and delivery of the Credit Agreement and the making of the Loan. G. As a condition of the financial accommodations under the Loan Documents, the parties hereto are required to enter into this Agreement to establish the priority of the repayment of the Borrowers debts, and to address certain related matters. H. Subordinated Parties and Borrowers desire to enter into this Agreement in order to induce Lender to enter into the Credit Agreement with Borrower and to make the Loan. AGREEMENT: NOW, THEREFORE, in consideration of the foregoing Recitals and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged and confessed, the parties agree as follows: 1. Definitions. Except as otherwise provided herein, all capitalized terms used in this Agreement shall have the meanings ascribed to such terms in the Credit Agreement, provided that the following terms shall have the meanings set forth below: "Borrowers' Property" means all assets, property and property rights, of any kind or nature, tangible or intangible, now or hereafter existing, in which any Borrower owns, asserts or maintains an interest. "Finally Paid" or "Final Payment," when used in connection with the Senior Indebtedness means the full, final and indefeasible payment of all of the Senior Indebtedness and the irrevocable termination of Lender's obligation to make loans or other advances under the Credit Agreement. "Insolvency Proceeding" means any proceeding commenced by or against any of the Borrowers under any provision of the Bankruptcy Code, or under any other bankruptcy or insolvency law, including assignments for the benefit of creditors, formal or informal moratoria, compositions, extensions generally with its creditors, or proceedings seeking reorganization, arrangement, or other similar relief. 2 "Liens" means any mortgage, deed of trust, pledge, lien, security interest, charge, set-off right or other encumbrance, whether now existing or hereafter credited, acquired or arising. "Senior Indebtedness" means all principal, interest and other obligations at any time due and owing by Borrowers to Lender arising out of or incurred in connection with the Loan Documents or other documents executed in connection with the Loan (and any indebtedness which refinances such principal, interest or other obligations), as modified, extended, renewed or restated, whether direct or contingent, and whether now existing or hereafter created. Senior Indebtedness shall include, without limitation, all interest which accrues on the principal amount of the Senior Indebtedness subsequent to the commencement of a proceeding under Chapter 11 of the Bankruptcy Code, irrespective of whether or not such interest would be allowed as a claim in such proceedings. "Subordinated Indebtedness" means (i) all indebtedness of the Borrowers to any and all Subordinated Parties pursuant to (a) their respective interests in the Triple Net Lease, and (b) the Borrowers' respective interests in any and all subleases and sub-subleases of all or any portion of the Hospital Facilities and the Borrowers' Property, (ii) all present and future loans, advances, debts, liabilities, obligations, leases, and indebtedness owing by any Borrower to any Subordinated Parties whether evidenced by any note, or other instrument or document, whether arising from an extension of credit, opening of a letter of credit, loan, guaranty, indemnification or otherwise, whether direct or indirect (including, without limitation, those acquired by assignment and any participation by any Subordinated Party in any Borrower's debts owing others), absolute or contingent, due or to become due, including, without limitation, all interests, charges, expenses, fees, attorneys' fees and any other sums chargeable to any Borrower and (iii) any payments to the Subordinated Parties in redemption or purchase of warrants, capital stock, partnership interests, membership interests, ownership interests or equity of the Borrowers held by such Subordinated Parties or any other payment in respect of warrants, capital stock, partnership interests, membership interests, ownership interest or equity of the Borrowers. Notwithstanding any thing to the contrary provided herein, to the extent that PCHI now or hereafter incurs any loans, advances, debts, liabilities, obligations, leases, and indebtedness to a Subordinated Party, PCHI and the Subordinating Parties agree that (i) such indebtedness shall constitute "Subordinated Indebtedness" under this Agreement, and (ii) all references to "Borrower" in all sections of this Agreement will include PCHI so that Lender will have all rights and remedies hereunder (a) with respect to such indebtedness incurred by PCHI and (b) against the Subordinated Party. "Subordinated Loan Documents" means any and all contracts, agreements, leases, subleases, instruments or other documents evidencing the Subordinated Indebtedness. "UCC" means Article 9 of the Uniform Commercial Code, as in effect in the State of California from time to time, unless the context otherwise requires. 2. Subordination. The Subordinated Parties hereby postpone and subordinate, to the extent and in the manner provided in this Agreement, all of the Subordinated Indebtedness to the Final Payment of all of the Senior Indebtedness. Subordinated Parties hereby agree that all claims and rights of any kind that the Subordinated Parties may now have or hereafter acquire against 3 any Borrower and Borrowers' Property resulting from Subordinated Indebtedness shall be subordinate and subject to the claims and rights against any Borrower and/or Borrowers' Property of Lender arising from or out of the Senior Indebtedness, to the extent and in the manner set forth in this Agreement. If any Borrower issues any instrument or document evidencing the Subordinated Indebtedness each such instrument and document shall bear a conspicuous legend that it is subordinated to the Senior Indebtedness in accordance with the terms of this Agreement. Each Borrower's books shall be marked to evidence the subordination of all of the Subordinated Indebtedness to the holder of Senior Indebtedness, in accordance with the terms of this Agreement. Lender is authorized to examine such books from time to time and to make any notations required by this Agreement. Subordinated Parties hereby agrees that any Liens, security interests, claims, and rights of any kind Subordinated Parties has against any and all Borrowers, are and shall be subordinate and subject to the Liens, security interests, claims, and rights against Borrowers and/or Borrowers' Property of Lender arising from or out of the Senior Indebtedness and the Loan Documents regardless of the order or time as of which any Liens attach to any of Borrowers' Property, the order or time of UCC filing, or any other filings or recordings, the order or time of granting of any such Liens, or the physical possession of any of Borrowers' Property until this Agreement is terminated in accordance with Section 21 of this Agreement. Notwithstanding the foregoing, payments may be made on account of the Subordinated Indebtedness to the extent such payments are a "Distribution" (as defined in the Credit Agreement) as permitted by Section 6.14(xxii) of the Credit Agreement, unless and until there is an Event of Default under the Credit Agreement, whereupon all such payments shall cease. In no event shall any such payment be made otherwise permitted under applicable law. 3. Warranties and Representations of Borrower and Subordinated Parties. (a) Each Borrower and Subordinated Parties each hereby severally represents and warrants to the Lender that the Lender has been furnished with a true and correct copy of all instruments and securities evidencing or pertaining to the Subordinated Indebtedness. Each Borrower hereby represents and warrants to the Lender that this Agreement has been duly executed and delivered by such Borrower and constitutes a legal, valid and binding obligation of such Borrower, enforceable against such Borrower in accordance with its terms except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors' rights. The Subordinated Parties represent and warrant to the Lender: (i) that this Agreement has been duly executed and delivered by Subordinated Parties and constitutes a legal, valid and binding obligation of Subordinated Parties, enforceable against Subordinated Parties in accordance with its terms, except to the extent that the enforceability thereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors' rights; (ii) that Subordinated Parties is either a corporation duly organized or a limited liability company duly formed, as the case may be, validly existing and in good standing under the laws of the state of its organization; (iii) that the execution, delivery, and performance by Subordinated Parties of this Agreement does not and will not conflict with or contravene any law, rule, regulation, judgment, order or decree of any government, governmental instrumentality or court having jurisdiction over Subordinated Parties or conflict with, or result in any default under Subordinated Parties' organizational, formation and operating agreements and documents; (iv) that Subordinated Parties is the holder and owner of all of the Subordinated Indebtedness, together with all claims and rights in connection therewith, arising therefrom or evidenced thereby; (v) that neither the execution and delivery by Subordinated Parties of this Agreement nor the performance by Subordinated Parties hereunder requires the consent, approval, order, or authorization of, or registration with, or the giving of notice to any governmental authority, domestic or foreign, or any other person or entity, except such consents as have been obtained by Subordinated Parties and are in full force and effect, and except where the failure to obtain such consent will not have a material adverse effect on the financial condition, operations, prospects, profits, business or property of Subordinated Parties; (vi) that Subordinated Parties has not relied and shall not rely on any representation or information of any nature made by or received from Lender relative to Borrowers in deciding to execute this Agreement or to permit it to continue in effect; and (vii) the Recitals set forth in this Agreement are true and correct in all material respects. 4 (b) Lender represents and warrants to the Subordinated Parties: (i) that this Agreement has been duly executed and delivered by Lender and constitutes a legal, valid and binding obligation of Lender enforceable against the Lender in accordance with its terms, except to the extent that the enforceability hereof may be limited by any applicable bankruptcy, insolvency, reorganization, moratorium or similar laws from time to time in effect affecting generally the enforcement of creditors' rights; and (ii) that Lender is the holder and owner of all of the Senior Indebtedness, together with all claims and rights in connection therewith, arising therefrom or evidenced thereby. 4. Negative Covenants. Until all of the Senior Indebtedness has been Finally Paid or without first obtaining the prior written consent of the Lender: (a) Borrowers shall not, directly or indirectly, grant a security interest in, mortgage, pledge, assign or transfer any properties, to secure or satisfy all or any part of the Subordinated Indebtedness; (b) Subordinated Parties shall not demand or accept from any Borrower or any other Person any such collateral; (c) Borrowers shall not discharge the Subordinated Indebtedness other than in accordance with the terms of this Agreement; (d) Subordinated Parties shall not demand or accept from Borrowers or other Person any consideration which would result in a discharge of the Subordinated Indebtedness other than in accordance with the terms of this Agreement; (e) Subordinated Parties shall not hereafter give any subordination in respect of the Subordinated Indebtedness or convert any or all of the Subordinated Indebtedness to capital stock, equity, ownership interests or other securities of Borrowers; (f) Subordinated Parties shall not transfer or assign any of the Subordinated Indebtedness to any Person; (g) Borrowers shall not hereafter issue any instrument, security or other writing evidencing any part of the Subordinated Indebtedness, and Subordinated Parties shall not receive any such writing, except upon the condition that such security shall bear the legend referred to in Section 2 above and a true copy thereof shall be furnished to Lender; (h) Borrowers shall not directly or indirectly redeem or purchase any warrants, capital stock, ownership interest or other equity interest in Borrowers held by Subordinated Parties; (i) Subordinated Parties shall not demand or accept from Borrowers or any other Person, any payments in redemption or purchase of any warrants, capital stock, ownership interest or other equity interest in Borrowers held by Subordinated Parties; and (j) neither the Borrowers nor the Subordinated Parties otherwise shall take any action contrary to Lender's priority position over Subordinated Parties that is created by this Agreement. 5 5. Subordination. Until all of the Senior Indebtedness has been Finally Paid or without first obtaining the prior written consent of the Lender, Borrowers shall not make and Subordinated Parties shall not accept any direct or indirect payment in cash, property or securities, by set-off or otherwise, on account of the principal of, premium, interest or other payments on any of the Subordinated Indebtedness or any other amounts due under the Subordinated Loan Documents or in respect of any redemption, retirement or acquisition of any of the indebtedness evidencing or due under the Subordinated Loan Documents and Borrowers shall not segregate or hold in trust money for any such payment or distribution, except that PCHI may accept rental payments due under the Triple Net Lease and IHHI may accept payments under the subleases.. 6. Subordinated Indebtedness Subordinated to Prior Payment of All Senior Indebtedness on Dissolution, Liquidation or Reorganization of the Borrowers. Upon any Insolvency Proceeding of any Borrower: (a) the holder of the Senior Indebtedness shall first be entitled to receive payment in full (or to have such payment duly provided for in a manner previously agreed upon or otherwise satisfactory to it) of the principal thereof, and interest due thereon, and other amounts payable comprising such Senior Indebtedness, before the Subordinated Parties is entitled to receive any payment on account of the principal of, premium or interest on or any other amounts due under the Subordinated Indebtedness, except for payments under the Triple Net Lease and the subleases thereof; and (b) any payment or distribution of assets of the Borrowers of any kind or character, whether in cash, property or securities, to which the Subordinated Parties would be entitled except for these provisions, shall be paid by the liquidating trustee or agent or other person making such payment or distribution directly to the holder of the Senior Indebtedness, to the extent necessary to make payment in full of all Senior Indebtedness remaining unpaid, after giving effect to any concurrent payment or distribution or provision therefore to the holders of such Senior Indebtedness. The Borrowers shall give prompt written notice to the Lender and the Subordinated Parties of any dissolution, winding up, liquidation or reorganization of the Borrowers or any assignment for the benefit of any of the creditors of the Borrowers tending toward the liquidation of the business and assets of the Borrowers. 7. Forbearance of Legal Remedies. Without first obtaining the prior written consent of the Lender, the Subordinated Parties shall not exercise any remedies it may have for an event of default or any other default occurs under the Subordinated Loan Documents until the Final Payment of the Senior Indebtedness. 8. Subordination Rights Not Impaired by Acts or Omissions of Borrowers or Holder of Senior Indebtedness. No right of any present or future holder of any Senior Indebtedness to enforce subordination as provided herein shall at any time in any way be prejudiced or impaired by any act or failure to act on the part of the Borrowers, by any act or failure to act, in good faith, by any such holder, by any act or failure to act by the other holder or by any noncompliance by the Borrowers with the terms hereof, regardless of any knowledge thereof which any such holder may have or be otherwise charged with. This subordination shall continue and shall be irrevocable until the date all of the Senior Indebtedness has been Finally Paid by Borrowers or otherwise discharged and released by the Lender. Subordinated Parties shall not be released, nor shall Subordinated Parties' obligations hereunder be in anyway diminished, by any of the following: (a) the exercise or the failure to exercise by Lender of any rights or remedies conferred on it or them under the Loan Documents, hereunder, or existing at law or otherwise, or against any of Borrowers' Property; (b) the commencement of an action at law or the recovery of a judgment at law against Borrowers or any obligor ("Obligor") for the performance of the Senior Indebtedness and the enforcement thereof through levy or execution or otherwise; (c) the taking or institution of any action or proceeding against Borrowers or any Obligor; or (d) any delay in taking, pursuing, or exercising any of the foregoing actions, rights, powers, or remedies (even though requested by Subordinated Parties) by Lender or anyone acting for Lender. Without limiting the generality of the foregoing, and anything else contained herein to the contrary notwithstanding, Lender, from time to time, without notice to Subordinated Parties, may take all or any of the following actions without in any manner affecting or impairing the obligation or liability of Subordinated Parties hereunder: (a) obtain a lien or a security interest in any property to 6 secure any of the Senior Indebtedness; (b) obtain the primary and secondary liability of any party or parties with respect to any of the Senior Indebtedness; (c) renew, extend, or otherwise change the time for payment of the Senior Loan or any installment thereof for any period; (d) release or compromise any liability of any nature of any person or entity with respect to the Senior Indebtedness; (e) exchange, enforce, waive, release, and apply any of Borrowers' Property and direct the order or manner of sale thereof as Lender may in its discretion determine; (f) enforce their rights hereunder, whether or not Lender shall proceed against any other person or entity; (g) agree to any amendment, modification, or alteration of the Loan Documents and/or exercise its rights to consent to any action or non-action of Borrowers which may violate the covenants and agreements contained in the Loan Documents with or without consideration, on such terms and conditions as may be acceptable to it; or (h) exercise any of its rights and/ or remedies set forth in the Loan Documents or by law. 9. Waivers. Borrowers and Subordinated Parties each hereby waives any defense based on the adequacy of a remedy at law which might be asserted as a bar to the remedy of specific performance of this Agreement in any action brought therefore by Lender. To the fullest extent permitted by law, Borrowers and Subordinated Parties each hereby further waives: presentment, demand, protest, notice of protest, notice of intent to accelerate, notice of acceleration, notice of default or dishonor, notice of payment or nonpayment and any and all other notices and demands of any kind in connection with all negotiable instruments evidencing all or any portion of the Senior Indebtedness or the Subordinated Indebtedness to which Borrowers or Subordinated Parties may be a party; notice of any loans made, extensions granted or other action taken in reliance thereon; and all other demands and notices of every kind in connection with this Agreement, the Senior Indebtedness or the Subordinated Indebtedness; prior notice of and consent to any loans made, extension granted or other action taken in reliance thereon; and all other demands and notices of every kind in connection with this Agreement or the Senior Indebtedness. Subordinated Parties assents to any release, renewal, extension, compromise or postponement of the time of payment of the Senior Indebtedness, to any substitution, exchange or release of collateral therefore and to the addition or release of any person primarily or secondarily liable thereon. 10. Indulgences Not Waivers. Neither the failure nor any delay on the part of Lender to exercise any right, remedy, power or privilege hereunder shall operate as a waiver thereof or give rise to an estoppel, nor be construed as an agreement to modify the terms of this Agreement, nor shall any single or partial exercise of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver by a party hereunder shall be effective unless it is in writing and signed by the party making such waiver, and then only to the extent specifically stated in such writing. 7 11. Amendment of the Subordinated Loan Documents. Subordinated Parties agrees that it will not, without the consent of the Lender, amend the Subordinated Loan Documents so as to increase the financial terms thereof (including, without limitation, the amount of principal, rate of interest, dividends, fees and prepayment premiums, if any), extend the maturity thereof, add or change any covenants in a manner materially more restrictive to the Borrowers, or effect any other modification to the Subordinated Loan Documents, which would be materially adverse to the Lender. 12. Inconsistent or Conflicting Provisions. In the event any provision of the Loan Documents or the Subordinated Loan Documents is inconsistent with the provisions of this Agreement, the provisions of the Loan Documents shall govern and prevail. 13. Default. Subject to applicable notice and/or grace periods, if any, if any representation or warranty of Borrowers or Subordinated Parties in this Agreement or in any instrument evidencing, securing or relating to the Senior Indebtedness proves to have been materially false when made, or, in the event of a breach by either the Borrowers or Subordinated Parties in the performance of any of the terms of this Agreement, or any instrument or agreement evidencing, securing or relating to the Senior Indebtedness, all of the Senior Indebtedness shall, at the option of Lender, become immediately due and payable without presentment, demand, protest, or notices of any kind, notwithstanding any time or credit otherwise allowed. At any time Subordinated Parties fails to comply with any provision of this Agreement that is applicable to Subordinated Parties, Lender may demand specific performance of this Agreement, whether or not Borrowers has complied with this Agreement, and may exercise any other remedy available at law or equity. 14. Notices. All notices, requests, demands and other communications required or permitted under this Agreement or by law shall be in writing and shall be deemed to have been duly given, made and received only when delivered against receipt or when deposited in the United States mails, certified or registered mail, return receipt requested, postage prepaid, addressed as set forth below, and actually presented at the address of the notice party. If to Lender: Medical Provider Financial Corporation II c/o Medical Capital Corporation 2100 South State College Boulevard Anaheim, California 92806 Attn: Sidney Field, CEO Tel: (714) 935-3100 Fax: (714) 935-3114 8 with copies to: Sedgwick, Detert, Moran & Arnold LLP One Embarcadero Center, Suite 1600 San Francisco, California 94111 Attn: Gary C. Sheppard, Esq. Martin M. Fleisher, Esq. Tel: (415) 781-7900 Fax: (415) 781-2635 If to Borrowers or Subordinated Parties: Integrated Healthcare Holdings, Inc c/o Mogel Management Group, LLC 695 Town Center Drive, Suite 260 Costa Mesa, California 92626 Attn: President Tel: (714) 434-9191 Fax: (714) 434-9505 with copies to: Marshack, Shulman, Hodges & Bastian LLP 26632 Town Centre Drive, Suite 300 Foothill Ranch, California 92610 Attn: Michael J. Peterson, Esq. Ph: 949-340-3400 Fax: 949-340-3000 Any addressee may alter the address to which communications are to be sent by giving notice of such change of address in conformity with the provisions of this Section for the giving of notice. 15. Benefit. Subordinated Parties represents and warrants that the making of the Loan will benefit Subordinated Parties. Subordinated Parties acknowledges that Lender would not make the Loan but for the execution of this Agreement. Therefore, Subordinated Parties has received good, sufficient and adequate consideration for the making of this Agreement. 16. Entire Agreement. This Agreement together with the Loan Documents constitutes and expresses the entire understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, whether express or implied, oral or written. Neither this Agreement nor any portion hereof may be changed, waived or amended orally or in any manner other then by an agreement in writing signed by Lender, Borrowers and Subordinated Parties. 9 17. Additional Documentation. Borrowers and Subordinated Parties shall execute and deliver to Lender such further instruments and shall take such further action as Lender may at any time or times reasonably request in order to carry out the provisions and intent of this Agreement. 18. Expenses. Borrowers agree to pay Lender on demand all expenses of every kind, including reasonable attorneys' fees, that Lender may reasonably incur in enforcing any of its rights against Borrowers under this Agreement. As between Lender and the Subordinated Parties, the non-prevailing party shall pay to the prevailing party all expenses incurred by the prevailing party in enforcing its rights against the non-prevailing party under this Agreement. 19. Successors and Assign. This Agreement shall inure to the benefit of Lender, its successors and assigns, and shall be binding upon both Borrowers and Subordinated Parties and their respective successors and assigns, including, without limitation, any subsequent holders of the Subordinate Note. Lender, without notice of any kind, may sell, assign or transfer the Senior Indebtedness, and in such event each and every immediate and successive assignee or transferee thereof may be given the right by Lender to enforce this Agreement in full against Borrowers and Subordinated Parties, by suit or otherwise, for its own benefit. Subordinated Parties agrees, for the benefit of any such assignee or transferee, that Subordinated Parties' obligations hereunder shall not be subject to any reduction, abatement, defense, set-off, counterclaim or recoupment for any reason whatsoever. 20. Covenant Not to Challenge. This Agreement has been negotiated by the parties with the expectation and in reliance upon the assumption that the instruments and documents evidencing the Senior Indebtedness are valid and enforceable. In determining whether to enter into this Agreement, Subordinated Parties has assumed such validity and enforceability, and has agreed to the provisions contained herein, without relying upon any reservation of a right to challenge or call into question such validity or enforceability. As between Lender and Subordinated Parties, Subordinated Parties hereby covenants and agrees that it shall not initiate in any proceeding a challenge to the validity or enforceability of the documents and instruments evidencing the Senior Indebtedness, nor shall Subordinated Parties instigate other parties to raise any such challenges, nor shall Subordinated Parties participate in or otherwise assert any such challenges which are raised by other parties. 21. Termination of Subordination. This subordination shall continue and shall be irrevocable until the date all of the Senior Indebtedness has been Finally Paid by Borrowers or otherwise discharged and released by the Lender. 22. Reinstatement. The obligations of Subordinated Parties under the Agreement shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness is rescinded or must otherwise be restored or returned by Lender by reason of any bankruptcy, reorganization, arrangement, composition or similar proceeding or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, Borrowers or any substantial part of its property, or otherwise, all as though such payment had not been made. 10 23. Governing Law. THIS AGREEMENT AND ALL RIGHTS AND LIABILITIES OF THE PARTIES SHALL BE GOVERNED AS TO THE VALIDITY, INTERPRETATION, ENFORCEMENT AND EFFECT BY THE LAWS OF THE STATE OF NEVADA. 24. Jury Trial. LENDER, SUBORDINATED PARTIES AND BORROWERS WAIVE TRIAL BY JURY IN ANY DISPUTE ARISING FROM, UNDER OR IN CONNECTION WITH THIS AGREEMENT, EACH ACKNOWLEDGING AND AGREEING THAT ANY CONTROVERSY THAT MAY ARISE HEREUNDER WOULD BE BASED ON DIFFICULT AND COMPLEX ISSUES AND, THEREFORE, WOULD BE BETTER PRESENTED TO AND RESOLVED BY A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. 25. Severability. The provisions of this Agreement are independent of and separable from each other. If any provision hereof shall for any reason by held invalid or unenforceable, it is the intent of the parties that such invalidity or unenforceability shall not affect the validity or enforceability of any other provision hereof, and that this Agreement shall be construed as if such invalid or unenforceable provision had never been contained herein. 26. Counterparts. This Agreement may be executed in any number of separate counterparts, all of which, when taken together, shall constitute one and the same instrument, notwithstanding the fact that all parties did not sign the same counterpart. [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.] 11 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. LENDER: MEDICAL PROVIDER FINANCIAL CORPORATION II By: ____________________________________ ------------------------------------ [Printed Name & Title] BORROWERS AND SUBORDINATED PARTIES: INTEGRATED HEALTHCARE HOLDINGS, INC. By: ____________________________________ ------------------------------------ [Printed Name & Title] WMC-SA, INC. By: ____________________________________ ------------------------------------ [Printed Name & Title] WMC-A, INC. By: ____________________________________ ------------------------------------ [Printed Name & Title] 12 COASTAL COMMUNITIES HOSPITAL, INC. By: ____________________________________ ------------------------------------ [Printed Name & Title] CHAPMAN MEDICAL CENTER, INC. By: ____________________________________ ------------------------------------ [Printed Name & Title] PACIFIC COAST HOLDINGS INVESTMENT, LLC By: ____________________________________ ------------------------------------ [Printed Name & Title] 13 EX-99.6 7 v014292_ex99-6.txt CREDIT AGREEMENT Dated as of March 3, 2005, among INTEGRATED HEALTHCARE HOLDINGS, INC., WMC-SA, INC., WMC-A, INC., CHAPMAN MEDICAL CENTER, INC., and COASTAL COMMUNITIES HOSPITAL, INC., as Borrowers, THE OTHER CREDIT PARTIES SIGNATORY HERETO, as Credit Parties, MEDICAL PROVIDER FINANCIAL CORPORATION II, as Lender. INDEX OF APPENDICES Annex A (Recitals) Definitions Annex C (Section 4.1(b)) Collateral Reports Annex E List of Schedules and Loan Documents Exhibit 1.1(b)(i) Form of Notice of Line of Credit Advance Exhibit 1.1(a)(ii) Form of Acquisition Note Disclosure Schedule 1.1 Lender's Representatives
Annex A (Recitals) Definitions Annex B (Section 1.5) Cash Management System Annex C (Section 4.1(b)) Collateral Reports Annex D (Section 11.10) Notice Addresses Annex E List of Schedules and Loan Documents Exhibit 1.1(b)(i) Form of Notice of Line of Credit Advance Exhibit 1.1(b)(ii) Form of Line of Credit Note Exhibit 1.1(a)(ii) Form of Acquisition Note Disclosure Schedule 1.1 Lender's Representatives Disclosure Schedule 1.3 Sources and Uses; Funds Flow Memorandum Disclosure Schedule 2.1(g) Lists of Required Consents and Approvals Disclosure Schedule 3.1 Type of Entity; State of Organization Disclosure Schedule 3.2 Executive Offices, Collateral Locations, FEIN Disclosure Schedule 3.6 Real Estate and Leases Disclosure Schedule 3.7 Labor Matters Disclosure Schedule 3.8 Ventures, Subsidiaries and Affiliates; Disclosure Schedule 3.11 Tax Matters Outstanding Stock Disclosure Schedule 3.12 ERISA Plans Disclosure Schedule 3.13 Litigation Disclosure Schedule 3.14 Brokers/Finders Disclosure Schedule 3.15 Intellectual Property Disclosure Schedule 3.17 Environmental Matters Disclosure Schedule 3.18 Insurance (including certificates of insurance) Disclosure Schedule 3.19 Deposit and Disbursement Accounts (Deleted) Disclosure Schedule 5.1 Trade Names Disclosure Schedule 6.3 Indebtedness Disclosure Schedule 6.4(a) Transactions with Affiliates Disclosure Schedule 6.7 Existing Liens
ii CREDIT AGREEMENT This CREDIT AGREEMENT (this "AGREEMENT"), dated as of March 3, 2005, among 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"), and COASTAL COMMUNITIES HOSPITAL, INC., a California corporation ("COASTAL") (IHHI, WMC-SA, WMC-A, Chapman and Coastal are sometimes collectively referred to herein as "BORROWERS" and individually as "Borrower"); the other Credit Parties signatory hereto; and MEDICAL PROVIDER FINANCIAL CORPORATION II, a Nevada corporation ("LENDER"). RECITALS WHEREAS, AHM CGH, Inc., a California corporation, HEALTH RESOURCES CORPORATION OF AMERICA- CALIFORNIA, a Delaware corporation, UWMC HOSPITAL CORPORATION, a California corporation, and SHL/O CORP., a Delaware corporation (collectively, "SELLER") are in the business of delivering acute care services to the public through the acute care hospital facilities identified in this Agreement, and incident thereto, are also in the businesses of owning and operating certain medical office buildings ("MOB'S") and other healthcare businesses related thereto (the "BUSINESSES"). WHEREAS, pursuant to a certain Asset Sale Agreement dated as of September 29, 2004 ("ASSET SALE AGREEMENT"), IHHI is acquiring from Seller (a) the fee interest in certain real property, hospital facilities, MOB's and Businesses in three (3) separate locations in Orange County, California, and (b) the tenant's interest in certain leases of real property, hospital facility and an MOB also located in Orange County, California ("LEASED HOSPITAL FACILITY") (each a "HOSPITAL FACILITY" and together the "HOSPITAL FACILITIES"), and the business assets related to the same. The purchase price (plus or minus prorations as provided therein) is Sixty-Five Million Dollars ($65,000,000). To enable IHHI to make these acquisitions, Borrowers are borrowing the sum of Fifty Million Dollars ($50,000,000) from Lender (the "ACQUISITION LOAN"); WHEREAS, immediately following IHHI's acquisition of the Hospital Facilities, IHHI will transfer three (3) of the Hospital Facilities to Pacific Coast Holdings Investment, LLC, a California limited liability company ("PCHI"), a wholly-owned subsidiary limited liability company of IHHI. Immediately after the transfer to PCHI, IHHI will transfer its entire ownership interest in PCHI to (a) West Coast Holdings, LLC, a California limited liability company ("WEST COAST") a fifty-one percent (51%) membership interest, and (b) Ganesha Realty, LLC, a California limited liability company ("GANESHA") a forty-nine percent (49%) interest. Then, PCHI will lease the three (3) Hospital Facilities back to IHHI pursuant to a Triple Net Hospital and Medical Office Building Lease dated March 3, 2005, as amended by Amendment No. 1 To Triple Net Hospital And Medical Office Building Lease (collectively, the "TRIPLE NET LEASE"). Then, IHHI will (i) sublease each of the three Hospital Facilities to three (3) of its subsidiaries (WMC-SA, WMC-A and Coastal), each of which is identified above as a Borrower, and (ii) sub-sublease the Leased Hospital Facility to another of its subsidiaries (Chapman), which is also identified above as a Borrower. 1 WHEREAS, Borrowers have also requested that Lender extend a non-revolving Line of Credit facility to Borrowers of up to Thirty Million Dollars ($30,000,000) in the aggregate for the purpose of providing (a) working capital financing for Borrowers, (b) funds for other general corporate purposes of Borrowers, and (c) funds for other purposes permitted hereunder (the "LINE OF CREDIT LOAN"). WHEREAS, for the purposes set forth above, Lender is willing to make the Acquisition Loan and the Line of Credit Loan and other extensions of credit to or for the benefit of Borrowers of up to such amount upon the terms and conditions set forth herein; WHEREAS, it is intended by IHHI and the other Borrowers that the administration and financial affairs relating to each Loan shall be administered for the benefit of all Borrowers by IHHI, and that IHHI shall be the "BORROWER'S REPRESENTATIVE" under this Agreement. WHEREAS, the payment and performance of the Obligations hereunder shall be secured by a Lien on substantially all of the assets of each Borrower, including without limitation, a pledge of the capital stock by IHHI in the other Borrowers. WHEREAS, as further inducement to Lender to enter into this Agreement and to provide the credit facilities described in this Agreement, (i) PCHI has agreed to guaranty the payment and performance of all Obligations hereunder, (ii) West Coast and Ganesha have each agreed to pledge their membership interests in PCHI as security for repayment of the Obligations, (iii) the members of West Coast have agreed to pledge their membership interests in PCHI as security for repayment of the Obligations, and (iv) Orange County Physicians Investment Network, LLC, a Nevada limited liability company and a significant shareholder of IHHI ("OC-PIN") has agreed to guaranty the payment and performance of all the Obligations hereunder; WHEREAS, AHM CGH, Inc., a California corporation, has also agreed to sell its ownership interest in certain condominium units located at 999 North Tustin Avenue, Santa Ana, California (the "CONDOMINIUM UNITS" as more specifically described in Annex A) to IHHI, and upon such acquisition using IHHI's own funds, the parties intend that the Liens granted in Leasehold Deed of Trust shall be expanded and spread to encumber such interests in the Condominium Units as hereinafter provided; WHEREAS, IHHI intends immediately to transfer the Condominium Units to PCHI, to which transfer Lender hereby consents; and WHEREAS, initially capitalized terms used in this Agreement shall have the meanings ascribed to them in Annex A and, for purposes of this Agreement and the other Loan Documents, the rules of construction set forth in Annex A shall govern. All Annexes, Disclosure Schedules, Exhibits and other attachments (collectively, "APPENDICES") hereto, or 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. 2 AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants hereinafter contained, and for other good and valuable consideration, the parties hereto agree as follows: 1. AMOUNT AND TERMS OF CREDIT 1.1 Credit Facilities. (a) Acquisition Loan. (i) Subject to the terms and conditions hereof, on the date of this Agreement, Lender agrees to make the Acquisition Loan in one advance to or for the benefit of Borrowers to enable Borrowers to consummate the Asset Sale Agreement with Seller (the "ACQUISITION ADVANCE") and the other transactions contemplated thereby. It is intended that the Acquisition Advance shall be made concurrently with the execution and delivery of this Agreement which is also intended to be the closing date identified in the Asset Sale Agreement. (ii) Concurrently with the execution and delivery of this Agreement, Borrowers shall execute and deliver to Lender a promissory note to evidence the Acquisition Advance of Lender, and be substantially in the form of Exhibit 1.1(a)(ii) (the "ACQUISITION NOTE"). The Acquisition Note shall represent the obligation of the Borrowers, jointly and severally, individually and collectively, to pay the amount of the Acquisition Advance including interest thereon as prescribed in Section 1.4. The entire unpaid balance of the Acquisition Note and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Maturity Date. (b) Non-Revolving Line of Credit Commitment. (i) Subject to the terms and conditions hereof, Lender agrees to make available to Borrower from time to time until the Commitment Termination Date advances (each, a "LINE OF CREDIT ADVANCE") pursuant to the Line of Credit Commitment. The Line of Credit Advances may only be used for (1) working capital financing for Borrowers, (2) funds for other general corporate purposes of Borrowers, (3) to make or pay interest payments on the Acquisition Loan, and (4) funds for other purposes permitted hereunder. The Line of Credit Advances may not be used to make or pay principal payments on the Acquisition Loan. Borrowers may borrow, but may not repay and reborrow, under this Line of Credit Commitment. Each Line of Credit Advance shall be made on notice by Borrower's Representative on behalf of Borrowers to the Lender's Representative identified in Schedule 1.1 at the address specified therein. Any such notice must be given no later than (1) 2:00 p.m. (Nevada local time) on the date which is at least two (2) Business Days prior to the date of the proposed Line of Credit Advance, and only one request may be made during any calendar week. Each such notice (a "NOTICE OF LINE OF CREDIT ADVANCE") must be given in writing (by telecopy or overnight courier) substantially in the form of Exhibit 1.1(b)(i), shall separately identify the amount of the requested Line of Credit Advance, and shall include the information required in such Exhibit and such other information as may be required by Lender. In no event shall Borrowers be permitted to request further Line of Credit Advances under the Commitment at any time during the thirty (30) day period prior to the Stated Maturity Date. 3 (ii) Concurrently with the execution and delivery of this Agreement, Borrowers shall execute and deliver to Lender a promissory note to evidence the Commitment in the face amount of the Line of Credit Loan, and be substantially in the form of Exhibit 1.1(b)(ii) (the "LINE OF CREDIT NOTE"). The Line of Credit Note shall represent the obligation of the Borrowers to pay the amount of the amounts advanced from time to time by Lender pursuant to the Commitment to or for the benefit of any one or more of the Borrowers together with interest thereon as prescribed in Section 1.4, and shall be the joint and several, and individual and collective liability of the Borrowers. The entire unpaid balance of the aggregate Line of Credit Commitment and all other non-contingent Obligations shall be immediately due and payable in full in immediately available funds on the Commitment Termination Date. (iii) Concurrently with the funding of the Acquisition Loan, Borrowers have requested, and this provision constitutes a Notice of Line of Credit Advance, for an Advance of Three Million Dollars ($3,000,000) on the Line of Credit Commitment to enable Borrowers to complete the acquisition transactions under the Asset Sale Agreement (the "INITIAL Draw"). Lender hereby agrees to the Initial Draw. 1.2 Prepayments. (a) Voluntary Prepayments. Borrowers may at any time prepay the outstanding Loans in whole or in part, in addition to regularly scheduled monthly payments. In addition, Borrowers may at any time on at least three (3) days' prior written notice by Borrower's Representative to Lender terminate the Commitment; provided that upon such termination, in Lender's sole and absolute discretion, upon receipt or at any time thereafter of such notice, Lender may elect to accelerate the payment of all then outstanding Loans and other Obligations and the same shall thereupon become due and payable in full within five (5) business days of Lender's written notice to Borrower of Lender's election to accelerate. Upon any such termination of the Commitment, Borrowers' right to request Line of Credit Advances shall simultaneously be permanently terminated. Lender reserves the right to apply any such prepayment to such of the Obligations owing hereunder from time to time as Lender in its sole and absolute discretion, elects. Prepayments hereunder shall be made in accordance with the application of payments set forth in Section 1.2(c) below. (b) Mandatory Prepayments. (i) Immediately upon receipt by any Credit Party of any cash proceeds of any sale or other disposition of any Collateral, Borrowers shall 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 Borrower in connection therewith (in each case, paid to non-Affiliates), (B) transfer taxes, (C) amounts payable to holders of senior Liens on such asset (to the extent such Liens constitute Permitted Encumbrances hereunder), if any, and (D) an appropriate reserve for income taxes in accordance with GAAP in connection therewith. Any such prepayment shall be applied in accordance with Section 1.2(c). 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; (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 for a Borrower's business; and (4) transfers of equipment and other personal property between Borrowers in the ordinary course of business. 4 (ii) In addition to the foregoing, if by the date which is thirty (30) calendar days from the Closing Date ("MANDATORY PREPAY DATE"), Borrowers for any reason fail to acquire all of the Condominium Units from Sellers as provided in the Asset Sale Agreement with capital contributed to IHHI by its shareholders, then Borrowers agree to and shall on the Mandatory Prepay Date prepay the amount of $5,000,000 against outstanding principal balance of the Loans. Said $5,000,000 must consist of capital contributed to IHHI by its shareholders and may not constitute funds borrowed from any source. Said mandatory $5,000,000 prepayment shall be applied to the principal balance of the Acquisition Loan outstanding to Borrowers. (c) Application of Prepayments. Except as otherwise set forth in Section 1.2(b)(ii) above, any prepayments made pursuant to Section 1.2 (a) or (b) above shall be applied as follows: first, to reimbursable expenses of Lender then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on all Loans made to Borrowers; third, to the principal balance of Line of Credit Loan outstanding to Borrowers until the same has been paid in full; and last, to the principal balance of the Acquisition Loan outstanding to Borrowers until the same has been paid in full. If an Event of Default has occurred and is continuing, Lender shall have the absolute right, in its sole discretion, to determine which of the Obligations shall be paid and in what order and amounts. (d) Application of Prepayments from Insurance and Condemnation Proceeds. Prepayments from insurance or condemnation proceeds in accordance with Section 5.4(c) shall be applied to the Loans in the manner described in Section 1.2(c) above. (e) No Implied Consent. Nothing in this Section 1.2 shall be construed to constitute Lender's consent to any transaction that is not permitted by other provisions of this Agreement or the other Loan Documents. 1.3 Use of Proceeds. (a) Borrowers shall utilize the proceeds of the Loans solely for the express purposes authorized in this Agreement. Disclosure Schedule (1.3) shall contain a description of Borrowers' sources and uses of funds as of the Initial Funding Date, including Loans to be made or incurred on that date, and a funds flow memorandum detailing how funds from each source are to be transferred to particular uses. 5 (b) Reliance on Notices; Appointment of Borrower's Representative. Lender shall be entitled to rely upon, and shall be fully protected in relying upon, any Notice of Line of Credit Advance or other notice believed by Lender to be genuine. Lender may assume that each Person executing and delivering any notice in accordance herewith, including without limitation the Line of Credit Notice, was duly authorized, unless the responsible individual acting thereon for Lender has actual knowledge to the contrary. Each Borrower hereby designates IHHI as the Borrower's Representative for the purposes of issuing Notices of Line of Credit Advances, giving instructions with respect to the disbursement of the proceeds of the Line of Credit 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. Lender may regard any notice or other communication pursuant to any Loan Document from Borrower's Representative as a notice or communication from all Borrowers, and may give any notice or communication required or permitted to be given to Borrowers hereunder to Borrower's Representative on behalf of such Borrowers. Borrowers agree that each notice, election, representation and warranty, covenant, agreement and undertaking made on their behalf by Borrower's Representative shall be deemed for all purposes to have been made by all such Borrowers and shall be binding upon and enforceable against all Borrowers to the same extent as if the same had been made directly by each such Borrower. 1.4 Interest. (a) Borrowers shall pay interest to Lender on all Loans made hereunder, in arrears, on each applicable Interest Payment Date, at the rate of fourteen percent (14%) per annum. (b) If any payment on any Loan becomes due and payable on a day other than a Business Day, the maturity 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 rate during such extension. (c) All computations of interest shall be made by Lender and calculated on a per annum basis on the basis of a 360-day year, for the actual number of days occurring in the period for which such interest is payable. Each calculation by Lender of the interest payment due hereunder shall be presumptive evidence of the correctness thereof. (d) So long as an Event of Default has occurred and is continuing under any Loan Document, the interest rates applicable to the Loans shall be increased by five percentage points (5%) per annum above the rates of interest otherwise applicable hereunder (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. (e) All payments by Borrowers to Lender hereunder shall be made to the following deposit account: 6 Bank of America (LV, NV) Medical Capital Corporation (Collection Acct for MPFC2) Acct# 496-687-6714 ABA# 026009593 Address: 4795 S. Marilyn Parkway, Las Vegas, NV 89119-7621 Contact Person: Sal 888-852-5000 x6004 (e) Notwithstanding anything to the contrary set forth in this Section 1.4, if a court of competent jurisdiction determines in a final order that the rate of interest payable hereunder exceeds the highest rate of interest permissible under law (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 Lender pursuant to the terms hereof exceed the amount that such Lender 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 Loan under Section 1.2(a). 1.5 Cash Management Systems. On or prior to the Closing Date, Borrowers will establish and will maintain until the Termination Date, the cash management systems described in Annex B (the "CASH MANAGEMENT Systems"). The Cash Management System will include mandatory provisions requiring the daily sweep of cash from any deposit account into which any Borrower receives any payments or reimbursements from a Governmental Authority to deposit accounts over which Lender has an established control arrangement. It is understood and agreed by Lender that it is not permitted under current federal regulations to acquire a direct Lien in payments or reimbursements from Governmental Authorities nor in the deposit account(s) into which Proceeds are deposited. However, to protect Lender and the Liens granted to Lender and to Lender's Affiliate, Medical Provider Financial Corporation I, by Borrowers, Borrowers have agreed to the provisions of the Deposit Account Security Agreement and related Control Agreements. 1.6 Fees. (a) Concurrently with the execution and delivery of this Agreement and as a condition to the funding of the Acquisition Loan, Borrowers shall pay to Lender an origination fee in an amount equal to two percent (2%) of the Commitment (Six Hundred Thousand Dollars ($600,000)), and two percent (2%) of the Acquisition Loan (One Million Dollars ($1,000,000)) (together the "ORIGINATION FEE"), to be payable out of Borrowers' own funds, which fee shall be deemed earned in full upon receipt by Lender. (b) Concurrently with the execution and delivery of this Agreement and as a condition to the funding of the Acquisition Loan, Borrower shall pay all costs paid or incurred by Lender to such date, including the attorneys' fees and expenses of Lender's outside counsel (collectively, "LENDER'S COSTS"). 7 1.7 Receipt of Payments. Borrowers shall make each payment under this Agreement not later than 2:00 p.m. (Nevada local time) on the day when due in immediately available funds in Dollars to a Collection Account. 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 a Collection Account prior to 2:00 p.m. (Nevada local time). Payments received in good and immediate funds after 2:00 p.m. Nevada local 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. 1.8 Application and Allocation of Payments. (a) So long as no Event of Default has occurred and is continuing, (i) scheduled monthly payments shall be applied first, to reimbursable expenses of Lender then due and payable pursuant to any of the Loan Documents; second, to interest then due and payable on outstanding Loans made to Borrowers; and last, to the principal balance of the Loans outstanding to Borrowers until the same has been paid in full; and (ii) voluntary prepayments and mandatory prepayments shall be applied as set forth in Section 1.2(c). As to any other payment, and as to all payments made when an Event of Default has occurred and is continuing or following the Commitment Termination Date, Borrowers and all 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 Lender shall have the continuing exclusive right to apply any and all such payments against the Obligations of Borrowers as Lender may deem advisable notwithstanding any previous entry by Lender in the Loan Account or any other books and records. (b) Lender is authorized to, and in its sole and absolute discretion may, charge to the Line of Credit Loan (which charges shall be deemed to be Line of Credit 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(a)) and interest and principal, other than principal of the Loans owing by Borrower under this Agreement or any of the other Loan Documents if and to the extent Borrowers fail to pay promptly any such amounts as and when due. Such charge to the Line of Credit Loan shall not waive any Event of Default due to Borrowers' non-payment, unless Lender, in its sole and absolute discretion, agrees in writing. At Lender's option and to the extent permitted by law, any charges so made shall constitute part of the Line of Credit Loan and shall reduce the amount of the Line of Credit Commitment remaining available to Borrowers, and shall be secured by the Collateral. 1.9 Loan Account and Accounting. Lender shall maintain a loan account (the "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 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. The balance in the Loan Account, as recorded on Lender's most recent printout or other written statement, shall, absent demonstrable error, be presumptive evidence of the amounts due and owing to Lender by Borrower; provided that any failure to so record or any error in so recording shall not limit or otherwise affect any Borrowers' duty to pay the Obligations. Lender 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 Borrower for the immediately preceding month. Unless Borrower's Representative notifies Lender in writing of any objection to any such accounting (specifically describing the basis for such objection), within thirty (30) 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. 8 1.10 Indemnity. Borrowers and each Credit Party shall jointly and severally indemnify and hold harmless each of Lender and its Affiliates, and each such Person's respective officers, directors, members, employees, attorneys, agents, and representatives (each, an "INDEMNIFIED PERSON"), from and against any and all suits, actions, proceedings, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees and disbursements and other costs of investigation or defense, including those incurred upon any appeal) that may be instituted or asserted against or incurred by any such Indemnified Person as the result of credit having been extended, suspended or terminated under this Agreement and the other Loan Documents and the administration of such credit, and in connection with or arising out of the transactions contemplated hereunder and thereunder and any actions or failures to act in connection therewith, including any and all Environmental Liabilities and legal costs and expenses arising out of or incurred in connection with disputes between or among any parties to any of the Loan Documents (collectively, "INDEMNIFIED LIABILITIES"); provided, that neither Borrowers nor any Credit Party shall be liable for any indemnification to an Indemnified Person to the extent that any such suit, action, proceeding, claim, damage, loss, liability or expense results from that Indemnified Person's gross negligence or willful misconduct. NO INDEMNIFIED PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY TO ANY LOAN DOCUMENT, ANY SUCCESSOR, ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT HAVING BEEN EXTENDED, SUSPENDED OR TERMINATED UNDER ANY LOAN DOCUMENT OR AS A RESULT OF ANY OTHER TRANSACTION CONTEMPLATED HEREUNDER OR THEREUNDER. Notwithstanding anything to the contrary contained in this Credit Agreement or in any other Loan Document, the maximum liability of all Credit Parties as Credit Parties in the aggregate shall be limited to One Million Dollars ($1,000,000); provided, however, that such limitation shall not be applicable to each Credit Party's individual liability for the payment and performance of any liabilities and obligations under any other Loan Document (including any pledge agreement or guaranty) to which such Credit Party is a direct party. With respect to the liability of Credit Parties hereunder, Lender agrees to seek payment of any financial Obligations (other than principal and interest payments) from Borrowers but in the event Borrowers fail to pay within five (5) days, then Lender shall be entitled to pursue its right to such payment from Borrowers and/or Credit Parties. Lender further agrees that, with respect to any liability or obligation of a Credit Party under this Credit Agreement or any other Loan Document, Lender's only recourse shall be against the Credit Party itself and any Collateral provided by the Credit Party. In this regard, Lender hereby acknowledges that, except for distributions actually made by a Credit Party to an Individual(s) (defined below), it is not looking to any constituent member or other equity owner who is a natural person, or any manager, officer, director, employee or other individual representative of any Credit Party ("INDIVIDUALS") for recourse, and waives any rights it may have, by virtue of alter ego, "piercing the veil," undercapitalization, failure to observe corporate or limited liability company formalities, or any other legal theory, to pursue causes of action under this Credit Agreement or any other Loan Document against any of the Individuals. 9 1.11 Access. Each Borrower and each Credit Party shall, during normal business hours, from time to time upon two (2) Business Days' prior notice as frequently as Lender reasonably determines to be appropriate: (a) provide Lender and any of its officers, employees and agents access to its properties, facilities, advisors, officers and employees of each Borrower and Credit Party and to the Collateral, (b) permit Lender, and any of its officers, employees and agents, to inspect, audit and make extracts from each Borrower's and Credit Party's respective books and records, and (c) permit Lender, and its officers, employees and agents, to inspect, review, evaluate and make test verifications and counts of the Collateral of any Credit Party. Any access under this Section shall be granted and conducted only in compliance with all federal and California state patient and medical record confidentiality laws. If an Event of Default has occurred and is continuing, each such Credit Party shall provide such access to Lender 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 Lender with access to their suppliers and customers. Each Borrower and each Credit Party shall make available to Lender and its counsel reasonably promptly originals or copies of all books and records that Lender may reasonably request. Each Borrower and each Credit Party shall deliver any document or instrument necessary for Lender, as it may from time to time reasonably request, to obtain records from any service bureau or other Person that maintains records for such Borrower or Credit Party, and shall maintain duplicate records or supporting documentation on media, including computer tapes and discs owned by such Borrower or Credit Party. 1.12 Taxes. (a) Any and all payments by Borrowers hereunder (including any payments made pursuant to Section 12) or under the Acquisition Note and/or the Line of Credit Note shall be made, in accordance with this Section 1.12, 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 12) 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 1.12) Lender receives 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 Lender the original or a certified copy of a receipt evidencing payment thereof. (b) Each Credit Party shall jointly and severally indemnify and, within ten (10) calendar days of demand therefore, pay Lender for the full amount of Taxes that Borrower is obligated to pay pursuant hereto (including any Taxes imposed by any jurisdiction on amounts payable under this Section 1.12) paid by Lender and any liability (including penalties, interest and expenses) arising therefrom or with respect thereto, whether or not such Taxes were correctly or legally asserted. Notwithstanding the foregoing, Lender remains ultimately responsible for paying any and all income taxes measured by Lender's own gross income. 10 1.13 Capital Adequacy; Increased Costs; Illegality. (a) If any law, treaty, governmental (or quasi-governmental) rule, regulation, guideline or order regarding capital adequacy, reserve requirements or similar requirements or compliance by Lender 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 Lender and thereby reducing the rate of return on Lender's capital as a consequence of its obligations hereunder, then Borrowers shall from time to time upon demand by Lender pay to Lender additional amounts sufficient to compensate Lender for such reduction. A certificate as to the amount of that reduction and showing the basis of the computation thereof submitted by Lender to Borrower's Representative shall be presumptive evidence of the matters set forth therein. (b) 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 Lender of agreeing to make or making, funding or maintaining any Loan, then Borrowers shall from time to time, upon demand by Lender pay to Lender additional amounts sufficient to compensate Lender for such increased cost. A certificate as to the amount of such increased cost, submitted to Borrower's Representative by Lender, shall be presumptive evidence of the matters set forth therein. Lender agrees that, as promptly as practicable after it becomes aware of any circumstances referred to above which would result in any such increased cost, Lender shall, to the extent not inconsistent with Lender's internal policies of general application, use reasonable commercial efforts to minimize costs and expenses incurred by it and payable to it by Borrower pursuant to this Section 1.13(b). No amounts due from Borrower under Sections 1.13(a) and (b) shall be amounts attributable to Lender's non-compliance with any requirement of any Governmental Authority. 1.14 Single Loan. All 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 all Borrowers secured by the Liens on all of the Collateral. 2. CONDITIONS PRECEDENT 2.1 Conditions Precedent to the Closing Date. Lender shall not be obligated to take, fulfill, or perform any action hereunder on or after the Closing Date until the following conditions precedent have been satisfied or provided for in a manner satisfactory to Lender, in its sole discretion, or waived in writing by Lender, it being understood that Lender shall consider a constituent transaction referred to in this Section 2.1 to have been consummated when all conditions precedent to such transaction have been satisfied or waived and that the only remaining action is the funding of the Acquisition Loan and the Initial Draw: (a) Credit Agreement; Loan Documents. This Agreement or counterparts hereof shall have been duly executed by and delivered to Lender by Borrowers and each Credit Party; and Lender shall have received such documents, instruments, agreements and legal opinions as Lender shall request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the List of Schedules and Loan Documents attached hereto as Annex E, each in form and substance satisfactory to Lender. 11 (b) Asset Sale Agreement. The Asset Sale Agreement shall be in form and substance satisfactory to Lender. Additionally, the transactions contemplated by the Asset Sale Agreement shall have been fully consummated including the satisfaction or written waiver of all conditions precedent (except for the payment of the purchase price thereunder by the Purchaser and the delivery and recording of the instruments, agreements, title insurance and deeds assigning and conveying the assets to be acquired thereunder) based upon delivery of evidence to Lender in form and substance satisfactory to Lender. All conditions precedent for the benefit of IHHI as the purchaser thereunder shall have been fully performed and none waived, without the prior written consent of Lender. (c) Transfer to PCHI. All conditions to the transfer of title to the three Hospital Facilities (other than the Leased Hospital Facility) by IHHI to PCHI shall have been fully satisfied or waived by the party entitled to the benefit of such condition, except for funding of the Acquisition Loan and the Initial Draw. (d) Triple Net Lease. All conditions precedent to the lease back transactions (except the funding of the Acquisition Loan and the Initial Draw and the transfer of title to the three Hospital Facilities as contemplated by Section 2.1(c) immediately above) by PCHI to IHHI of the Hospital Facilities pursuant to the Triple Net Lease shall have been fully satisfied or waived in writing by the party entitled to the benefit of such condition, based upon documentation and delivery of evidence to Lender, in each case in form and substance satisfactory to Lender. All conditions precedent for the benefit of either IHHI or PCHI thereunder shall have been fully performed and none waived, without the prior written consent of Lender. (e) Lease of Leased Hospital Facility. All conditions precedent to IHHI's acquisition of the Lessee's interest in two existing Leases for the Leased Hospital Facility shall have been fully satisfied or waived in writing by the party entitled to the benefit of such condition, based upon documentation and delivery of evidence to Lender, in each case in form and substance satisfactory to Lender. (f) Three Hospital Facilities and Sub-Sublease of Leased Hospital Facility. All conditions precedent to (i) IHHI's execution and delivery of the subleases of each of the Three Hospital Facilities to its wholly-owned Subsidiaries, WMC-SA, WMC-A, and Coastal, respectively, formed for each Hospital Facility, and (ii) IHHI's sub-subleased of the Leased Hospital Facility to Chapman, shall have been fully satisfied or waived in writing by the party entitled to the benefit of such condition, based upon documentation and delivery of evidence to Lender, in each case in form and substance satisfactory to Lender. (g) Approvals. Lender shall have received (i) satisfactory evidence that the Credit Parties 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 (a) this Agreement and the other Loan Documents and the consummation of the Related Transactions, and (ii) the consummation of the Asset Sale Agreement, and the other transactions referenced in Sections 2.1(a) through (f), inclusive, above. Schedule 2.1(g) attached hereto lists all required consents and approvals of all Governmental Authorities and all other Persons. 12 (h) Payment of Fees and Costs. Borrowers shall have paid Lender for all fees (including the Origination Fees on the Loans), and reimbursed Lender's Costs for all costs and expenses of closing, including attorneys' fees and costs and expenses of Lender, presented as of the Closing Date, and shall have agreed to pay any such fees and expenses, including attorneys' fees and expenses invoiced to Borrowers in care of Borrower's Representative after the Closing Date within ten (10) days of the receipt of an invoice therefor. (i) Capital Structure: Other Indebtedness. The capital structure of each Credit Party, the ownership of each Credit Party, and the terms and conditions of all Indebtedness of each Credit Party shall be acceptable to Lender in its sole discretion. (j) Due Diligence. Lender shall have completed its business and legal due diligence. (k) Closing Certified Cash. The Borrowers shall have Certified Cash of not less than $5,000,000. (l) Fairness opinion regarding Borrowers and the transactions contemplated by the Asset Sale Agreement, and an allocation of fair value to each Hospital Facility, in form and substance satisfactory to Lender. (m) Copy of agreement among all Borrowers relating to the proportionate sharing of common expenses. (n) The Accounts Purchase Agreement shall have been fully executed and delivered by the parties thereto. (o) IHHI's membership interest in PCHI shall have been transferred to West Coast and Ganesha. (p) The execution and delivery of the Pledge Agreement by the members of West Coast; provided, however, that West Coast has advised Lender that although West Coast has approved the execution, delivery and performance of the Pledge Agreement, because of the number of members, it will by physically impossible to deliver a fully executed Pledge Agreement by such members on or before the Closing Date. Accordingly, West Coast represents and warrants and covenants to Lender that (i) Lender shall be entitled to rely upon such Pledge Agreement in closing the Loan and entering into this Agreement, and (ii) covenants to have the Pledge Agreement fully executed and delivered by its members on or before March 15, 2005. (o) The execution and delivery of the Guaranty Agreement by OC-PIN to Lender. 13 (p) The execution and delivery of the Guaranty Agreement by PCHI to Lender. (q) The execution and delivery of the Membership Pledge Agreement by West Coast to Lender. (r) The execution and delivery of the Membership Pledge Agreement by Ganesha to Lender. (s) Lender shall have received evidence satisfactory to it that IHHI has received capital contributions of not less than Fifteen Million Dollars ($15,000,000). 2.2 Further Conditions to Loans. Notwithstanding any provision herein or in any Loan Document to the contrary, the obligations of Lender to make any Loan shall be subject to the following (in addition to the Closing Date having occurred): (a) Further Conditions to the Loans. Lender shall not be obligated to make the Loans, unless and until the following conditions have been satisfied or provided for in a manner reasonably satisfactory to Lender, or waived in writing by Lender (such date, if any, on which such conditions have been so satisfied or waived, the "INITIAL FUNDING DATE"): (i) Loan Documents. All Loan Documents having been delivered on or before the Initial Funding Date shall remain in full force and effect, and Lender shall have received such further documents, instruments, agreements and legal opinions as Lender shall reasonably request in connection with the transactions contemplated by this Agreement and the other Loan Documents, including all those listed in the List of Schedules and Loan Documents attached hereto as Annex E, each in form and substance satisfactory to Lender. (ii) Approvals. Lender shall have received (i) satisfactory evidence (or, shall, in its reasonable discretion, continue to be satisfied with such evidence received under Section 2.1(g)) that the Credit Parties 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 and the consummation of the Related Transactions or (ii) an officer's certificate signed by an executive officer of Borrowers in form and substance satisfactory to Lender affirming that no such consents or approvals are required. (iii) Timing. Such Initial Funding Date shall have occurred on or before March 3, 2005; (iv) Payment of Fees. Borrowers shall have paid the Fees required to be paid on or before the Initial Funding Date in the respective amounts specified in Section 1.6, and shall have reimbursed Lender for all fees, costs and expenses of closing presented as of the Initial Funding Date. (v) Collateral. Lender shall have approved the Collateral. 14 (vi) Satisfaction with Changes to Disclosure Schedules. Lender shall be satisfied in its reasonable discretion with all updates to the Disclosure Schedules as have been delivered to Lender on or before the Initial Funding Date. (vii) Initial Certified Cash. The Credit Parties shall have Certified Cash of not less than $5,000,000. (viii) PCHI shall have caused its Operating Agreement to be amended in accordance with the provisions of Section 6.14 hereof. (ix) No event or circumstance shall have occurred that has or reasonably could be expected to have a Material Adverse Effect. (b) Further Conditions to Each Loan. Except as otherwise expressly provided herein, Lender shall not be obligated to fund any Advance if, as of the date thereof: (i) any representation or warranty by any Credit Party contained herein or in any other Loan Document is untrue or incorrect as of such date, except to the extent that such representation or warranty expressly relates to an earlier date, and Lender shall have determined not to make such Advance as a result of the fact that such warranty or representation is untrue or incorrect; (ii) any Default or Event of Default has occurred and is continuing or would result after giving effect to any Advance and Lender shall have determined not to make any Advance as a result of that Default or Event of Default; and (iii) any event or circumstance shall have occurred that has or reasonably could be expected to have a Material Adverse Effect. The request and acceptance by any Borrower of the proceeds of any Advance or the benefit of any Advance shall be deemed to constitute, as of the date thereof, (i) a representation and warranty by Borrower that the conditions precedent in this Section 2.2 have been satisfied and (ii) a reaffirmation by each Credit Party of its obligations under the Loan Documents to which it is a party or a signatory and of the granting and continuance of Lender's Liens pursuant to the Collateral Documents. 3. REPRESENTATIONS AND WARRANTIES To induce Lender to make the Loans, Borrowers and the Credit Parties executing this Agreement, jointly and severally, make the following representations and warranties to Lender with respect to all Borrowers and Credit Parties, each and all of which 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 and the Initial Funding 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) pursuant to Section 5.6 on or before the Initial Funding Date). Each representation and warranty shall be made on the basis of the Asset Sale Agreement having been consummated. 15 3.1 Corporate Existence; Compliance with Applicable Laws. Each Borrower and each Credit Party (a) is a corporation, limited liability company or limited partnership duly organized, validly existing and in good standing under the laws of its respective jurisdiction of incorporation or organization set forth in Disclosure Schedule 3.1; (b) 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; (c) 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; (d) subject to specific representations regarding Environmental Laws, has or 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; (e) is in compliance with its charter and bylaws or partnership or operating agreement, as applicable; and (f) subject to specific representations set forth herein regarding ERISA, Environmental Laws, tax and other laws, is in compliance with all other Applicable Laws. As of the Closing, IHHI is the sole member of PCHI prior to the transfer of all of the membership interests in PCHI to West Coast and Ganesha. 3.2 Executive Offices, Collateral Locations, FEIN. As of each of the Closing Date and the Initial Funding Date, each Borrower's and each Credit Party's name as it appears in official filings in its state of incorporation or organization, organization type, organization number, if any, issued by its state incorporation or organization, and the current location of each Borrower's and each Credit Party's chief executive office and the premises at which any Collateral is located are set forth in Disclosure Schedule 3.2, none of such locations has changed within the four (4) months preceding the Closing Date and each Credit Party has only one state of incorporation or organization. In addition, Disclosure Schedule 3.2 lists the federal employer identification number of each Borrower and each Credit Party. 3.3 Corporate Power, Authorization, Enforceable Obligations. The execution, delivery and performance by each Borrower and each Credit Party 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, limited liability company or limited partnership action; (c) do not contravene any provision of such Person's charter, bylaws or partnership or operating agreement as applicable; (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 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(g), 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 each Borrower and each Credit Party that is a party thereto and each such Loan Document shall constitute a legal, valid and binding obligation of each such Borrower and each such Credit Party enforceable against it in accordance with its terms. 16 3.4 Financial Statements and Projections. Except for the Projections, all Financial Statements concerning Borrowers and their respective Subsidiaries, if any, 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 the Persons covered thereby as at the dates thereof and the results of their operations and cash flows for the periods then ended. (a) Financial Statements. The Financial Statements which have been delivered by Borrower to Lender on or before the date hereof are comprised of: (i) The audited consolidated and unaudited consolidating balance sheets at December 31, 2004, and the related statements of income and cash flows of Borrowers for the Fiscal Year then ended. (ii) The unaudited balance sheet(s) at June 30, 2004 and the related consolidated statement(s) of income and cash flows of Borrower for the two Fiscal Quarters then ended. (b) Pro Forma. The pro forma financial statements which have been delivered by Borrowers to Lender 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 their 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 on the date hereof were prepared by Borrowers in light of IHHI's past experience and a review of the financial statements provided by Seller with respect to each Hospital Facility, but including reasonably estimated future payments of known contingent liabilities, and reflect projections on a quarterly basis for the 2005 Fiscal Year and on an annual basis for all periods thereafter through 2007. 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 Closing Date, reflect Borrowers' good faith and reasonable estimates of the future financial performance of Borrowers for the period set forth therein. 3.5 Material Adverse Effect. Between the respective dates of organization or formation for each Borrower and each Credit Party, and the Closing Date (and between the Closing Date and the Initial Funding Date, if they are not the same date): (a) to the best of each Borrower's knowledge, after due inquiry, and 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, in each case of each Borrower considered as a whole, (b) to the best of each Borrower's knowledge, after due inquiry, and to the best of each Credit Party's knowledge, there has not been any material decrease in the assets of each Borrower or Credit Party, considered as a whole, (c) no contract, lease or other agreement or instrument has been entered into by any Borrower or Credit Party or has become binding upon any Borrower's or Credit Party's assets and, to the knowledge of any Borrower or Credit Party, no law or regulation applicable to any Borrower or any Credit Party or has been adopted that has had or could reasonably be expected to have a Material Adverse Effect, (d) no Borrower or Credit Party is in default and to the best of each Borrower's knowledge, after due inquiry, and to the best of each Credit Party's knowledge, no third party 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. As of the date of this Agreement, to the best of each Borrower's knowledge, after due inquiry, and 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. 17 3.6 Ownership of Collateral; Liens. As of the Closing Date, each Borrower and each Credit Party owns or, after giving effect to the transactions contemplated by the Asset Sale Agreement and those transactions described in the Recitals to this Agreement, will own good and marketable title to all of its Collateral. As of each of the Closing Date and the Initial Funding Date, none of the Collateral is subject to any Liens other than Permitted Encumbrances, and there are no facts, circumstances or conditions known to any Borrower or any Credit Party that may result in any Liens (including Liens arising under Environmental Laws or other Applicable Laws) other than Permitted Encumbrances. Schedule 3.6 attached hereto sets forth a list of all real estate and leases Borrowers will own or hold immediately after the Closing Date. 3.7 Labor Matters. Except as set forth on Disclosure Schedule 3.7, as of each of the Closing Date and the Initial Funding Date, (a) no strikes or other material labor disputes against any Borrower or any Credit Party are pending or, to any Borrower's or Credit Party's knowledge, threatened; (b) hours worked by and payment made to employees of each Credit Party comply with the Fair Labor Standards Act and other Applicable Laws; (c) all payments due from any Borrower or Credit Party for employee health and welfare insurance have been paid or accrued as a liability on the books of such Credit Party; (d) no Borrower or Credit Party is 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 3.7 have been delivered to Lender); (e) there is no organizing activity involving any Borrower or any Credit Party pending or, to any Borrower's or any Credit Party's knowledge, threatened by any labor union or group of employees; (f) except as otherwise disclosed on Disclosure Schedule 3.7, there are no representation proceedings pending or, to any Borrower's or any Credit Party's knowledge, threatened with the National Labor Relations Board, and no labor organization or group of employees of any Borrower or any Credit Party has made a pending demand for recognition; and (g) there are no material complaints or charges against any Borrower or any Credit Party pending or, to the knowledge of any Borrower or any Credit Party, 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 or any Credit Party of any individual. 3.8 Ventures, Subsidiaries and Affiliates; Outstanding Stock and Indebtedness. Except as set forth in Disclosure Schedule 3.8, as of each of the Closing Date and the Initial Funding Date, no Borrower (except IHHI) or any Credit Party has any Subsidiaries (which is not a Credit Party), is engaged in any joint venture or partnership with any other Person, or is an Affiliate of any other Person. All of the issued and outstanding Stock of each Borrower and each Credit Party is owned by each of the Shareholders and in the amounts set forth in Disclosure Schedule 3.8. Except as set forth in Disclosure Schedule 3.8, as of each of the Closing Date and the Initial Funding Date, there are no outstanding rights to purchase, options, warrants or similar rights or agreements pursuant to which any Borrower or any Credit Party may be required to issue, sell, repurchase or redeem any of its Stock or other equity securities or any Stock or other equity securities of its Subsidiaries. All outstanding Indebtedness and Guaranteed Indebtedness of each Borrower and each Credit Party as of each of the Closing Date and the Initial Funding Date is identified and permitted under Section 6.3, and all outstanding Funded Debt of each Credit Party as of each of the Closing Date and the Initial Funding Date (except for the Obligations) is described in Disclosure Schedule 6.3. 18 3.9 Government Regulation. No Borrower or Credit Party 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 or Credit Party 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 Lender 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 any Borrower or on any Credit Party. 3.10 Margin Regulations. No Borrower or Credit Party is engaged, nor will it 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 (such securities being referred to herein as "Margin Stock"). No Borrower or Credit Party owns 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 Margin Stock or for any other purpose that might cause any of 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. No Borrower or Credit Party will take or permit to be taken any action that might cause any Loan Document to violate any regulation of the Federal Reserve Board. 3.11 Taxes. Except as described in Disclosure Schedule 3.11, all Federal and other material tax returns, reports and statements, including information returns, required by any Governmental Authority to be filed by any Borrower or by any Credit Party 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) 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 each Borrower and each Credit Party from its respective employees 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 3.11 sets forth as of the Closing Date and the Initial Funding Date those taxable years for which any Borrower or any Credit Party'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 (3.11), as of the Closing Date and the Initial Funding Date, no Borrower or Credit Party 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. None of the Borrowers or Credit Parties are liable for any Charges: (a) under any agreement (including any tax sharing agreements) or (b) to each Borrower's and each Credit Party's knowledge, as a transferee. As of the Closing Date and the Initial Funding Date, no Borrower or Credit Party has agreed or been requested to make any adjustment under IRC Section 481(a), by reason of a change in accounting method or otherwise. 19 3.12 ERISA. (a) Disclosure Schedule 3.12 lists, as of the Closing Date and the Initial Funding 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 Lender. 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. No Borrower nor 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 3.12: (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 any Borrower, 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) no Borrower or 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 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 ERISA Affiliate (determined at such time). 20 3.13 No Litigation. Except as set forth in Disclosure Schedule 3.13, no action, claim, lawsuit, demand, investigation or proceeding is now pending or, to the knowledge of any Borrower or any Credit Party, threatened against any Borrower or any Credit Party, before any Governmental Authority or before any arbitrator or panel of arbitrators (collectively, "LITIGATION"), (a) that challenges the Seller's execution, delivery and performance of the Asset Sale Agreement, or any Borrower or any 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 any Borrower or any Credit Party and that, if so determined, could reasonably be expected to have a Material Adverse Effect. Except as set forth on Disclosure Schedule 3.13, as of the Closing Date and the Initial Funding Date there is no Litigation pending or, to any 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, any Credit Party. 3.14 Brokers. Except as set forth on Disclosure Schedule 3.14, no broker or finder brought about the obtaining, making or closing of the Loans or the Related Transactions, and no Credit Party or Affiliate thereof has any obligation to any Person in respect of any finder's or brokerage fees in connection therewith. 3.15 Intellectual Property. As of each of the Closing Date and the Initial Funding Date, each Borrower and each Credit Party owns or has 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 3.15. Each Borrower and each Credit Party conducts its business and affairs without infringement of or interference 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 3.15, no Borrower or Credit Party is aware of any material infringement claim by any other Person with respect to any Intellectual Property. 3.16 Full Disclosure. All representations and warranties made in any of the Loan Documents by any Borrower or any Credit Party shall be made after giving full effect to the transactions contemplated in the Asset Sale Agreement, the Triple Net Lease, and the other transactions described in the Recitals to this Agreement, to the extent applicable. 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 any Borrower or any Credit Party and delivered hereunder or any written statement prepared by any Credit Party and furnished by or on behalf of any Borrower or any Credit Party to Lender 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 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 believed at the time of delivery to be reasonable and fair in light of current conditions and current facts known to Borrowers s as of such delivery date, and reflect Borrowers' and Credit Parties' good faith and reasonable estimates of the future financial performance of Borrowers and Credit Parties, respectively, and of the other information projected therein for the period set forth therein. The Liens granted to Lender 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. 21 3.17 Environmental Matters. (a) Except as set forth in Disclosure Schedule 3.17, as of each of the Closing Date and the Initial Funding Date, to their knowledge: (i) the Borrowers and the Credit Parties are and have been in compliance with all Environmental Laws, except for such noncompliance that would not result in Environmental Liabilities which could reasonably be expected to exceed $100,000; (ii) the Borrowers and the Credit Parties have obtained, and are in compliance with, all Environmental Permits required by Environmental Laws for the operations of their respective businesses as presently conducted or as proposed to be conducted, except where the failure to so obtain or comply with such Environmental Permits would not result in Environmental Liabilities that could reasonably be expected to exceed $100,000, and all such Environmental Permits are valid, uncontested and in good standing; (iii) no Borrower or Credit Party is involved in operations or knows of any facts, circumstances or conditions, including any Releases of Hazardous Materials, that are likely to result in any Environmental Liabilities of such Credit Party which could reasonably be expected to exceed $100,000; (iv) there is no Litigation arising under or related to any Environmental Laws, Environmental Permits or Hazardous Material that seeks damages, penalties, fines, costs or expenses in excess of $100,000 or injunctive relief against, or that alleges criminal misconduct by, any Borrower or any Credit Party; and (v) no notice has been received by any Borrower or any Credit Party identifying it as a "potentially responsible party" or requesting information under CERCLA or analogous state statutes, and to the knowledge of the Borrowers and the Credit Parties, there are no facts, circumstances or conditions that may result in any Borrower or any Credit Party being identified as a "potentially responsible party" under CERCLA or analogous state statutes. (b) Each Borrower and each Credit Party hereby acknowledges and agrees that Lender (i) is not now, and has not ever been, in control of any of such Borrower's or such Credit Party's assets (including its real estate) or any Borrower's or Credit Party's affairs, and (ii) does not have the capacity through the provisions of the Loan Documents or otherwise to influence any Borrower's or any Credit Party's conduct with respect to the ownership, operation or management of any of its real estate or compliance with Environmental Laws or Environmental Permits. 3.18 Insurance. Disclosure Schedule 3.18 lists all insurance policies of any nature maintained, as of each of the Closing Date and the Initial Funding Date, for current occurrences by each Borrower and each Credit Party, as well as a brief description thereof. 3.19 Deposit and Disbursement Accounts. Disclosure Schedule 3.19 lists all banks and other financial institutions at which each Borrower and each Credit Party maintains deposit, commodities, investment or other accounts as of each of the Closing Date and the Initial Funding 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. The Disclosure Schedule shall identify which deposit accounts of each entity are used to receive Governmental Authority payments. 22 3.20 Vendor Relations. As of each of the Closing Date and the Initial Funding Date, there exists no actual or, to the knowledge of any Borrower or any Credit Party, threatened termination or cancellation of, or any material adverse modification or change in the business relationship of any Borrower or any Credit Party with any supplier essential to its operations. As of the Closing Date and at all times during the term of this Agreement, Borrowers shall be a party to the Group Purchasing Contract. 3.21 Bonding; Licenses. Except as set forth on Disclosure Schedule 3.21, as of the Closing Date and the Initial Funding Date, no Borrower or any Credit Party is a party to or bound by any material surety bond agreement or material 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. 3.22 Solvency. Both before and after giving effect to (a) the Loans to be made or incurred on the Initial Funding Date or such other date as Loans are made or incurred, (b) the disbursement of the proceeds of such Loans 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, the Borrowers, taken as a whole, are and will be Solvent. 3.23 WARN Act. Both IHHI and Seller are in full compliance with the requirements of the Worker Adjustment and Retraining Notification Act, 29 U.S.C. 2101, et seq., as amended (the "WARN ACT"), and the California version of the WARN Act, California Cal. Labor Code ss.1400 et seq. 3.24 Hart Scott Rodino Act. Both IHHI and Seller are in full compliance with the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. Section 18a (Section 7A of the Clayton Act). 3.25 Incorporation of Certain Representations and Warranties. (a) Reference is hereby made to the following Sections of the Asset Sale Agreement and to the corresponding disclosure schedules delivered in connection therewith: Section 2.1 (Authorization), Section 2.2 (Binding Agreement), Section 2.3 (Organization and Good Standing; No Violation), Section 2.4 (Contracts and Leases), Section 2.5 (Required Consents), Section 2.6 (Compliance with Laws and Contracts), Section 2.7 (Title Sufficiency), Section 2.8 (Certain Representations With Respect to the Hospitals), Section 2.9 (Brokers and Finders), Section 2.10 (Financial Statements), Section 2.11 (Legal Proceedings), Section 2.12 (Employee Benefits), Section 2.13 (Personnel), Section 2.14 (Insurance), Section 2.15 (Solvency), Section 2.16 (Taxes), and Section 2.18 (Independent Auditor). The Borrowers and the Credit Parties hereby represent and warrant to Lender that, based upon due inquiry and following the completion of the Borrowers' and the Credit Parties' due diligence with respect to Seller and the Hospital Facilities, they have no actual knowledge that any of the listed representations and warranties are incomplete, inaccurate or misleading in any material respect. 23 (b) Reference is hereby made to the following Sections of the Asset Sale Agreement and to the corresponding disclosure schedules delivered in connection therewith: Section 3.1 (Authorization), Section 3.2 (Binding Agreement), Section 3.3 (Organization and Good Standing), Section 3.4 (No Violation), Section 3.5 (Brokers and Finders), Section 3.7 (Legal Proceedings), Section 3.8 (No Knowledge of Seller's Breach), Section 3.9 (Ability to Perform), Section 3.10 (Solvency), and Section 3.11 (Independent Auditor). The Borrowers and the Credit Parties hereby represent and warrant to Lender that all such representations and warranties are true, correct, complete and accurate as of the date hereof. 3.26 Breach of Asset Sale Agreement. None of the Borrowers or the Credit Parties is aware of any breach by either Seller or IHHI under the Asset Sale Agreement, nor of any circumstances which, with the giving of notice or the passage of time, would ripen into a breach by either party thereunder. 3.27 Operating Permits, Licenses and Consents. Immediately following the full consummation of the transactions contemplated by the Asset Sale Agreement and this Agreement, Borrowers shall have sufficient Governmental Authority operating permits, licenses and consents necessary to fully operate the Hospital Facilities in the same manner as they were operating by the entities comprising Seller prior to the consummation of the Asset Sale Agreement. 4. FINANCIAL STATEMENTS AND INFORMATION 4.1 Reports and Notices. (a) Each Borrower and each Credit Party executing this Agreement hereby agrees that from and after the Closing Date and until the Termination Date, it shall deliver to Lender, the Financial Statements, notices, Projections and other information at the times, to the Persons and in the manner set forth in Annex D. (b) Each Borrower hereby agrees that, from and after the Closing Date and until the Termination Date, it shall deliver to Lender, the various Collateral Reports and other reports at the times, to the Persons and in the manner set forth in Annex D including all certifications required with respect to Certified Cash balances. 4.2 Communication with Accountants. Each Borrower and each Credit Party executing this Agreement authorizes Lender, and so long as an Event of Default has occurred and is continuing, following reasonable notice to Borrowers, to communicate directly with its independent certified public accountants, and authorizes and shall instruct those accountants to communicate to Lender any and all financial statements and supporting financial documentation relating to any Borrower or any Credit Party with respect to the business, results of operations and financial condition of any Borrower or any Credit Party. 5. AFFIRMATIVE COVENANTS Each Borrower and each Credit Party executing this Agreement jointly and severally agrees as to all Credit Parties that from and after the date hereof and until the Termination Date: 24 5.1 Maintenance of Existence and Conduct of Business. Each Borrower and each Credit Party shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate 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 its 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) Subject to Section 5.2(b), each Borrower and each Credit Party shall pay and discharge or cause to be paid and discharged promptly all Charges payable by it, including (i) Charges imposed upon it, its income and profits, or any of its property (real, personal or mixed) and all Charges with respect to Taxes, social security and unemployment withholding with respect to its 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. (b) Each Borrower and each Credit Party may in good faith contest, by appropriate proceedings, the validity or amount of any Charges, Taxes or claims described in Section 5.2(a); provided, that (i) adequate reserves with respect to such contest are maintained on the books of such Borrower and such Credit Party, 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) such Borrower and such Credit Party 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 Lender evidence reasonably acceptable to Lender of such compliance, payment or discharge, if such contest is terminated or discontinued adversely to such Borrower and such Credit Party or the conditions set forth in this Section 5.2(b) are no longer met. 5.3 Books and Records. Each Borrower and each Credit Party shall keep adequate books and records with respect to its 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) The Borrowers shall, at their sole cost and expense, maintain the policies of insurance described on Disclosure Schedule 3.18 as in effect on the date hereof or may obtain and maintain other policies of insurance in form and amounts and with insurers reasonably acceptable to Lender. All policies of insurance (or the loss payable and additional insured endorsements delivered to Lender) 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 in the event of any non-renewal, cancellation or amendment of any such insurance policy. If any Borrower 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 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 deems advisable. Lender shall have no obligation to obtain insurance for any Borrower or pay any premiums therefor. By doing so, Lender shall not be deemed to have waived any Default or Event of Default arising from any 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 and shall be additional Obligations hereunder secured by the Collateral, and shall bear interest at the Default Rate until paid in full to Lender. 25 (b) Lender reserves the right at any time upon any change in any Borrower's risk profile (including any laws affecting the potential liability of such Borrower) to require additional forms and limits of insurance to, in Lender's reasonable opinion, adequately protect Lender's interests and Lien in all or any portion of the Collateral and to ensure that each Borrower is protected by insurance in amounts and with coverage customary for its industry. If reasonably requested by Lender, each Borrower shall deliver to Lender from time to time a report of a reputable insurance broker, reasonably satisfactory to Lender, with respect to its insurance policies. (c) Each Borrower shall deliver to Lender, in form and substance reasonably satisfactory to Lender, endorsements to all general liability and other liability policies naming Lender, as additional insured. Each Borrower irrevocably makes, constitutes and appoints Lender (and all officers, employees or Lenders designated by Lender), so long as any Default or Event of Default has occurred and is continuing, as such Borrower's true and lawful Lender 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 such Borrower 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 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 of any loss, damage, or destruction to the Collateral in the amount of $250,000 or more, whether or not covered by insurance. After deducting from such proceeds (i) the expenses incurred by Lender in the collection or handling thereof, and (ii) amounts required to be paid to creditors (other than Lender) having Permitted Encumbrances, Lender may, at its option, apply such proceeds to the reduction of the Obligations in accordance with Section 1.2(c). Notwithstanding the foregoing, if the casualty giving rise to such insurance proceeds could not reasonably be expected to have a Material Adverse Effect, Lender shall permit the applicable Borrower to replace, restore, repair or rebuild the property. 5.5 Compliance with Applicable Laws. Each Borrower and each Credit Party shall comply with all federal, state, local and foreign laws and regulations applicable to it, including those relating to ERISA, labor laws, and Environmental Laws and Environmental Permits, except to the extent that the failure to comply, individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect. 26 5.6 Supplemental Disclosure. From time to time as may be reasonably requested by Lender (which request will not be made more frequently than once each calendar year absent the occurrence and continuance of an Event of Default) or at each Borrower's and at each Credit Party's election from time to time, the Borrowers and the Credit Parties shall supplement each Disclosure Schedule hereto, or any representation herein or in any other Loan Document, with respect to any matter hereafter arising that, if existing or occurring at the date of this Agreement, 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 to any Disclosure Schedule, such Disclosure Schedule shall be appropriately marked to show the changes made therein); provided that (a) no such supplement 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 Lender in writing, and (b) no supplement shall be required or permitted as to representations and warranties that expressly relate only to the Closing Date and/or the Initial Funding Date (except as set forth in the introduction to Section 3 hereof for purposes of representations and warranties made as of the Initial Funding Date). Any Borrower having a "commercial tort claim" (as defined in the Code) shall promptly notify Lender of the existence thereof. 5.7 Intellectual Property. Each Borrower and each Credit Party will conduct its business and affairs without infringement of or interference with any Intellectual Property of any other Person. 5.8 Environmental Matters. Each Borrower shall and shall cause each Person within its control to: (a) conduct its operations and keep and maintain its real estate and interests in real estate in compliance with all Environmental Laws and Environmental Permits; (b) implement any and all investigation, remediation, removal and response actions that are appropriate or necessary to comply with Environmental Laws and Environmental Permits pertaining to the presence, generation, treatment, storage, use, disposal, transportation or Release of any Hazardous Material on, at, in, under, above, to, from or about any of its real estate in all material respects; (c) notify Lender promptly after such Borrower becomes aware of any violation of Environmental Laws or Environmental Permits or any Release on, at, in, under, above, to, from or about any real estate that is reasonably likely to result in Environmental Liabilities of Borrowers in excess of $100,000; and (d) promptly forward to Lender a copy of any order, notice, request for information or any communication or report received by such Borrower in connection with any such violation or Release or any other matter relating to any Environmental Laws or Environmental Permits that could reasonably be expected to result in Environmental Liabilities in excess of $100,000, in each case whether or not the Environmental Protection Agency or any Governmental Authority has taken or threatened any action in connection with any such violation, Release or other matter. In addition, each Borrower shall be in full compliance with the terms and provisions of the Environmental Indemnity Agreement to which Lender and each of the Borrowers are a party and which constitute part of the Loan Documents. If Lender at any time has a reasonable basis to believe that there may be a violation of any Environmental Laws or Environmental Permits by any Borrower or any Environmental Liability of Borrower arising thereunder, or a Release of Hazardous Materials on, at, in, under, above, to, from or about any of its real estate, that, in each case, could reasonably be expected to have a Material Adverse Effect, then each Borrower shall, upon Lender's written request (i) cause the performance of such environmental audits including subsurface sampling of soil and groundwater, and preparation of such environmental reports, at Borrowers' expense, as Lender may from time to time reasonably request, which shall be conducted by reputable environmental consulting firms reasonably acceptable to Lender and shall be in form and substance reasonably acceptable to Lender, and (ii) if Borrowers shall have not timely performed such environmental audits, permit Lender or its representatives to have access to all real estate for the purpose of conducting such environmental audits and testing as Lender reasonably deems appropriate, including subsurface sampling of soil and groundwater. Borrowers shall reimburse Lender for the costs of such audits and tests and the same will constitute a part of the Obligations secured hereunder. 27 5.9 Landlords' Agreements. With respect to any location where any material amount of Collateral is stored or located, Lender 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). Each Borrower shall timely and fully pay and perform its 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. Each Borrower and each Credit Party executing this Agreement agrees that it shall and shall cause each other Borrower and each other Credit Party to, at such Borrower's or Credit Party's expense and upon the reasonable request of Lender, duly execute and deliver, or cause to be duly executed and delivered, to Lender such further instruments and do and cause to be done such further acts as may be necessary or proper in the reasonable opinion of Lender to carry out more effectively the provisions and purposes of this Agreement and each Loan Document. 5.11 Cash. The Borrowers, in the aggregate, shall at all times maintain, or cause to be maintained, Certified Cash in an aggregate amount of not less than $1,000,000. 5.12 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, but subject to Section 5.13 below, Lender 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 the Collection Account through daily sweeps (or as otherwise directed by Lender). 5.13 Governmental Accounts. Notwithstanding anything to the contrary in this Agreement, Lender and Borrowers agree that each of WMC-SA, WMC-A, Chapman and Coastal shall have sole dominion and control over the Proceeds of any Accounts which contain or constitute payments from federal or state healthcare programs, including Medicare and Medi-Cal, for medical services provided by such Borrower ("GOVERNMENTAL ACCOUNTS"). Lender and Borrowers further agree that: (a) WMC-SA, WMC-A, Chapman and Coastal shall each have sole dominion and control over their respective Deposit Accounts which contain or receive payments on Governmental Accounts (the "GOVERNMENTAL DEPOSIT ACCOUNTS") (b) the Governmental Deposit Accounts shall be maintained for the benefit of and in the name of WMC-SA, WMC-A, Chapman and Coastal, as applicable, and (c) no other Person shall have any control over the use of or any right to withdraw any amount from, the Governmental Deposit Accounts other than WMC-SA, WMC-A, Chapman and Coastal, as applicable. Each Borrower specifically agrees: (i) to provide Lender with a description of each Deposit Account where a Governmental Deposit Account is maintained, including without limitation, the name of the financial institution, the address, the account number, the ABA Routing Number, and a contact person, (ii) not to change Deposit Accounts from the financial institution(s) where such Governmental Deposit Accounts are maintained as of the date hereof, and (iii) to instruct such financial institution(s) to sweep each such Governmental Deposit Account on a daily basis to a Lock Box Account identified by Lender. Each Borrower represents and warrants to Lender that it has notified or will notify each governmental payor of any Governmental Account to make all payments on account of such Accounts only to the Governmental Deposit Accounts. The breach of the foregoing obligations by any Borrower shall constitute an immediate Event of Default hereunder for which there shall be no cure or grace period. 28 5.14 Operations of Hospital Facilities. Each of WMC-SA, WMC-A, Chapman and Coastal shall have and maintain at all times from the Closing Date until the Obligations have been paid in full, sufficient approvals, consents, and permits from all necessary Governmental Authorities to fully operate the Hospital Facilities 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 Hospital Facilities. 5.15 After-Acquired Property; Acquisition of Condominium Units or other Real Property Interests. In the event from time to time any Borrower acquires any interest in any real property or improvements that are not a part of the "Property" as defined in either the Leasehold Deed of Trust or the Deed of Trust, including without limitation any one or more of the Condominium Units (hereinafter referred to as the "ADDITIONAL PROPERTY"), then such Borrower agrees to promptly notify Lender reasonably prior to such acquisition and to execute and deliver an amendment to the Leasehold Deed of Trust or the Deed of Trust, as applicable, to reflect the addition of such Additional Property to the Property subject thereto and the Lien of Lender thereon. Upon each such acquisition, (a) the Leasehold Deed of Trust or the Deed of Trust shall automatically be deemed amended to add the legal description of the Additional Property to the legal description of the Property encumbered by the Leasehold Deed of Trust or the Deed of Trust, as applicable; (b) the Leasehold Deed of Trust or the Deed of Trust, as applicable, shall automatically be deemed and shall become a senior Lien and encumbrance against the fee or leasehold title of the Additional Property; (c) within ten (10) calendar days of demand from Lender, such Borrower shall execute, acknowledge and deliver to Lender, and Lender shall record, an amendment to the Leasehold Deed of Trust or the Deed of Trust, as applicable, reflecting such Borrower's acquisition of the title to the Additional Property and the lien of the Leasehold Deed of Trust or the Deed of Trust, as applicable, as a first Lien and encumbrance against the fee or leasehold title of the Additional Property, and (d) within ten (10) calendar days of demand from Lender, at Borrowers' sole cost and expense, the acquiring Borrower shall obtain such endorsements to the Title Policy (or a replacement Title Policy) as Lender may reasonably require to insure that the Lien of the Leasehold Deed of Trust or the Deed of Trust, as applicable, is and remains a first Lien and encumbrance against the fee or leasehold title of the Additional Property. In the event Borrowers fail or refuse to execute such amendment required pursuant to clause (c) above within ten (10) calendar days after Lender's demand therefor, each Borrower hereby grants to Lender a power-of-attorney naming Lender as each such Borrower's attorney-in-fact to execute and record such amendment in the official records of Orange County, California, and to arrange for such title endorsements as Lender reasonably requires. Such power-of-attorney is coupled with an interest and is therefore irrevocable. All such reasonable expenditures incurred by Lender 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. Lender hereby consents to the transfer of the Condominium Units from IHHI to PCHI, subject to Lender's Lien, as described in this section. 29 5.16 Capital Contributions by OC-PIN to IHHI. IHHI and Borrowers agree that all future capital contributions to IHHI by OC-PIN shall be used by IHHI as mandatory prepayments of the Line of Credit pursuant to Section 1.2(b) of this Credit Agreement. 6. NEGATIVE COVENANTS Each Borrower and each Credit Party jointly and severally agrees as to all Borrowers and all Credit Parties that from and after the date hereof until the Termination Date: 6.1 Mergers, Subsidiaries, Etc. No Borrower or any Credit Party shall directly or indirectly, by operation of law or otherwise, (i) form or acquire any Subsidiary in addition to the existing Subsidiaries of IHHI; 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. 6.2 Investments; Loans and Advances. No Borrower or Credit Party shall 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 (each, an "INVESTMENT"), except that: (i) Borrowers may hold Investments constituting notes payable, or stock or other securities issued by Account Debtors to Borrower pursuant to negotiated agreements with respect to settlement of such Account Debtor's Accounts in the ordinary course of business consistent with past practices; (ii) Borrowers may invest the Qualified Cash in the Qualified Cash Accounts (A) as of the Closing Date in the kinds and types of investments that they are then so invested, and (B) thereafter, as to any new investments made after the Closing Date in other kinds and types of investments as are in conformity with each Borrower's investment policies previously adopted by its board of directors so long as Lender's Liens remain perfected therein, (iii) Borrowers may invest its their cash and cash equivalents (other than Qualified Cash in the Qualified Cash Accounts) (A) as of the Closing Date in the kinds and types of investments that they are then so invested, and (B) thereafter, as to any new investments made after the Closing Date in other kinds and types of investments as are in conformity with each Borrower's investment policies previously adopted by its board of directors, and (iv) so long as no Default or Event of Default has occurred and is continuing or would result therefrom, Borrowers or Credit Parties may make investments in, and loans and advances to, any other Borrower or Credit Party. All such investments in, and loans and advances to, a Borrower or a Credit Party shall be unsecured and subordinate in repayment to the repayment of all Obligations to Lender. Lender may require Borrowers and Credit Parties to execute and deliver subordination agreements in form and substance satisfactory to Lender to evidence such subordination arrangements. 30 6.3 Indebtedness. (a) No Borrower shall 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 any Borrower in the ordinary course of business; (ii) the Loans and the other Obligations; (iii) so long as no Default or Event of Default has occurred and is continuing at the time of incurrence thereof, unsecured Funded Debt or indebtedness to other Borrowers, incurred after the Closing Date; (iv) unsecured Indebtedness (other than Funded Debt) incurred in the ordinary course of the Borrowers' respective business; and (v) existing Indebtedness, if any, described in Disclosure Schedule 6.3. Notwithstanding the foregoing, any Borrower may make loans or advances to any other Borrower so long as each Borrower continues to meet the requirements of Section 6.3(a). (b) No Borrower shall, 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 Obligations, or indebtedness owed to other Borrowers by a Borrower; provided, however, that no payments whatsoever shall be made on account of indebtedness owed by one Borrower to another at any time when an Event of Default has occurred and is continuing. 6.4 Employee Loans and Affiliate Transactions. No Borrower or any Credit Party shall 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 such Borrower's or Credit Party's business and upon fair and reasonable terms that are no less favorable to such Borrower or Credit Party than would be obtained in a comparable arm's length transaction with a Person not an Affiliate of such Borrower or Credit Party. (a) No Borrower or Credit Party shall enter into any lending or borrowing transaction with any employees of any Borrower or any Credit Party, 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 shall amend its charter, articles, or bylaws in a manner that would materially adversely affect the rights or remedies of Lender under the Loan Documents or such Borrower or Credit Party's duty or ability to repay the Obligations. No Borrower or Credit Party shall engage in any business other than the businesses currently engaged in by it, anticipated to be conducted, or businesses reasonably related thereto, and other business so long as such other businesses do not constitute, individually or in the aggregate, a material portion of the Borrowers' or Credit Parties' businesses, taken as a whole. 31 6.6 Guaranteed Indebtedness. No Borrower or Credit Party shall create, incur, or assume any Guaranteed Indebtedness unless such Guaranteed Indebtedness would be permitted to be incurred directly by such Borrower or such Credit Party pursuant to Section 6.3. 6.7 Liens. No Borrower or Credit Party shall 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. No Borrower or Credit Party shall sell, transfer, convey, assign, license or otherwise dispose of any interest in Collateral, other than in the ordinary course of business or the sale of Accounts other than the sale of Accounts pursuant to the Accounts Purchase Agreement. No Borrower or Credit Party shall sell, transfer, convey, assign, license or otherwise dispose of any interest in the Borrowers or Credit Parties. 6.9 ERISA. No Borrower or Credit Party shall, or shall cause or permit any ERISA Affiliate to, cause or permit to occur (i) 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 (ii) 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. 6.10 Hazardous Materials. No Borrower or Credit Party shall cause or permit a Release of any Hazardous Material on, at, in, under, above, to, from or about any of its real estate 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 of its real estate 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, no Borrower shall make any Restricted Payment, except (a) dividends, distributions and payments by a Borrower paid to another Borrower, (b) employee loans permitted under Section 6.4(b), (c) so long as no Event of Default shall have occurred and is continuing, dividends and distributions by IHHI to its Shareholders, and (d) ordinary course payments to IHHI for services to other Borrowers. 6.12 Change of Corporate Name, State of Incorporation or Location; Change of Fiscal Year. No Borrower or Credit Party shall (a) change its name as it appears in official filings in the state of its incorporation or other 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 its records concerning the Collateral, (c) change the type of entity that it is, (d) change its organization identification number, if any, issued by its state of incorporation or other 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) days prior written notice to Lender and provided that such Borrowers and Credit Parties shall have taken such actions and executed such documents as Lender reasonably requests in connection therewith to continue the perfection of any Liens in favor of Lender in any Collateral, and provided further that, any change to such Borrowers' respective jurisdictions of incorporation or organization, such new jurisdiction shall be located in the United States. No Borrower or Credit Party shall change its Fiscal Year without giving Lender at least thirty (30) days prior written notice thereof. 32 6.13 No Impairment of Intercompany Transfers. No Borrower or Credit Party shall 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 or the making or repayment of intercompany loans by any Subsidiary of IHHI to IHHI. 6.14 Limitations on Power of Managers of PCHI. So long as all of the Obligations have not been paid in full, without the prior written consent of the Lender, which may be given or withheld in its absolute and unfettered discretion, neither of the Managers of PCHI shall have the power or authority to cause, permit, consent or acquiesce to PCHI taking, making or engaging in any of the following acts or activities without first obtaining the prior written consent of both Managers and the Lender, and any such activity taken without the prior written consent of both Managers shall constitute an Event of Default hereunder: (i) The sale, transfer, conveyance, assignment, hypothecation, encumbrance or disposition of all or any part of PCHI's assets (including, but not limited to, the Property); (ii) The incurring of any debt; (iii) The making of any change of any kind in the nature or character of the business of PCHI as the same is currently conducted or as the same is currently expected to be conducted; (iv) The incurring of any contractual obligation with a total cost to PCHI of $5,000.00 or more in the aggregate during in any consecutive twelve (12) month period; (v) The making of any capital expenditure of $5,000.00 or more in the aggregate during in any consecutive twelve (12) month period; (vi) The merger, consolidation, combination, or other similar business venture of any kind of PCHI with any other Person; (vii) The purchase, lease, sublease or acquisition of any assets or equipment of any kind; (viii) The execution of any new lease, sublease, rental agreement or occupancy agreement with any Person at the Property; (ix) The making of any amendment, modification, revision, novation or other change of any kind to any lease, sublease, rental agreement or occupancy agreement with any Person at the Property existing as of the date of this Agreement; 33 (x) The making of any amendment, modification, revision, novation or other change of any kind to the Triple Net Hospital and Medical Office Building Lease dated as of March 3, 2005 by and between PCHI (as Landlord) and Integrated Healthcare Holdings, Inc. (as Tenant); (xi) The making of any amendment, modification, revision, novation or other change of any kind to its Operating Agreement; (xii) The making or filing of any amendment, modification, revision, novation or other change of any kind to the Articles of Organization of PCHI on file with the California Secretary of State as of the date of this Agreement; (xiii) The execution of any license, permit, consent or other authority to conduct business of any kind in any of the Properties not conducted as of the date of this Agreement; (xiv) The making of any amendment, modification, revision, novation or other change of any kind to any license, permit, consent or other authority to conduct business in any of the Properties existing as of the date of this Agreement; (xv) The making or taking of any act that would make it difficult or impossible to carry on the ordinary business of PCHI, or the failure to take any required act, the failure of which would make it difficult or impossible to carry on the ordinary business of PCHI; (xvi) The making or taking of any confession of a judgment against PCHI; (xvii) The making or taking of any act to dissolve PCHI; (xviii) The filing of a petition in bankruptcy or the entering into of an arrangement among creditors; (xix) The entering into or execution of any contract, agreement, understanding (whether oral or written, and whether binding or non-binding) with any Affiliate of PCHI of any Affiliate of any Member of PCHI; (xx) Admitting any Person as a Member of PCHI; (xxi) Agreeing, permitting or consenting to the sale, transfer, conveyance, assignment, hypothecation or encumbrance of any Economic Interest, Interest, Information Rights, Membership Interests, Percentage Interests, or Management and Voting Rights to any Person; (xxii) Agreeing, permitting or consenting to the return of any Capital Contribution or the making of any Distribution. Notwithstanding the foregoing, so long as an Event of Default under the Note, Deed of Trust or other Loan Documents has not occurred or continuing, the Managers shall have the right to cause the Company to make Distributions in accordance with the provisions of Section 5.2 of the Operating Agreement, subject to the right of Lender to terminate the Managers right to make further Distributions upon the occurrence of an Event of Default under the Loan Documents; and (xxiii) Agreeing, permitting or consenting to the election or appointment of any Person as an Officer or as a Manager. PCHI shall cause its Operating Agreement to be amended on or before the Closing Date to reflect the restrictions set forth in this Section. 34 7. TERM 7.1 Termination. The financing arrangements contemplated hereby shall be in effect until the earlier of the date when the Loans and other 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 Lender. 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 the Borrower or the Credit Parties or the rights of Lender 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 the Borrower and the Credit Parties, and all rights of Lender, 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, the payment obligations under Article 1, and the indemnities contained in the Loan Documents shall survive the Maturity Date. 7.3 Accounts Purchase Agreement. Notwithstanding the termination of this Agreement as contemplated by Section 7.1 above, or the foreclosure or other enforcement by Lender of the Liens granted under the Credit Agreement and the other Loan Documents, the Accounts Purchase Agreement and the other agreements, instruments and documents relating thereto shall continue in full force and effect until the Accounts Purchase Agreement expires or terminates as provided therein. 8. EVENTS OF DEFAULT; RIGHTS AND 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) Borrowers (i) fail to make any payment of principal of or interest on the Loans or any of the other Obligations within five (5) calendar days after the same is due and payable; provided, that if Borrowers fail to make a payment within such period, interest at the Default Rate shall accrue from the due date for such payment, or (ii) fails to pay or reimburse Lender for any expense reimbursable hereunder or under any other Loan Document within ten (10) calendar days following Lender's demand for such reimbursement or payment of expenses. 35 (b) Any Credit Party fails or neglects to perform, keep or observe any of the provisions of Sections 1.2 (Prepayments), 1.5 (Cash Management), 5.4(a) (Insurance; Damage to or Destruction of Collateral), 5.11 (Cash), or 6 (Negative Covenants), or any of the provisions set forth in Annex B (Cash Management System). (c) Borrowers fail or neglect to perform, keep or observe any of the provisions of Section 4.1 or any provisions set forth in Annexes B or C, respectively, and the same shall remain unremedied in whole or in part for fifteen (15) calendar days or more after the earlier of (i) such Borrower's or Credit Party's, as applicable, actual knowledge thereof, or (ii) such Borrower's or Credit Party's, as applicable, receipt of notice thereof from Lender. (d) Any Borrower or any Credit Party fails or neglects to perform, keep or observe any other provision of this Agreement (other than any provision embodied in or covered by any other clause of this Section 8.1) and the same shall remain unremedied in whole or in part for fifteen (15) calendar days or more after the earlier of (i) such Borrowers' actual knowledge thereof or (ii) such Borrowers' receipt of notice thereof from Lender. (e) Any Borrower or any Credit Party fails or neglects to perform, keep or observe any other provision of any of the other Loan Documents or any Guaranty and the same shall remain unremedied in whole or in part for the shorter of thirty (30) calendar days or beyond any applicable cure or grace period provided for therein. (f) A default or breach occurs under any other agreement, document or instrument to which any Borrower or any Credit Party is a party that is not cured within any applicable grace period therefore, and such default or breach is not waived 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 any Borrower or any Credit Party (including (x) undrawn committed or available amounts and (y) amounts owing to all creditors under any combined or syndicated credit arrangements); 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. (g) A default shall occur or exist under the Triple Net Lease, and the same shall remain unremedied in whole or in part for fifteen (15) calendar days or more after the earlier of (i) such Borrower's or Credit Party's, as applicable, actual knowledge thereof, or (ii) such Borrower's or Credit Party's, as applicable, receipt of notice thereof from Lender. (h) A default shall occur under any of the subleases or sub-subleases of a Hospital Facility, and the same shall remain unremedied in whole or in part for fifteen (15) calendar days or more after the earlier of (i) such Borrower's or Credit Party's, as applicable, actual knowledge thereof, or (ii) such Borrower's or Credit Party's, as applicable, receipt of notice thereof from Lender. 36 (i) A default shall occur under either of the Chapman Leases. (j) A default shall occur under the deed of trust dated May 27, 2003 (naming Chapman Medical L.P., as Trustor and Fremont Investment & Loan as Beneficiary), which deed of trust secures repayment of an $11,800,000 promissory note and encumbers the same fee interest in the same real property that the Chapman Leases each encumber. (k) A default shall occur or exist under the Accounts Purchase Agreement, and the same shall remain unremedied in whole or in part for fifteen (15) calendar days or more after the earlier of (i) such Borrower's or Credit Party's, as applicable, actual knowledge thereof, or (ii) such Borrower's or Credit Party's, as applicable, receipt of notice thereof from Lender. (l) Borrower or any Subsidiary shall fail to have in full force and effect and in good standing each license or permit necessary to its continuing operation as a hospital and acute care centers, as applicable, as operated on the date hereof. (m) Any of the Hospital Facilities shall no longer be accredited by the California Department of Health or no longer have all other permits, licenses and authorizations to conduct an acute care medical center and hospital in the scope and manner operated by Seller. (n) Any representation or warranty herein or in any Loan Document or in any written statement, report, financial statement or certificate made or delivered to Lender by any Borrower or any Credit Party is untrue or incorrect in any material respect as of the date when made or deemed made. (o) Assets of any Borrower or any Credit Party 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 any Borrower or any Credit Party and such condition continues for thirty (30) days or more. (p) A case or proceeding is commenced against any Borrower or any Credit Party seeking a decree or order in respect of such Borrower or such 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 such Borrower or such Credit Party or for any substantial part of any such Borrower or such Credit Party's assets, or (iii) ordering the winding-up or liquidation of the affairs of such Borrower or such Credit Party, and such case or proceeding shall remain undismissed or unstayed for sixty (60) 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. (q) 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 such Credit Party or for any substantial part of any such Borrower or such 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. 37 (r) A final judgment or judgments for the payment of money in excess of $100,000 in the aggregate at any time are outstanding against one or more of the 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 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. (s) 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 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. (t) Any Change of Control occurs for Borrower or any of its Subsidiaries or any Credit Party. (u) Any event occurs, whether or not insured or insurable, as a result of which revenue-producing activities cease or are substantially curtailed at facilities of any Borrower generating more than 25% of Borrowers' consolidated revenues for the Fiscal Year preceding such event and such cessation or curtailment, to the extent not commenced at other facilities of or on behalf of Borrowers, continues for more than thirty (30) calendar days. (v) A Material Adverse Effect shall exist as determined in the sole judgment of Lender. (w) Larry Anderson or Bruce Mogel or Jim Ligon shall no longer be employees of IHHI and replacements acceptable to Lender in its reasonable discretion are not employed within thirty (30) calendar days of the date that either such Person is no longer employed by IHHI. (x) The Group Purchasing Agreement shall be terminated or cancelled and a substitute purchasing arrangement is not entered into by Borrowers within thirty (30) calendar days following such termination or cancellation. 8.2 Remedies. (a) If any Event of Default has occurred and is continuing, Lender may, without notice, suspend the Line of Credit facility with respect to additional Advances, whereupon any additional Advances may be made or incurred in Lender's sole discretion, so long as such Event of Default is continuing. If any Event of Default has occurred and is continuing, Lender may, without notice except as otherwise expressly provided herein, increase the rate of interest applicable to the Loans to the Default Rate. 38 (b) If any Event of Default has occurred and is continuing, Lender may, without notice: (i) terminate the Line of Credit facility with respect to further Advances; (ii) reduce the Commitment from time to time; (iii) declare all or any portion of the Obligations, including all or any portion of any Loan 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 each other Credit Party; or (iv) exercise any rights and remedies provided to Lender under the Loan Documents or any Guaranty, 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), the Commitments shall be immediately terminated and all of the Obligations, including the aggregate Line of Credit Loan, shall become immediately due and payable without declaration, notice or demand by any Person. 8.3 Waivers by Credit Parties. Except as otherwise provided for in this Agreement or by applicable law, each Credit Party waives (including for purposes of Section 12): (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 Lender on which any Credit Party may in any way be liable, and hereby ratifies and confirms whatever Lender may do in this regard, (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevy, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing 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) Subject to the terms of this Section 9.1, Lender may make an assignment to a Qualified Assignee of, or sell participations in, at any time or times, the Loan Documents, Loans, and any Commitment 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 (an "ASSIGNMENT AGREEMENT") substantially in the form attached hereto as Exhibit 9.1(a) and otherwise in form and substance reasonably satisfactory to, and acknowledged by, Lender; and (ii) be conditioned on such assignee representing to Lender that it is purchasing the applicable Loans 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 Lender under this Section 9.1, the assignee shall have, to the extent of such assignment, the same rights, benefits and obligations as Lender hereunder. The original Lender shall be relieved of its obligations hereunder with respect to its Commitments or assigned portion thereof from and after the date of such assignment. Borrowers 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 Lender assigns or otherwise transfers all or any part of the Obligations, Lender shall so notify Borrowers shall, upon the request of Lender, execute a new note in exchange for the Note (upon the same terms), if any, being assigned. Notwithstanding the foregoing provisions of this Section 9.1(a), Lender may at any time pledge the Obligations held by it and Lender's rights under this Agreement and the other Loan Documents to a financial institution. 39 (b) Any participation by Lender of all or any part of its Commitments shall be made with the understanding that all amounts payable by Borrower hereunder shall be determined as if Lender had not sold such participation, and that the holder of any such participation shall not be entitled to require 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 Sections 1.10 (Indemnity), 1.12 (Taxes), and 1.13 (Capital Adequacy; Increased Costs; Illegality), Borrowers 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 Lender) and the participant shall be considered to be a "Lender." Except as set forth in the preceding sentence neither Borrowers nor any Credit Party shall have any obligation or duty to any participant. (c) Each Borrower and each Credit Party executing this Agreement shall assist Lender under this Section 9.1 as reasonably required to enable Lender to effectuate any such assignment or participation, including the execution and delivery of any and all agreements, notes and other documents and instruments as shall be requested and, if requested by Lender, the preparation of informational materials for, and the participation of management in meetings with, potential assignees or participants. Each Borrower and each Credit Party executing this Agreement shall certify the correctness, completeness and accuracy, in all material respects of all descriptions of the Borrowers and the 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) Lender may furnish any information concerning the Borrowers and the Credit Parties in the possession of Lender from time to time to assignees and participants (including prospective assignees and participants); provided that Lender shall obtain from assignees or participants confidentiality covenants substantially equivalent to those contained in Section 11.8. (e) So long as no Event of Default has occurred and is continuing, Lender shall assign or sell participations in any portion of its Loans or Commitments to a potential Lender or participant, if, as of the date of the proposed assignment or sale, the assignee Lender or participant would be subject to capital adequacy or similar requirements under Section 1.13(a), or increased costs under Section 1.13(b). 9.2 Lender's Reliance, Etc. Neither Lender 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, 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 and shall not be responsible to Borrowers 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 any Borrower and any Credit Party or to inspect the Collateral (including the books and records) of any Borrower and any Credit Party; (d) shall not be responsible to Borrowers or any Credit Party 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. 40 10. SUCCESSORS AND ASSIGNS 10.1 Successors and Assigns. This Agreement and the other Loan Documents shall be binding on and shall inure to the benefit of each Borrower and any Credit Party, Lender, and their respective successors and assigns (including, in the case of any Borrower and any Credit Party, a debtor-in-possession on behalf of such Borrower and any Credit Party), except as otherwise provided herein or therein. No Borrower and any Credit Party 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. Any such purported assignment, transfer, hypothecation or other conveyance by any Borrower and any Credit Party without the prior express written consent of Lender shall be void. The terms and provisions of this Agreement are for the purpose of defining the relative rights and obligations of each Borrower and any Credit Party and Lender 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. The Loan Documents 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. Any letter of interest, commitment letter, fee letter or confidentiality agreement, if any, between any Borrower or any Credit Party and Lender 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. Except for actions expressly permitted to be taken by Lender, no amendment, modification, termination or waiver of any provision of this Agreement or any other Loan Document, or any consent to any departure by any Credit Party therefrom, shall in any event be effective unless the same shall be in writing and signed by Lender's and Borrower's Representatives. 41 (a) 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 Section 2.2 to the making of any Loan shall be effective unless the same shall be in writing and signed by Lender's and Borrower's Representatives. Notwithstanding anything contained in this Agreement to the contrary, 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 Loans unless the same shall be in writing and signed by Lender and Borrower's Representative. (b) No amendment, modification, termination or waiver shall, unless in writing and signed by Lender: (i) increase the principal amount of Lender's Commitment; (ii) reduce the principal of, rate of interest on any Loan; (iii) extend any scheduled payment date (other than payment dates of mandatory prepayments under Section 1.2(b) or the Stated Maturity Date; (iv) waive, forgive, defer, extend or postpone any payment of interest; or (v) release any Guaranty or, except as otherwise permitted herein or in the other Loan Documents, release, or permit any Borrower or any Credit Party 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. 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 Note shall be effective without the written concurrence of the holder of that Note. No notice to or demand on any Borrower or any Credit Party in any case shall entitle such Borrower or such Credit Party 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 shall be binding upon each holder of the Notes at the time outstanding and each future holder of the Notes. (c) Upon payment in full in cash and performance of all of the Obligations (other than indemnification Obligations), termination of the Commitments, and a release of all claims against Lender, and so long as no suits, actions, proceedings or claims are pending against any Indemnified Person asserting any damages, losses or liabilities that are Indemnified Liabilities, Lender shall deliver to Borrower termination statements, Lien releases and other documents necessary or appropriate to evidence the termination of the Liens securing payment of the Obligations. 11.3 Fees and Expenses. Borrowers and Credit Parties shall reimburse Lender for (i) all fees, costs and expenses (including the reasonable fees and expenses of all of its 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 and 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 in connection with the syndication and administration of the Loans made pursuant hereto or its rights hereunder or thereunder; 42 (a) any litigation, contest, dispute, suit, proceeding or action (whether instituted by Lender, any Borrower, any Credit Party or any other Person and whether as a party, witness or otherwise) in any way relating to the Collateral, 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 any or all of the Borrowers and/or any or all of the Credit Parties or any other Person that may be obligated to Lender 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 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 (b) 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; (b) any attempt to enforce any remedies of Lender against any or all of the Borrowers and/or any or all of the Credit Parties or any other Person that may be obligated to Lender 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 of the Loans during the pendency of one or more Events of Default; (c) any workout or restructuring of the Loans during the pendency of one or more Events of Default; and (d) efforts to (i) monitor the Loans or any of the other Obligations, (ii) evaluate, observe or assess any of the Borrowers or any of the Credit Parties or their respective affairs, 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 (e) 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 fees incurred by such counsel and others in connection with or relating to any of the events or actions described in this Section 11.3, all of which shall be payable, on demand, by Borrowers to Lender. Without limiting the generality of the foregoing, such expenses, costs, charges and fees may include: 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, 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's failure, at any time or times, to require strict performance by the Borrowers and the Credit Parties of any provision of this Agreement or any other Loan Document shall not waive, affect or diminish any right of 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, none of the undertakings, agreements, warranties, covenants and representations of any Borrower or any Credit Party contained in this Agreement or any of the other Loan Documents and no Default or Event of Default by any Borrower or any Credit Party shall be deemed to have been suspended or waived by Lender, unless such waiver or suspension is by an instrument in writing signed by the Lender's Representative, and directed to Borrower's Representative specifying such suspension or waiver. 43 11.5 Remedies. Lender's rights and remedies under this Agreement shall be cumulative and nonexclusive of any other rights and remedies that 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 Confidentiality. Lender agrees to use commercially reasonable efforts (equivalent to the efforts Lender applies to maintaining the confidentiality of its own confidential information) to maintain as confidential all confidential information provided to them by the Borrowers and the Credit Parties and designated as confidential (provided, that, all non-public financial information and financial projections provided by any Borrower or any Credit Party shall be deemed confidential whether or not so designated as confidential) for a period of two (2) years following receipt thereof, except that Lender may disclose such information (a) to Persons employed or engaged by Lender so long as Lender has policies relative to the maintenance of confidential information; (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 11.8 (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 to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of Lender's counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any Litigation relative to the Loan Documents or the transactions related thereto to which Lender is a party; or (f) that ceases to be confidential through no fault of Lender. Notwithstanding the foregoing, Lender shall not use or disclose any patient related information which is protected under any federal or California state privacy or confidentiality laws, unless such use or disclosure would be legally permissible if done by a Hospital Facility directly. If 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 will use commercially reasonable efforts to give Borrowers and Credit Parties, as applicable, prompt written notice of such request so that any Borrower or any Credit Party may seek an appropriate protective order. If in the absence of a protective order, Lender is compelled in a proceeding to disclose any such confidential information, Lender may disclose such portion of such confidential information that it is compelled to disclose; provided, however, that Lender shall use commercially reasonable efforts to provide Borrowers and to Credit Parties, as applicable, written notice of the information to be disclosed as far in advance of its disclosure as is practicable. 44 11.9 GOVERNING LAW. (a) EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THE 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. EACH BORROWER AND EACH CREDIT PARTY AND LENDER HEREBY CONSENTS AND AGREES 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 THE BORROWERS AND THE 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 LENDER, BORROWERS AND THE CREDIT PARTIES 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 SUBMITS AND CONSENTS IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH BORROWER, EACH CREDIT PARTY AND LENDER HEREBY WAIVES ANY OBJECTION THAT SUCH BORROWER OR SUCH CREDIT PARTY, OR LENDER MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY SUCH COURT. EACH BORROWER, EACH CREDIT PARTY AND LENDER HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH BORROWER, CREDIT PARTY OR TO LENDER AT THE ADDRESS SET FORTH IN ANNEX D OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE EARLIER OF SUCH BORROWER'S, SUCH CREDIT PARTY'S OR LENDER'S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE UNITED STATES MAILS, PROPER POSTAGE PREPAID. 45 11.10 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 and 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 telecopy or other similar facsimile transmission (with such telecopy or facsimile promptly confirmed by delivery of a copy by personal delivery or United States Mail as otherwise provided in this Section 11.10); (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 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 to receive copies shall in no way adversely affect the effectiveness of such notice, demand, request, consent, approval, declaration or other communication. 11.11 Section Titles. The Section titles and Table of Contents 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. 11.12 Counterparts. This Agreement may be executed in any number of separate counterparts, each of which shall collectively and separately constitute one agreement. 11.13 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 LENDER, 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. 46 11.14 Press Releases and Related Matters. Each Credit Party executing this Agreement agrees that neither it nor its Affiliates will in the future issue any press releases or other public disclosure using the name of Lender 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 notice to Lender and without the prior written consent of Lender (which consent will not be unreasonably withheld) unless (and only to the extent that) such Borrower or such Credit Party or Affiliate is required to do so under law, regulation or any applicable exchange rules or OTC bulletin board rules, then, in any event, such Borrower, such Credit Party or Affiliate will use commercially reasonable efforts to consult with Lender before issuing such press release or other public disclosure. Each Borrower and each Credit Party consents to the publication by Lender of advertising material relating to the financing transactions contemplated by this Agreement using any Borrower's name, product photographs, logo or trademark, without the prior written consent of IHHI which shall not be unreasonably withheld, delayed or conditioned. 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 IHHI. 11.15 Reinstatement. This Agreement shall remain in full force and effect and continue to be effective should any petition be filed by or against any Borrower or any Credit Party for liquidation or reorganization, should any Borrower or any Credit Party 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. 11.16 Advice of Counsel. Each of the parties represents to each other party hereto that it has discussed this Agreement and, specifically, the provisions of Sections 11.9 and 11.13, with its counsel. 11.17 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. 11.18 Limitation on Each Borrower's and Each Credit Party's Liability. (a) Anything to the contrary notwithstanding, if any Fraudulent Transfer Law (as hereinafter defined) is determined by a court of competent jurisdiction to be applicable to the obligations of any Borrower or Credit Party hereunder, such obligations of such Borrower or other Credit Party 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 Section 548 of Title 11 of the United States Code or any applicable provisions of comparable state law (collectively, the "FRAUDULENT TRANSFER LAWS"), in each case after giving effect to all other liabilities of such Borrower or other Credit Party, contingent or otherwise, that are relevant under the Fraudulent Transfer Laws (specifically excluding, however, any liabilities of such Borrower or other Credit Party in respect of intercompany indebtedness to IHHI or other affiliates of IHHI to the extent that such indebtedness would be discharged in an amount equal to the amount paid by such Borrower or other Credit Party hereunder, and after giving effect as assets to the value (as determined under the applicable provisions of the Fraudulent Transfer Laws) of any rights to subrogation, reimbursement, indemnification or contribution of such Borrower or other Credit Party pursuant to applicable law or pursuant to the terms of any agreement (including any such right of contribution hereunder). 47 (b) Each Borrower and each Credit Party together desire to allocate among themselves, in a fair and equitable manner, their respective obligations under this Agreement and the other Loan Documents. Accordingly, in the event that any payment or distribution is made on any date by any Borrower or any other Credit Party hereunder or under any other Loan Document (a "FUNDING PARTY") that exceeds its Fair Share (as defined below) as of such date, that Funding Party shall be entitled to a contribution from each of the other Borrowers and Credit Parties, as the case may be, in the amount of such other Borrower's or Credit Party's Fair Share Shortfall as defined below) as of such date, with the result that all such contributions will cause each such Borrower's or other Credit Party's Aggregate Payments (as defined below) to equal its Fair Share as of such date. As used herein, "FAIR SHARE" means, with respect to a Borrower or other Credit Party as of any date of determination, an amount equal to (i) the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to such Credit Party to (y) the aggregate of the Adjusted Maximum Amounts with respect to all Borrowers and other Credit Parties multiplied by (ii) the aggregate amount paid or distributed on or before such date by all Funding Parties under this Agreement and the other Loan Documents in respect of the Obligations hereunder. "FAIR SHARE SHORTFALL" means, with respect to a Borrower or other Credit Party as of the date of determination, the excess, if any, of the Fair Share of such Person over the Aggregate Payments of such Person. "ADJUSTED MAXIMUM AMOUNT" means, with respect to a Borrower or other Credit Party, as of any date of determination, the maximum aggregate amount of the obligations of such Person under this Agreement and the other Loan Documents determined as of such date, in the case of any Borrower or other Credit Party, provided, that, solely for purposes of calculating the "ADJUSTED MAXIMUM AMOUNT" with respect to any Borrower or other Credit Party arising by virtue of any rights to subrogation, reimbursement or indemnification or any rights to or obligations of contribution hereunder shall not be considered as assets or liabilities of such Person. "AGGREGATE PAYMENTS" means, with respect to a Borrower or any other Credit Party, as of any date of determination, an amount equal to (i) the aggregate amount of all payments and distributions made on or before such date by such Person in respect of this Agreement and the other Loan Documents, minus (ii) the aggregate amount of all payments received on or before such date by such Person from the Borrowers and other Credit Parties as contributions under this Section. The amounts payable as contributions hereunder shall be determined as of the date on which the related payment or distribution is made by the applicable Funding Party. The allocation among Borrowers and other Credit Parties of their obligations as set forth in this section shall not be construed in any way to limit the liability of any Borrower or Credit Party hereunder. 48 12. SURETYSHIP WAIVERS 12.1 Suretyship Waivers. Because each Credit Party other than the Borrowers is not a direct borrower from Lender under this Agreement, although the Loan directly and indirectly benefits each Person comprising Borrowers and the Credit Parties, it is possible that Borrowers and the Credit Parties could be construed as a guarantor or surety 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 Lender 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: (a) The waivers provided in this Section are intended to be irrevocable and to apply to all present and future Obligations of Borrowers to Lender, 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 any Borrower, any Guarantor of all or any portion of the Obligations, or other event or proceeding affecting any Borrower or any Guarantor of any portion of the Obligations. (b) The Obligations of the Credit Parties hereunder are separate and independent of (i) Borrowers' obligation to pay Lender principal and interest under the Notes and the other Obligations hereunder, and (ii) the liabilities and obligations of any Credit Party which is a Guarantor. A separate action or actions may be brought and prosecuted against one or more Credit Parties whether or not any action is brought and prosecuted against Borrowers, all other Credit Parties, including any Credit Party which is a Guarantor, and whether or not a particular Borrower and/or any Credit Party is or are joined in any such action or actions. Each Borrower and each Credit Party waives the benefit of any statute of limitations affecting the Obligations hereunder or the enforcement thereof. 49 (c) Each Borrower and each Credit Party authorizes Lender, without notice or demand and without affecting its 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 increase or decrease the rate of interest thereon or the principal amount thereof; (ii) accept partial payments on the Obligations from any one or more Borrowers or any Guarantor; (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 Lender in its sole discretion may determine; (vi) release or substitute any one or more of any Guarantors; (vii) settle, release on terms satisfactory to Lender (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 any Credit Party hereunder; or (viii) enforce any other right or remedy granted to Lender under this Agreement or under any of the other Loan Documents or under any Guaranty. No such action which Lender 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 any Credit Party, or any course of dealing with any other person or legal entity, shall release Borrowers' Obligations or any Credit Party's responsibility hereunder, affect this Agreement or the other Loan Documents in any way, or afford Borrowers or any Credit Party any recourse against Lender. 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 any Credit Party. (d) Borrowers and Credit Parties waive any right to require Lender to: (i) proceed against any one or more Borrowers under the Note, against any Guarantor, any other Credit Party, 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 Lender's power whatsoever. Each Person which is a Borrower, Guarantor or other Credit Party waives any defense arising by reason of any disability or other defense of any Borrower, any Guarantor or any other Credit Party, or by reason of the cessation from any cause whatsoever of the liability of any Borrower, any Guarantor or any other Credit Party, or by reason of any act or omission of Lender or other persons which directly or indirectly results in or aids the discharge or release of any Borrower, any Guarantor or any other Credit Party, 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. Each Credit Party waives 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. Each Borrower, each Guarantor and each other Credit Party expressly waives any right whatsoever to, or right whatsoever to participate in, any security now or hereafter held by Lender, 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 Borrower, any Guarantor or any other Credit Party, or any other Person directly or contingently liable for the Obligations, or against or with respect to each Borrowers' 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. 50 (e) Each Borrower, each Guarantor and each other Credit Party represents and warrants to Lender that: (i) this Agreement is executed at each Borrower's, each Guarantor's and each other Credit Party's request; (ii) each Borrower, each Guarantor and each other Credit Party has established adequate means of obtaining from Borrowers on a continuing basis financial and other information pertaining to Borrowers' respective businesses and Borrowers' respective financial conditions; and (iii) each Borrower, each Guarantor and each other Credit Party is now and will be completely familiar with the business, operation and financial condition of Borrowers and its assets. Each Borrower, each Guarantor and each other Credit Party hereby waives and relinquishes any duty on the part of Lender to disclose to Borrowers any matter, fact or thing relating to the business, operation or financial condition of Borrowers and its assets now known or hereafter known by Lender during the life of this Agreement. With respect to any present or future Obligations of Borrowers to Lender, Lender need not inquire into the authority of Borrowers, and any Obligations made or created in reliance upon the professed exercise of such powers. (f) So long as any of the Obligations under this Agreement remain unpaid or undischarged, neither a Guarantor nor any other Credit Party will, by paying any sum recoverable hereunder (whether or not demanded by Lender) or by any means or on any other ground, (i) claim any set-off or counterclaim against Borrowers, any Guarantor or any other Credit Party 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 a Borrower, any Guarantor or other Credit Party may have against Borrowers or any other Credit Party; 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, any other Credit Party or other person, or the benefit of any of any other security for any Obligation which, now or hereafter, Lender may hold or in which it may have any share or interest. 12.2 Election of Remedies. If Lender may, under applicable law, proceed to realize its benefits under any of the Loan Documents granting a Lien upon any Collateral, whether owned by any Borrower or by any other Person, either by judicial foreclosure or by non-judicial sale or enforcement, 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 12. If, in the exercise of any of its rights and remedies, 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 Lender and waives any claim based upon such action, even if such action by Lender shall result in a full or partial loss of any rights of subrogation that any Borrower might otherwise have had but for such action by Lender. Any election of remedies that results in the denial or impairment of the right of Lender to seek a deficiency judgment against Borrowers shall not impair any other Borrowers' obligation to pay the full amount of the Obligations. In the event Lender shall bid at any foreclosure or trustee's sale or at any private sale permitted by law or the Loan Documents, Lender may bid all or less than the amount of the Obligations and the amount of such bid need not be paid by Lender but shall be credited against the Obligations. The amount of the successful bid at any such sale, whether Lender, or any other party is the successful bidder, shall be conclusively deemed to be the fair market value of the Collateral and the difference between such bid amount and the remaining balance of the Obligations shall be conclusively deemed to be the amount of the Obligations guaranteed under this Section 12, notwithstanding that any present or future law or court decision or ruling may have the effect of reducing the amount of any deficiency claim to which Lender might otherwise be entitled but for such bidding at any such sale. 12.3 Joint and Several Liability. The payment and performance of all Obligations shall constitute the joint and several obligations and each Borrower, each Guarantor and each other Credit Party. 51 IN WITNESS WHEREOF, this Agreement has been duly executed as of the date first written above. BORROWERS: INTEGRATED HEALTHCARE HOLDINGS, INC. By: ------------------------------------ Larry B. Anderson, President WMC-SA, INC. By: ------------------------------------ Larry B. Anderson, President WMC-A, INC. By: ------------------------------------ Larry B. Anderson, President COASTAL COMMUNITIES HOSPITAL, INC. By: ------------------------------------ Larry B. Anderson, President [SIGNATURE PAGE CONTINUES] CHAPMAN MEDICAL CENTER, INC. By: ------------------------------------ Larry B. Anderson, President 52 CREDIT PARTIES: PACIFIC COAST HOLDINGS INVESTMENT, LLC By: ------------------------------------ Anil V. Shah, M.D., Manager GANESHA REALTY, LLC By: ------------------------------------ ------------------------------------ [Printed Name & Title] WEST COAST HOLDINGS, LLC By: ------------------------------------ ------------------------------------ [Printed Name & Title] LENDER: MEDICAL PROVIDER FINANCIAL CORPORATION II, By: ------------------------------------ ------------------------------------ [Printed Name & Title] 53 ANNEX A (RECITALS) TO CREDIT AGREEMENT DEFINITIONS Initially capitalized terms used in the Loan Documents shall have (unless otherwise provided elsewhere in the Loan Documents) the following respective meanings, and all references to Sections, Exhibits, Schedules or Annexes in the following definitions shall refer to Sections, Exhibits, Schedules or Annexes of or to the Agreement: "Account Debtor" means any Person who may become obligated to any Credit Party under, with respect to, or on account of, an Account, Chattel Paper or General Intangibles (including a payment intangible). "Accounts" means all "accounts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, including (a) all Accounts, other receivables, book debts and other forms of obligations (other than forms of obligations evidenced by Chattel Paper, or Instruments), (including any such obligations that may be characterized as an account or contract right under the Code), (b) all of each Credit Party's rights in, to and under all purchase orders or receipts for goods or services, (c) all of each Credit Party's rights to any goods represented by any of the foregoing (including unpaid sellers' rights of rescission, replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), (d) all rights to payment due to any Credit Party for Inventory sold, leased, licensed, assigned or otherwise disposed of, for a policy of insurance issued or to be issued, for a secondary obligation incurred or to be incurred, for energy provided or to be provided, for the use or hire of a vessel under a charter or other contract, arising out of the use of a credit card or charge card, or for services rendered or to be rendered by such Credit Party or in connection with any other transaction (whether or not yet earned by performance on the part of such Credit Party), (e) all health care insurance receivables and (f) all collateral security of any kind, given by any Account Debtor or any other Person with respect to any of the foregoing. "Accounts Purchase Agreement" means that certain Accounts Purchase Agreement dated as of March 3, 2005, by and between certain Borrowers, as sellers, and Medical Provider Financial Corporation I, as purchaser, pursuant to which such Borrowers shall sell certain of their Accounts to such purchaser. The payment and performance of the sellers obligations thereunder shall be secured by a Lien on substantially all of Borrowers' assets pursuant to the terms of a certain Security Agreement Accounts Purchase agreement dated as of the date hereof by and among such sellers and Medical Provider Financial Corporation I. "Advance" or "Loan" means the Acquisition Advance and any Line of Credit Advance. 1 "Affiliate" means, with respect to any Person, (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 any Borrower. 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; provided, however, that, with respect to the Credit Parties, the term "Affiliate" shall specifically exclude Lender. " Agreement " means this Credit Agreement by and among Borrower, the other Credit Parties party thereto, and Lender, as the same may be amended, supplemented, restated or otherwise modified from time to time. "Appendices" has the meaning ascribed to it in the recitals to the 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, 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 (the "WARN ACT") , and the California version of the WARN Act, California Cal. Labor Code ss.1400 et seq., and any deed restrictions or other requirements of record applicable to the Collateral or to any Borrower or any Credit Party, or to their respective businesses, applicable. "Asset Sale Agreement" means that certain Asset Sale Agreement dated as of September 29, 2004, by and among AHM CGH, Inc., a California corporation, Health Resources Corporation of America- California, a Delaware corporation, UWMC Hospital Corporation, a California corporation, SHL/O Corp., a Delaware corporation, as Seller, and Integrated Healthcare Holdings, Inc., a Nevada corporation, as Purchaser, as amended. "Assignment Agreement" has the meaning ascribed to it in Section 9.1(a). "Assignment of Leases and Rents" means those certain Absolute Assignments of Leases and Rents with License Back executed by IHHI and each of its Subsidiaries and by PCHI relating and encumbering their respective interests in and to the leases and rents relating to each Hospital Facility. Each Assignment of Leases and Rents is a Collateral Document. "Bankruptcy Code" means the provisions of Title 11 of the United States Code, 11 U.S.C. ss.101 et seq. "Blocked Accounts" has the meaning ascribed to it in Annex C. "Borrowers' Representative" means IHHI in its capacity as Borrowers' Representative. 2 "Borrower" and "Borrowers" means, individually and collectively, 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, and Coastal Communities Hospital, Inc., a California corporation. "Business Day" means any day that is not a Saturday, a Sunday or a day on which banks are required or permitted to be closed in the State Nevada. "Capital Expenditures" 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. "Cash Collateral Account" has the meaning ascribed to it Annex B. "Cash Equivalents" has the meaning ascribed to it in Annex B. "Cash Management Systems" has the meaning ascribed to it in Section 1.5. "Certified Cash" means the net amount of Dollars in unrestricted cash and cash equivalents of the Credit Parties that is in Deposit Accounts or securities accounts maintained (by a branch of a bank or securities intermediary) within the United States and identified on Disclosure Schedule 3.19, 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 the Credit Parties' 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. 3 "Change of Control" means any of the following: (a) any person or group of persons (within the meaning of the Securities Exchange Act of 1934,) shall have acquired beneficial ownership (within the meaning of Rule 13d-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 25% or more of the issued and outstanding shares of capital Stock of any Borrower or any Credit Party having the right to vote for the election of directors of Borrowers under ordinary circumstances; (b) during any period of twelve consecutive calendar months, individuals who at the beginning of such period constituted the board of directors of any Borrower or other Credit Party (together with any new directors whose election by the board of directors of such Borrower or Credit Party whose nomination for election by the Shareholders of such Borrower or such Credit Party was approved by a vote of the nominating committee or at least two-thirds of the directors then still in office who either were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason other than death or disability to constitute a majority of the directors then in office; (c) IHHI ceases to own, directly or indirectly, and control all of the economic and voting rights associated with all of the outstanding capital Stock of the other Borrowers. "Chapman Leases" means (a) the tenant's interest in the Hospital Lease dated April 25, 1967 (as amended) for 2601 East Chapman Avenue, Orange, CA, and (b) the tenant's interest in the Medical Office Building Lease dated August 25, 1967 at 2617 East Chapman Avenue, Orange, CA. "Chapman Medical Center" means the real property and improvements located at 2601 and 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 Borrower or any Credit Party, (d) any Borrower's or any Credit Party's ownership or use of any properties or other assets, or (e) any other aspect of any Borrower's or any Credit Party's business. "Chattel Paper" means any "chattel paper," as such term is defined in the Code, including electronic chattel paper, now owned or hereafter acquired by any Borrower or any Credit Party. "Closing and Funding Checklist" means the schedule, including all appendices, exhibits or schedules thereto, listing certain documents and information to be delivered in connection with the Agreement, the other Loan Documents and the transactions contemplated thereunder, substantially in the form attached hereto as Annex C. "Closing Date" means March 3, 2005. "Closing Date Side Letter" means that certain letter agreement, if deemed necessary by Lender, by and among Lender, Borrowers and the Credit Parties pursuant to which Borrowers and Credit Parties agree to take certain actions and to deliver or cause to be delivered such agreements, instruments and documents as Lender requires. "Coastal Communities Hospital" means the real property and improvements located at 2701 South Bristol Street and 1901 North College Avenue, Santa Ana, California. 4 "Code" means the Uniform Commercial Code as the same may, from time to time, be enacted and in effect in the State of California; 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 Article or Division 9 shall govern; 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's or any Lender's Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in a jurisdiction other than the State of California, 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. "Collateral" means the property covered by the Security Agreement and the other Collateral Documents and any other property, real or personal, tangible or intangible, now existing or hereafter acquired, that may at any time be or become subject to a security interest or Lien in favor of Lender, to secure the Obligations. "Collateral Documents" means the Deeds of Trust, Assignments of Leases and Rents, Security Agreements, the Control Agreements, the Guaranties, the Pledge Agreements, the Subordination Agreements, 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. "Collection Accounts" means those certain accounts of Lender identified in the Cash Management System in Annex C attached hereto, or such other account as may be specified in writing by Lender as the "Collection Account." "Commitment Termination Date" means the earliest of (a) thirty (30) calendar days prior to the Stated Maturity Date; (b) the date of termination of Lender's obligations to make Advances under the Line of Credit Note or permit existing Loans to remain outstanding pursuant to Section 8.2(b), (c) the date of prepayment in full by Borrowers of the Loans and the permanent reduction of all Commitments to zero dollars ($0); (d) the Maturity Date. "Commitment" means the aggregate of Lender's Commitment , which aggregate commitment shall be Thirty Million Dollars ($30,000,000) on the Closing Date, as such Commitment may be reduced, amortized or adjusted from time to time in accordance with the Agreement. "Condominium Units" means the fee interest in any one or more of the commercial condominium units numbered 1 through 8, 11, 12, 118, 120, 121, 201 through 204, 213, 214, 216, 218 and 225 situated in the office building located at 999 North Tustin Avenue, Santa Ana, California. "Contracts" means all "contracts," as such term is defined in the Code, now owned or hereafter acquired by any Credit Party, in any event, including all contracts, undertakings, or agreements (other than rights evidenced by Chattel Paper, Documents or Instruments) in or under which any Credit Party 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 Account. 5 "Control Agreement" means a certain Control Agreement to be executed and delivered by Lender (on behalf of itself and Medical Provider Financial Corporation I, its affiliate), each Borrower and a depository approved by Lender, pursuant to which such depository agrees to the control of certain deposit accounts by the Lender in order to perfect the Lien granted to Lender (for its benefit and the benefit of Medical Provider Financial Corporation I). The term may also be used to apply to any control agreements relating to securities accounts in which Lender acquires a Lien to secure the payment and performance of the Obligations. "Control Letter" means a letter agreement between Lender and (i) the issuer of uncertificated securities with respect to uncertificated securities in the name of any Borrower or any Credit Party, (ii) a securities intermediary with respect to securities, whether certificated or uncertificated, securities entitlements and other financial assets held in a securities account in the name of any Borrower or any Credit Party, (iii) a futures commission merchant or clearing house, as applicable, with respect to commodity accounts and commodity contracts held by any Borrower or any Credit Party, whereby, among other things, the issuer, securities intermediary or futures commission merchant limits any security interest in the applicable financial assets in a manner reasonably satisfactory to Lender, acknowledges the Lien of Lender, on such financial assets, and agrees to follow the instructions or entitlement orders of Lender without further consent by the affected Borrower or Credit Party. "Copyright License" means any and all rights now owned or hereafter acquired by any Borrower or any Credit Party 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 Credit Party: (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, West Coast Holdings, LLC, and Ganesha Realty, LLC, any Guarantors, and any pledgors under any Pledge Agreements, and any Person who is a party to any subordination agreement for the benefit of Lender, and the successors and assigns or heirs and personal representatives, as applicable of each of the foregoing. "Deed of Trust" means those certain separate Deeds of Trust with Assignments of Rents and Fixture Filing executed by IHHI relating and encumbering its interests in and to each Hospital Facility. Each Deed of Trust is a Collateral Document. "Default" means any event that, with the passage of time or notice or both, would, unless cured or waived, become an Event of Default. "Default Rate" has the meaning ascribed to it in Section 1.4(d). 6 "Deposit Accounts" means all "deposit accounts" as such term is defined in the Code, now or hereafter held in the name of any Credit Party. "Deposit Account Security Agreement" means that certain Deposit Account Security Agreement dated as of the date hereof and one of the Loan Documents, by and among Lender, Medical Provider Financial Corporation I, and each Borrower. "Disbursement Accounts" has the meaning ascribed to it in Annex C. "Disclosure Schedules" means the Schedules prepared by Borrowers and denominated as Disclosure Schedules (1.3) through (6.7) in the Index to the Agreement. "Documents" means all "documents," as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, wherever located. "Dollars" or "$" means lawful currency of the United States of America. "Environmental Laws" means all applicable federal, state, local and foreign laws, statutes, ordinances, codes, rules, standards and regulations, now or hereafter in effect, and any applicable judicial or administrative interpretation thereof, including any applicable judicial or administrative order, consent decree, order or judgment, imposing liability or standards of conduct for or relating to the regulation and protection of human health, safety, the environment and natural resources (including ambient air, surface water, groundwater, wetlands, land surface or subsurface strata, wildlife, aquatic species and vegetation). Environmental Laws include the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. (s)(s) 9601 et seq.) ("CERCLA"); the Hazardous Materials Transportation Authorization Act of 1994 (49 U.S.C. (s)(s) 5101 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. (s)(s) 136 et seq.); the Solid Waste Disposal Act (42 U.S.C. (s)(s) 6901 et seq.); the Toxic Substance Control Act (15 U.S.C. (s)(s) 2601 et seq.); the Clean Air Act (42 U.S.C. (s)(s) 7401 et seq.); the Federal Water Pollution Control Act (33 U.S.C. (s)(s) 1251 et seq.); the Occupational Safety and Health Act (29 U.S.C. (s)(s) 651 et seq.); and the Safe Drinking Water Act (42 U.S.C. (s)(s) 300(f) et seq.), and any and all regulations promulgated thereunder, and all analogous state, local and foreign counterparts or equivalents and any transfer of ownership notification or approval statutes. "Environmental Liabilities" means, with respect to any Person, all 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. 7 "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 any Borrower or any Credit Party, 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, with respect to any Credit Party, any trade or business (whether or not incorporated) that, together with such Credit Party, are treated as a single employer within the meaning of Sections 414(b), (c), (m) or (o) of the IRC. "ERISA Event" means, with respect to any Credit Party or any ERISA Affiliate, (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 any Credit Party or 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 any Credit Party 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. "Event of Default" has the meaning ascribed to it in Section 8.1. "Fair Labor Standards Act" means the Fair Labor Standards Act, 29 U.S.C. ss.ss.201 et seq. "Fees" means any and all fees payable to Lender pursuant to the Agreement or any of the other Loan Documents, including but not limited to the Origination Fee and Lender's Costs. 8 "Financial Statements" means the consolidated and consolidating income statements, statements of cash flows and balance sheets of Borrowers delivered in accordance with Section 3.4. "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 December 31 of each year. "Fixtures" means all "fixtures" as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party. "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 (including the Line of Credit provided for herein) 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, Line 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 generally accepted accounting principles in the United States of America consistently applied, as such term is further defined in this Annex A. "General Intangibles" means all "general intangibles," as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, including all right, title and interest that such Borrower or any such Credit Party 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 such Credit Party or any computer bureau or service company from time to time acting for such Borrower or such Credit Party. 9 "Goods" means all "goods" as defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, wherever located, including embedded software to the extent included in "goods" as defined in the Code. "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. "Group Purchasing Agreement" collectively, means (a) that certain Master Contracting Services Agreement dated December 1, 2004, between Broadlane, Inc. and IHHI, and (b) that certain Master Maintenance and Services Agreement dated December 1, 2004, between Broadlane, Inc., and IHHI. "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 ("primary obligation") of any other Person (the "primary obligor") 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. "Guaranties" means, collectively, each guaranty executed by any Guarantor in favor of Lender in respect of the Obligations, including without limitation the Guaranty by PCHI and the Guaranty by OC-PIN. "Guarantors" individually refers to either PCHI or OC-PIN, and collectively refers to PCHI, OC-PIN and any other Guarantor of all or any portion of the Obligations. Both PCHI and OC-PIN are also Credit Parties hereunder. "Hazardous Material" means any substance, material or waste that is regulated by, or forms the basis of liability now or hereafter under, any Environmental Laws, including any material or substance that is (a) defined as a "solid waste," "hazardous waste," "hazardous material," "hazardous substance," "extremely hazardous waste," "restricted hazardous waste," "pollutant," "contaminant," "hazardous constituent," "special waste," "toxic substance" or other similar term or phrase under any Environmental Laws, or (b) petroleum or any fraction or by-product thereof, asbestos, polychlorinated biphenyls (PCB's), or any radioactive substance. 10 "Hospital Facilities" means, collectively, Western Medical Center-Santa Ana, Western Medical Center-Anaheim, Coastal Communities Hospital and Chapman Medical Center. "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 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 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 notes, 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 (discounted at the Index Rate as in effect on the Closing Date) 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. "Indemnified Liabilities" has the meaning ascribed to it in Section 1.10. "Indemnified Person" has the meaning ascribed to in Section 1.10. "Initial Funding Date" has the meaning ascribed to it in Section 2.2(a). "Instruments" means all "instruments," as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, 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. 11 "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, each of (x) the Commitment Termination Date, and (y) the Maturity Date, shall each be deemed to be an "Interest Payment Date" with respect to any interest that has then accrued under the Agreement. "Inventory" means all "inventory," as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, wherever located, and in any event including inventory, merchandise, goods and other personal property that are held by or on behalf of any Borrower or any Credit Party 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 such Borrower or such Credit Party's business or in the processing, production, packaging, promotion, delivery or shipping of the same, including all supplies and embedded software. "Investment" has the meaning ascribed thereto in Section 6.2 hereof. "Investment Property" means all "investment property" as such term is defined in the Code now owned or hereafter acquired by any Borrower or any Credit Party, wherever located, including (i) all securities, whether certificated or uncertificated, including stocks, bonds, interests in limited liability companies, partnership interests, treasuries, certificates of deposit, and mutual fund shares; (ii) all securities entitlements of any Borrower or any Credit Party, including the rights of any Borrower or any Credit Party 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; (iii) all securities accounts of any Borrower or any Credit Party; (iv) all commodity contracts of any Borrower or any Credit Party; and (v) all commodity accounts held by any Borrower or any Credit Party. "IRC" means the Internal Revenue Code of 1986 and all regulations promulgated thereunder. "IRS" means the Internal Revenue Service. "Lender" means Medical Provider Financial Corporation II, a Nevada corporation, and, if Lender shall decide to assign all or any portion of the Obligations, such term shall include any assignee(s) of Lender. "Lender's Costs" means all costs paid or incurred by Lender with respect to the Loans and the Loan Documents, including but not limited to all attorneys' fees and expenses of Lender's outside counsel. "Letter-of-Credit Rights" means "letter-of-credit rights" as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, including rights to payment or performance under a letter of credit, whether or not such Borrower or any Credit Party, as beneficiary, has demanded or is entitled to demand payment or performance. 12 "License" means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired by any Borrower or any Credit Party. "Lien" means any agreement or deed of trust, 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). "Line of Credit Advance" has the meaning ascribed to it in Section 1.1(b)(i). "Line of Credit Loan" means, at any time, the aggregate amount of Line of Credit Advances outstanding to Borrower. "Line of Credit Commitment" means the aggregate commitment of Lender to make Line of Credit Advances, which aggregate commitment shall be Thirty Million Dollars ($30,000,000) on the Closing Date, as such amount may be adjusted, if at all, from time to time in accordance with the Agreement. "Line of Credit Note" has the meaning ascribed to it in Section 1.2(b)(ii). "Litigation" has the meaning ascribed to it in Section 3.13. "Loan Account" has the meaning ascribed to it in Section 1.09. "Loan Documents" means the Agreement, the Notes, the Collateral Documents, the Closing Date Side Letter and all other agreements, instruments, documents and certificates identified in the Closing and Funding Checklist executed and delivered to, or in favor of, Lender or any Lenders 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 any Borrower or any Credit Party, or any employee of any Borrower or any Credit Party, and delivered to Lender in connection with the Agreement or the transactions contemplated thereby. Any reference in the Agreement or any other Loan Document to a Loan Document shall include all appendices, exhibits or 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. "Loan" means either the Acquisition Advance or the Line of Credit Loan, or both. "Lock Boxes" has the meaning ascribed to it in Annex B. "Margin Stock" has the meaning ascribed to in Section 3.10. "Material Adverse Effect" means a material adverse effect on (a) the business, assets, operations, or financial or other condition of the Borrowers considered as a whole, (b) Borrowers' ability to pay any of the Loans or any of the other Obligations in accordance with the terms of the Agreement, (c) the Collateral or Lender's Liens on the Collateral or the priority of such Liens, or (d) Lender's rights and remedies under the Agreement and the other Loan Documents. 13 "Material Subsidiary" means any Subsidiary of any Borrower generating more than ten percent (10%) of the revenues of, or possessing more than ten percent (10%) of the assets of, the Borrowers and their Subsidiaries on a consolidated basis, or possessing assets with a fair market value of greater than $100,000. "Maturity Date" means the first to occur of (i) the Commitment Termination Date for the Line of Credit Loan, (ii) the Stated Maturity Date for all Loans, or (iii) the occurrence or existence of a continuing Event of Default under any of the Loan Documents. "Maximum Amount" means, as of any date of determination, an amount equal to total of the Acquisition Advance and the Commitment as of that date. "Multiemployer Plan" means a "multiemployer plan" as defined in Section 3(37) or 4001(a)(3) of ERISA, and to which any Credit Party or ERISA Affiliate 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. "Notes" means the Acquisition Note and the Line of Credit Note. "Notice of Line of Credit Advance" has the meaning ascribed to it in Section 1.1(b)(i). "Obligations" collectively means all loans, 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 any Borrower or any Credit Party 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 the 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 any Borrower or any Credit Party in bankruptcy, whether or not allowed in such case or proceeding), Fees, expenses, attorneys' fees and any other sum chargeable to any Borrower or any Credit Party under the Agreement or any of the other Loan Documents. "Origination Fees" means an origination fee in an amount equal to two percent (2%) of the Commitment (i.e., Six Hundred Thousand Dollars ($600,000)), and two percent (2%) of the Acquisition Loan (i.e., One Million Dollars ($1,000,000), for a total of One Million Six Hundred Thousand Dollars ($1,600.000). "Patent License" means rights under any written agreement now owned or hereafter acquired by any Borrower or any Credit Party granting any right with respect to any invention on which a Patent is in existence. "Patents" means all of the following in which any Borrower or any Credit Party now holds or hereafter acquires 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. 14 "PBGC" means the Pension Benefit Guaranty Corporation. "PCHI" means Pacific Coast Holding Investments, Inc., a California limited liability company. "Pension Plan" means a Plan described in Section 3(2) of ERISA. "Permitted Encumbrances" means the following encumbrances relating to the Hospital Facilities: (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); (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; (d) currently existing or hereafter created Liens in favor of Lender or Lender's Affiliate; (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, provided, that the same are satisfied 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; (j) (for Coastal Communities Hospital, 2701 East Bristol Street, Santa Ana, California), the exceptions shown on Schedule B as Nos. 1- 9, 11, 12 and 13 (as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender), as reflected on that certain Preliminary Title Report dated as of February 2, 2005, Chicago Title Company Order No. 41026578B - X52; (k) (for Coastal Communities Hospital, 1901 and 1905 North College Avenue, Santa Ana, California), the exceptions shown on Schedule B as Nos. 1- 5, 7, 9, 10, 11, 12 (as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender), and 13, as reflected on that certain Preliminary Title Report dated as of February 2, 2005, Chicago Title Company Order No. 41026578A - X52; (l) (for Western Medical Center/A, 1025 South Anaheim Blvd., Anaheim, California), the exceptions shown on Schedule B as Nos. 1-18, 19, 22 and 23 (as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender), 20 and 21 as reflected on the certain Preliminary Title Report dated as of February 2, 2005, Chicago Title Company Order No. 41026587 - X52; (m) (for Western Medical Center/SA, 1001 North Tustin Avenue, Santa Ana, California, the exceptions shown on Schedule B as Nos. 1-4, 27-44, 46 - 59, 61, and 65 - 70 (No. 70 as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender) as reflected on that certain First Amended Preliminary Title Report dated as of February 2, 2005 and revised February 26, 2005, Chicago Title Company Order No. 41026631 - X52; (n) (for Chapman Medical Center, 2601 East Chapman Avenue, Orange, California), the exceptions shown on Schedule B as Nos. 1-11, 14-24 and 30 (as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender) as reflected on the certain Preliminary Title Report dated as of February 2, 2005, Chicago Title Company Order No. 41026576A - X52; and (o)(for Chapman Medical Center, 2617 East Chapman Avenue, Orange, California), the exceptions shown on Schedule B as Nos. 1-9, 12-14, 19-21, 23, 24, 27 and 30 (as may be affected by the ALTA survey to be delivered after the date hereof which shall be approved by the Lender) as reflected on the certain Preliminary Title Report dated as of February 2, 2005, Chicago Title Company Order No. 41026576B - X52. 15 "Person" means any individual, sole proprietorship, 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 any Credit Party or ERISA Affiliate maintains, contributes to or has an obligation to contribute to or has maintained, contributed to or had an obligation to contribute to at any time within the past 7 years on behalf of participants who are or were employed by any Credit Party or ERISA Affiliate. "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 any Credit Party 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 any Credit Party 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 any Borrower or any Credit Party 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 any Borrower or any Credit Party 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. "Projections" means each Borrower's forecasted consolidated and consolidating: (a) balance sheets; (b) profit and loss statements; (c) cash flow statements; and (d) capitalization statements, all prepared on a Borrower by Borrower basis, if applicable, and otherwise consistent with the historical Financial Statements of the Seller for each Hospital Facility with certain normalizing assumptions made by Borrowers, together with appropriate supporting details and a statement of underlying assumptions. 16 "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 as such Lender or by an Affiliate of such investment advisor, 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 s 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 any Credit Party 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 Control Agreements (including, with respect to any such securities account, a Control Letter and with respect to any Deposit Account, a blocked account agreement) in form and substance satisfactory to Lender, which Control Agreements shall provide, among other things, that the bank or securities intermediary executing such agreement (i) 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 (ii) agrees to follow the instructions or entitlement orders of Lender without further consent by the affected Borrower or any Credit Party, 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. "Qualifying Rating" means, for any Person, a corporate rating of at least BB from S&P or at least Ba from Moody's. "Related Transactions" means the borrowing of the Acquisition Loan and the initial Advance under the Line of Credit Line 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. 17 "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. "Restricted Payment" means, with respect to any Borrower or any Credit Party (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 such Borrower or such Credit Party's 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 of such Borrower or such Credit Party 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 such Borrower or such Credit Party's 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) by such Borrower or such Credit Party to any Shareholder of such Credit Party or its Affiliates. Notwithstanding the foregoing, Restricted Payments shall exclude any payment, prepayment or distribution made in Borrower Stock. "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. "Security Agreement" means each Security Agreement dated as of the date hereof entered into by and between or among Lender and each Borrower and between Lender and any Credit Party. "Shareholder" means, with respect to any Person, each holder of Stock of such Person. "Software" means all "software" as such term is defined in the Code, now owned or hereafter acquired by any Borrower or any Credit Party, 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. 18 "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; (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; and (d) such Person is not engaged in a business or transaction, and is not about to engage in a business or transaction, for which such Person's property would constitute an unreasonably small capital. The amount of contingent liabilities (such as litigation, guaranties and pension plan 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 March 2, 2007. "Stock" means all shares, options, warrants, general or limited partnership interests, membership interests or other equivalents (regardless of how designated) of or in a corporation, partnership, limited liability company or equivalent entity whether voting or nonvoting, including common 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). "Subordinated Debt" means any unsecured Indebtedness of any Borrower 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 an 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 may exercise the powers of a general partner. Unless the context otherwise requires, each reference to a Subsidiary shall be a reference to a Subsidiary of a Borrower. "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 or a Lender by the jurisdictions under the laws of which Lender are organized or conduct business or any political subdivision thereof. 19 "Termination Date" means the date on which (a) the Loans have been repaid in full, (b) all other Obligations due and payable under the Agreement and the other Loan Documents have been discharged, and (c) none of Borrowers shall have any further right to borrow any monies under the Agreement. "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 any Credit Party 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 any Borrower or any Credit Party granting any right to use any Trademark. "Trademarks" means all of the following now owned or hereafter existing or adopted or acquired by any Borrower or any Credit Party: (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. "Triple Net Lease" means that certain Triple Net Lease dated as of the date hereof by and between PCHI, as lessor, and IHHI, as lessee, providing for the lease of the three Hospital Facilities to IHHI, and permitting subleases of such three Hospital Facilities to by IHHI to WMC-SA, WMC-A, Coastal and Chapman. "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 any Borrower or any Credit Party or any ERISA Affiliate as a result of such transaction. 20 "Western Medical Center/Anaheim" means the real property and improvements located at 1025 South Anaheim Boulevard, Anaheim, California. "Western Medical Center/Santa Ana" means the real property and improvements located at 1001 North Tustin Avenue and at 1301 North Tustin in Santa Ana, California. 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 any Borrower or any Credit Party, such words are intended to signify that such Borrower or such Credit Party has actual knowledge or awareness of a particular fact or circumstance or that such Borrower or such Credit Party, if it had exercised reasonable diligence, would have known or been aware of such fact or circumstance. 21 ANNEX B (SECTION 1.2) TO CREDIT AGREEMENT 1 EX-99.7 8 v014292_99-7.txt ACQUISITION NOTE $50,000,000 March 3, 2005 Las Vegas, Nevada For value received, the receipt and sufficiency of which are hereby acknowledged, 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"), and COASTAL COMMUNITIES HOSPITAL, INC., a California corporation ("COASTAL") (IHHI, WMC-SA, WMC-A, Chapman and Coastal are sometimes collectively referred to herein as "BORROWERS" and individually as "BORROWER") hereby promises to pay to the order of MEDICAL PROVIDER FINANCIAL CORPORATION II, a Nevada corporation ("LENDER"), the principal amount of Fifty Million Dollars ($50,000,000), together with interest on the unpaid balance of such amount from the date of the Advance of such Acquisition Loan until paid. The principal amount of the Acquisition Loan evidenced by this Note shall be due and payable on the Maturity Date. This Note is the Acquisition Note issued under the Credit Agreement among Borrowers and Lender of even date herewith (said agreement, as the same may be amended, restated or supplemented from time to time, being herein called the "CREDIT AGREEMENT") to which a reference is made for a statement of all of the terms and conditions of the Acquisition Loan evidenced hereby. Initially capitalized terms not defined in this Note shall have the respective meanings assigned to them in the Credit Agreement. This Note is secured by, among other things, the Collateral as provided in the Credit Agreement, the Security Agreement and the other Loan Documents, and is entitled to the benefit of the rights, remedies and security provided thereby. Interest on the outstanding principal balance under this Note is payable at the interest rate provided in the Credit Agreement, or, under the circumstances contemplated by the Agreement, at the Default Rate, in immediately available United States Dollars at the times and in the manner specified in the Credit Agreement. The outstanding principal and interest under this Note shall be immediately due and payable on the Maturity Date. Payments received by Lender shall be applied against principal and interest as provided for in the Credit Agreement. To the fullest extent permitted by applicable law, Borrowers waive, except to the extent specifically required by the Credit Agreement or other Loan Document: (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all of the Obligations, the Loan Documents or this Note; (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevin, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Borrowers acknowledge that this Note is executed as part of a commercial transaction and that the proceeds of this Note will not be used for any personal or consumer purpose. Upon the occurrence of any one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. This Note shall not be deemed to have been delivered until it is received by Lender in Las Vegas, Nevada. BORROWERS ACKNOWLEDGE THAT BORROWERS HAVE WAIVED THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE OF NEVADA WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES. SIGNATURE PAGE FOLLOWS INTEGRATED HEALTHCARE HOLDINGS, INC. By:_________________________ Name: ______________________ Title: _______________________ WMC-SA, INC. By:_________________________ Name: ______________________ Title: _______________________ WMC-A, INC. By:_________________________ Name: ______________________ Title: _______________________ COASTAL COMMUNITIES HOSPITALS, INC. By:_________________________ Name: ______________________ Title: _______________________ CHAPMAN MEDICAL CENTER, INC. By:_________________________ Name: ______________________ Title: _______________________ EX-99.8 9 v014292_99-8.txt LINE OF CREDIT NOTE $30,000,000 March 3, 2005 Las Vegas, Nevada For value received, the receipt and sufficiency of which are hereby acknowledged, 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"), and COASTAL COMMUNITIES HOSPITAL, INC., a California corporation ("COASTAL") (IHHI, WMC-SA, WMC-A, Chapman and Coastal are sometimes collectively referred to herein as "BORROWERS" and individually as "BORROWER") hereby promises to pay to the order of MEDICAL PROVIDER FINANCIAL CORPORATION II, a Nevada corporation ("LENDER"), the principal amount of Thirty Million Dollars ($30,000,000) or such lesser amount as shall be advanced by Lender from time to time, together with interest on the unpaid balance of such amount from the date of the initial Line of Credit Advance until paid. This Line of Credit Note (the "NOTE") is the Line of Credit Note issued under the Credit Agreement by and among Borrowers and Lender dated as of the date hereof (said agreement, as the same may be amended, restated or supplemented from time to time, being herein called the "CREDIT AGREEMENT") to which a reference is made for a statement of all of the terms and conditions of the Line of Credit Loan evidenced hereby. Initially capitalized terms not defined in this Note shall have the respective meanings assigned to them in the Credit Agreement. This Note is secured by, among other things, the Collateral as provided in the Credit Agreement, the Security Agreement and the other Loan Documents, and is entitled to the benefit of the rights, remedies and security provided thereby. Interest on the outstanding principal balance under this Note is payable at the interest rate provided in the Credit Agreement, or, under the circumstances contemplated by the Agreement, at the Default Rate, in immediately available United States Dollars at the times and in the manner specified in the Credit Agreement. Borrower acknowledges that (a) Lender is authorized under the Credit Agreement to charge to the Line of Credit Loan unpaid Obligations of Borrower to Lender, (b) the principal amount of the Line of Credit Loan will be increased by such amounts, and (c) the principal, as so increased, will bear interest as provided for herein and in the Credit Agreement. Payments received by Lender shall be applied against principal and interest as provided for in the Credit Agreement. To the fullest extent permitted by applicable law, Borrowers waive, except to the extent specifically required by the Credit Agreement or other Loan Document: (a) presentment, demand and protest, and notice of presentment, dishonor, intent to accelerate, acceleration, protest, default, nonpayment, maturity, release, compromise, settlement, extension or renewal of any or all of the Obligations, the Loan Documents or this Note; (b) all rights to notice and a hearing prior to Lender's taking possession or control of, or to Lender's replevin, attachment or levy upon, the Collateral or any bond or security that might be required by any court prior to allowing Lender to exercise any of its remedies; and (c) the benefit of all valuation, appraisal and exemption laws. Borrowers acknowledge that this Note is executed as part of a commercial transaction and that the proceeds of this Note will not be used for any personal or consumer purpose. Upon the occurrence of any one or more of the Events of Default specified in the Agreement, all amounts then remaining unpaid on this Note shall become, or may be declared to be, immediately due and payable, all as provided therein. This Note shall not be deemed to have been delivered until it is received by Lender in Las Vegas, Nevada. BORROWERS ACKNOWLEDGE THAT BORROWERS HAVE WAIVED THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE. THIS NOTE IS GOVERNED BY THE LAW OF THE STATE OF NEVADA WITHOUT REGARD TO ITS CONFLICT OF LAWS PRINCIPLES. SIGNATURE PAGE FOLLOWS INTEGRATED HEALTHCARE HOLDINGS, INC. By:_________________________ Name: ______________________ Title: _______________________ WMC-SA, INC. By:_________________________ Name: ______________________ Title: _______________________ WMC-A, INC. By:_________________________ Name: ______________________ Title: _______________________ COASTAL COMMUNITIES HOSPITALS, INC. By:_________________________ Name: ______________________ Title: _______________________ CHAPMAN MEDICAL CENTER, INC. By:_________________________ Name: ______________________ Title: _______________________ EX-99.9 10 v014292_ex99-9.txt TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE between PACIFIC COAST HOLDINGS INVESTMENT, LLC (Landlord) and INTEGRATED HEALTHCARE HOLDINGS, INC. (Tenant) ---------------------------------------- 1 TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE THIS TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE (the "Lease") is made as of the 7th day of March 2005 by and between Pacific Coast Holdings Investment, LLC, a California limited liability company ("Landlord") and Integrated Healthcare Holdings, Inc. a Nevada corporation ("Tenant"), with reference to the following facts: RECITALS A. Tenant is acquiring from Tenet Healthcare System the Property described below pursuant to a certain Asset Sale Agreement incorporated by reference herein ("Tenet Transaction"). Concurrent with the closing of the Tenet Transaction, Tenant is transferring the Property to Landlord whereupon Landlord shall lease back the Property to Tenant on the terms and conditions set forth herein. B. Upon the closing of the Tenet Transaction, Landlord shall be the owner of the Property consisting of hospital properties ("Hospital Properties") and medical office buildings and a long term acute care facility (collectively "MOB Properties") more particularly described in Exhibit "A" attached hereto together with the buildings, improvements and fixtures (hereinafter collectively referred to as the "Property"). C. Tenant is willing to lease the Property from Landlord and Landlord is willing to lease the Property to Tenant on the terms and conditions set forth in this Lease. NOW, THEREFORE, the parties agree as follows: ARTICLE I TERMS 1.1 Hospital Properties Lease Term. The term of this Lease for the Hospital Properties shall be for approximately twenty-five (25) years, commencing March 8, 2005 (the "Commencement Date") and which shall terminate on February 28, 2030. 1.2 Option To Renew Hospital Properties Lease Term. Landlord hereby grants to Tenant the option to extend the term of this Lease for the Hospital Properties (the "Option") for one (1) additional term of twenty-five (25) years commencing when the initial term expires (the "Option Period") upon each and all of the following terms and conditions: (a) This lease shall automatically renew for the Option Period unless Tenant gives to Landlord, and Landlord actually receives, on a date which is at least six (6) and not more than nine (9) months prior to the date that such Option Period would commence (if exercised), a written notice that Tenant has declined to exercise of the Option to extend this Lease. If said notification of the exercise of the Option is not so given and received, the Option shall automatically renew as herein provided. 2 (b) Tenant shall not be in breach of this Lease at the time of exercise of each of the Options. (c) All of the terms and conditions of the Lease except where specifically modified by this Option shall apply. 1.3 MOB Properties Lease Term. The term of this Lease for the MOB Properties shall be for approximately one (1) year, commencing March 8, 2005 (the "Commencement Date") and which shall terminate on February 28, 2006. ARTICLE II RENT 2.1 Joint Financing. Landlord and Tenant are both sophisticated entities. Tenant has requested and Landlord has agreed to permit Tenant to use the Property as collateral for the purposes of joint financing of the Property and Tenant's business operation for an initial period of time and, subject to the terms herein, the operations of Tenant and the Property. Tenant's obligation for base rent ("Base Rent") payments shall be set in relationship to said financing. 2.2 Initial Financing. Tenant has arranged for an initial financing ("Initial Financing") in the form of a loan with interest at the rate of Fourteen percent (14%) per annum in the amount of Eighty Million Dollars ($80,000,000) of which Thirty Million Dollars ($30,000,000) will be in the form of an operating loan ("Operating Loan") and Fifty Million Dollars ($50,000,000) will be in the form of a real estate loan ("Real Estate Loan"). In addition Tenant may borrow additional funds against accounts receivable ("A/R Financing"). The Operating Loan, the Real Estate Loan and the A/R Financing will be secured by both the Property and Tenant's operations. 2.3 Refinancing. Tenant and Landlord agree that the Initial Financing should be replaced as soon as practical but in any event within two (2) years of the Commencement Date of the lease term Tenant and Landlord covenant and agree to work cooperatively to secure said refinancing meeting the following criteria: (a) The refinancing shall be provided by an institutional lender in an arms length transaction. (b) The refinancing shall not exceed One Hundred Million Dollars ($100,000,000) of which not more than Fifty Million Dollars ($50,000,000) will be a Real Estate Loan. 3 (c) The terms of said refinancing shall not impair the financial viability of either Tenant or Landlord. (d) Neither Landlord, nor any of Landlord's members shall be required to assume any personal liability or obligation for said refinancing. The sole recourse of the lender shall be to the Property and the Tenant's assets. (e) The loan shall be at commercially reasonable rates and upon commercially reasonable terms including reasonable amortization of principal. (f) The loan will not include any contingent interest provisions or any payments other than interest upon a principal sum. (g) The loan shall not limit the sale or transfer of all or portions of the Property or of interests in Landlord for a period greater than five (5) years. 2.4 Cross Payment Duties. So long as the Real Estate Loan, Operating Loan and/or A/R Financing are cross collateralized, Tenant shall have an obligation and duty to Landlord to pay when due all sums coming due under the Operating Loan and A/R Financing and to otherwise fully comply with all terms and conditions of the Operating Loan and A/R Financing and Landlord shall have an obligation and duty to Tenant to pay when due all sums coming due under the Real Estate Loan and to otherwise fully comply with all terms and conditions of the Real Estate Loan. 2.5 Information and Notices. Tenant shall provide copies to Landlord of all notices, reports, information and communications received from or provided to any lender. 2.6 Time Limit on Cross Collateralization. Five (5) years after the Commencement Date, Landlord shall have the right to terminate the cross collateralization of Operating Loan and A/R Financing with the Real Estate Loan and to refinance the Real Estate Loan as provided in Section 2.13. 2.8 Base Rent Definitions. The following definitions shall apply to the determination of Base Rent: (a) Principal Sum. The "Principal Sum" is Fifty Million Dollars ($50,000,000). (b) Cost of Landlord's Principal Sum. The "Cost of Landlord's Principal Sum" is the average annual interest rate charged on loan secured by the first lien Deed of Trust (or Mortgage) on the Property for the preceding month, as the same may vary from time to time. 4 (c) Landlord's Spread. The "Landlord's Spread" for the first one (1) year of the lease term is the difference between Twelve percent (12%) per annum and the annual interest rate (which may vary monthly) of the Real Estate Loan but in no event more than Two and One-Half percent (2 1/2 %) per annum, thereafter "Landlord's Spread" is Two and One-Half percent (2 1/2%) over the Cost of Landlord's Principal Sum. (d) Amortization Expense. Commencing on the earlier of (i) the refinancing contemplated by Section 2.3 hereof or (ii) two (2) years following the Commencement Date, the "Amortization Expense" shall be the annual sum of Two Million Five Hundred Thousand Dollars ($2,500,000) until such time as a total Amortization Expense of Fifty Million Dollars ($50,000,000) has been paid. (e) Consumer Price Index. "Consumer Price Index" or "CPI" shall refer to the "Consumer Price Index, Los Angeles-Long Beach-Anaheim Average, All Items (1982-1984=100)" as published by the United States Department of Labor, Bureau of Labor Statistics ("Bureau"). In the event that the Bureau shall cease to publish said Consumer Price Index, then the national index shall apply and if the national index is no longer published, then the successor or most nearly comparable index thereto shall be used as determined by Landlord. 2.9 Hospital Properties Base Rent Calculation. The monthly Hospital Properties Base Rent shall equal the Principal Sum multiplied by the sum of the Cost of the Landlord's Principal Sum plus the Landlord's Spread the product of which shall be added to the Landlord's Amortization Expense, then divided by twelve (12). Set forth as a formula this calculation is as follows:
Monthly Base Rent = [Principal Sum x (Cost of Landlord's Principal Sum +Landlord's Spread)] + Amortization Expense 12
2.10 Hospital Properties Base Rent Market Adjustment. On each five (5) year anniversary of the Commencement Date the Hospital Base Rent shall be increased (but not decreased) to an amount equal to the then current fair market rental rate, but in no event increased by more than Five percent (5%) over the preceding month's Hospital Base Rent (provided however that such time as the Amortization Payment is no longer being made the Five percent (5%) limitation shall cease to apply). Commencing not less than ninety (90) days prior to each fifth (5th) anniversary of the Commencement Date, Landlord and Tenant shall attempt to agree on the fair market rental rate for the Hospital Properties. If 5 Landlord and Tenant are not able to agree to the fair market rental rate within thirty (30) days, Landlord and Tenant shall each choose an independent, licensed real estate broker, with not less than five (5) years experience in leasing healthcare related facilities including hospitals. The two real estate brokers so appointed shall appoint a third real estate broker, similarly qualified. Each broker shall independently determine the fair market rental rate. The three rates so determined will be averaged. The rate determined by the brokers which varies the most from the average shall be discarded and the two remaining values and the average value shall be averaged and said second average shall constitute the fair market rental rate. Each party shall bear the costs of the real estate broker appointed by that party and the parties shall equally divide the costs of the third real estate broker. Notwithstanding the provisions of this Section 2.10, if at any time the monthly Hospital Base Rent determined in accordance with Section 2.9 hereof would exceed the monthly Hospital Base Rent determined in accordance with this Section 2.10, then this Section 2.10 shall be discarded and the monthly Hospital Base Rent shall be determined in accordance with Section 2.9. 2.11 MOB Properties Base Rent Calculation. The monthly MOB Properties Base Rent shall equal the rent received from tenants of the MOB Properties, less the actual monthly costs to operate said MOB Properties, and also less a monthly charge for insurance and real property taxes equal to one-twelfth (12th) the estimated annual cost thereof. In the event the estimated monthly charge for insurance and real property taxes is in error at the end of the lease term, then Landlord and Tenant shall make an appropriate adjustment so that the sum deducted in order to calculate the MOB Properties Base Rent is correct. 2.12 Invoicing for Base Rent. Landlord shall invoice Tenant for the monthly Base Rent due. Base Rent shall be due on or before tenth (10th) day of the month. Any partial month shall be prorated on a daily basis at the rate of 1/30th of the monthly rent per day. 2.13 Landlord's Rights Regarding Financing. Upon termination of the cross collateralization obligations as set forth above, Landlord shall have the right in Landlord's commercially reasonable discretion to from time to time alter, replace or revise the loan secured by the first lien Deed of Trust (or Mortgage) on the Property and thereby change the Cost of Landlord's Principal Sum, but such refinancing shall not increase Tenant's then prevailing rent over that of the then prevailing fair market value rental rent for the Property. Any dispute under this provision shall be referred to binding arbitration under the provisions of Section 20.22. Tenant shall cooperate in all respects with executing such documents as may be requested by Landlord's lender. 2.14 Hedging. Either Landlord or Tenant may at their individual options elect to hedge interest rate exposure; however, such hedging shall be undertaken at the sole risk of the party so electing to hedge. Hedging by Tenant shall in no way restrict Landlord's right to alter, replace or revise the loan secured by the first lien Deed of Trust (or Mortgage) on the Property. 6 2.15 CPI Adjustment. On January 1st (or as soon thereafter as available) of each year, the Consumer Price Index figure for the preceding year shall be determined, and the portion of the Base Rent attributable to the Landlord's Spread shall be increased (but not decreased) by the same percentage as the percentage, if any, by which the Consumer Price Index for the January of the preceding year shall have increased as compared with the Consumer Price Index for the January of the current year. Landlord shall provide written notice of the CPI adjustment to Tenant. In the event that the adjustment has not been determined in time for any invoicing sent, then upon determination of the adjustment, Landlord shall send out adjustment invoices. 2.16 Other Charges. Except as otherwise expressly provided herein, this Lease is what is commonly called a net-net-net lease, it being understood that Landlord shall receive the Base Rent free and clear of any and all impositions of real and personal Property taxes, or other taxes (excepting Landlord's income tax), insurance costs, costs of repair and maintenance, liens and all other charges, costs, expenses and liabilities in connection with the ownership and operation of the Property and the businesses conducted thereon. 2.17 Delinquent Rent. Tenant acknowledges that late payment of Base Rent or any additional rent by Tenant to Landlord will cause Landlord to incur costs not contemplated by this Lease, and the exact amount of such costs being extremely difficult and impracticable to fix. Therefore, if any installment of Base Rent or any additional rent is not received within ten (10) days of when due, Tenant shall pay Landlord the additional sum of Five Thousand Dollars ($5,000) per late payment] as a late charge. The parties agree that this late charge represents a fair and reasonable estimate of the costs that Landlord will incur by reason of late payments. Additionally, any payments of Base Rent and any other sums payable by Tenant pursuant to the terms of this Lease shall bear interest at the maximum legal rate. 2.18 Minimum Base Rent. Notwithstanding anything elsewhere provided, at all times the minimum monthly Base Rent shall be equal to Landlord's payment obligations under the Real Estate Loan. 2.19 MOB Rent Deferral. In the event Tenant is financially unable to pay the monthly MOB Properties Base Rent as provided in Section 2.11 or any additional rent on the MOB Properties as provided elsewhere in this Lease, it is agreed that the unpaid amount shall be amortized together with interest at the rate of four percent (4%) per annum and paid over the subsequent thirty-six (36) months as additional rent. ARTICLE III AFTER ACQUIRED PROPERTY 3.1 999 Tustin Avenue Condominium Units. Originally, Landlord had intended to acquire from Tenant and lease back to Tenant those condominium units located at 999 North Tustin Ave. Santa Ana, CA 92705 as more specifically set forth on Exhibit A hereof. Said condominium units are subject to a right of first refusal and so cannot immediately be acquired by Tenant and transferred to Landlord. Therefore the parties have by separate agreement arranged for the acquisition of 7 said condominium units by Tenant and the transfer thereof to Landlord (or so many of said condominium units as are not taken by others through the exercise of the right of first refusal, hereinafter the "Transferred Condominium Units"). Upon transfer said Transferred Condominium Units shall be added to the MOB Properties and leased to Tenant by Landlord pursuant to the terms of this Agreement. Landlord and Tenant agree to execute an addendum to this Agreement reflecting the addition of said Transferred Condominium Units to the lease and the commencement date of the lease thereof. ARTICLE IV TAXES 4.1 Real Property Taxes. Tenant shall pay, as additional rent, when and as the same become due, and prior to delinquency, all taxes, both general and special, and other charges, including transient occupancy taxes and rental taxes, if any, lawfully imposed or assessed against the Property, including but not limited to any and all licenses, fees or charges, improvement bonds, ordinary and extraordinary, general and special, foreseen and unforeseen, which may be lawfully levied, assessed or imposed during the term of this Lease upon or against Tenant or the Property, and/or the businesses conducted thereon, and including any future tax adopted in lieu of a Property tax, any and all general and special taxes, including any increase in such taxes resulting from a "change in ownership" of Landlord or Tenant (as defined in California Revenue and Taxation Code Section 60, et seq.). Where any assessment may, at the option of the taxpayer, be payable in installments, Tenant shall have the right to exercise the option, and Tenant's liability for the payment of the assessment shall be limited to the payment of the installments which become due during the term of this Lease. If separate bills are not sent directly to Tenant, Landlord shall furnish Tenant, upon receipt by Landlord, with true copies of each bill to be paid by Tenant in whole or in part. 4.2 Tax Contest. Upon written application, Tenant shall furnish to Landlord for inspection, and for such use as may be proper for the protection of Landlord's interest in the Property, written evidence duly certified that any and all taxes, assessments or charges required to be paid by Tenant hereunder have been paid, satisfied or otherwise discharged. Tenant, at its sole cost and expense, shall have the right to employ and exhaust all available remedies to protest and contest the amount of any liability for any taxes, assessments, licenses, fees or charges imposed or assessed against the Property, or otherwise to seek reduction or refund. Tenant shall post a bond (or, in lieu thereof, equivalent cash collateral) to prevent enforcement of any lien resulting from the foregoing. 8 4.3 Personal Property Taxes. Tenant shall pay, before delinquency, all taxes and assessments levied against any personal Property that is located on the Property. ARTICLE V UTILITIES 5.1 Utilities. In addition to the rents, taxes, and other charges herein provided, Tenant shall pay, or cause to be paid, as additional rent, all charges for public or private utility services, including, but not limited to, those for water, sewage, electricity, gas, telephone and other utility services, including trash collection supplied to and used on the Property. ARTICLE VI USE OF THE PROPERTY 6.1 Use of the Property. Tenant shall use the Property for the purpose of operation of an acute care hospital and delivery of health care services, and any other uses reasonably related thereto (the "Permitted Uses"). Tenant shall not use or permit the Property to be used for any other purpose without the prior written consent of Landlord, which consent may be granted or withheld in the sole and absolute discretion of the Landlord. ARTICLE VII MAINTENANCE, ALTERATIONS IMPROVEMENTS 7.1 Maintenance and Repair. Tenant shall, at Tenant's sole cost and expense, keep and maintain the Property in good and sanitary order, condition and repair, including, without limitation, interior and exterior walls, roof, foundation, and equipment. Tenant hereby accepts the Property in its as-is condition existing as of the Commencement Date, subject to all applicable zoning, municipal, county and state laws, ordinances and regulations governing and regulating the use of the Property, 7.2 Alterations and Improvements. (a) Tenant shall be responsible for making any alterations or improvements to the Property required in order to enable Tenant to use the Property for the Permitted Uses, including without limitation any and all repairs, alterations, improvements of any nature or anything else which may be 9 required for compliance with SB 1953, including without limitation any structural or non-structural alterations. All alterations, improvements, additions and installations (whether or not such installations constitute trade fixtures of Tenant), which may be made to the Property by Tenant, including but not limited to, floor coverings, paneling, doors, drapes, built-ins, moldings, sound attenuation, lighting and telephone or communication systems, conduit, wiring and outlets shall be made and done in a good and workmanlike manner and of good and sufficient quality and materials and shall be the Property of Landlord and remain upon and be surrendered with the Property at the expiration of the Lease. (b) Tenant shall promptly pay and discharge all claims for work or labor done, supplies furnished or services rendered and shall keep the Property free and clear of all mechanic and materialman liens in connection therewith. Landlord shall have the right to post or keep posted on the Property, or in the immediate vicinity thereof, any notices of non-responsibility for any construction, alteration, or repair of the Property by Tenant. If any such lien is filed, Landlord may, but shall not be required to take such action or pay such amount as may be necessary to remove such lien; and Tenant shall pay to Landlord as additional rent any such amounts expended by Landlord within five (5) days after notice is received by Tenant of the amount expended by Landlord. ARTICLE VIII COMPLIANCE WITH LAWS 8.1 Generally. Tenant, as additional rent, at its sole cost and expense, shall make any and all additions to, repairs and alterations in, the buildings, structures, landscaping and parking areas (hereinafter collectively the "Improvements"), the Property which may be required by law or governmental authority, and shall otherwise observe and comply with any and all public laws, ordinances, regulations, agreements, and covenants, conditions and/or restrictions of public record applicable to the Property. Tenant shall be obligated to obtain, at its sole effort, cost and expense, all permits, approval and licenses required for the operation, alteration, addition to or repair of the Improvements. 8.2 Hazardous Substances - Reportable Uses; Required Consent. The terms "Hazardous Substance" and "Hazardous Substances" shall mean any hazardous or toxic materials, pollutants, effluents, contaminants, radioactive materials, flammable explosives, chemicals known to cause cancer or reproductive toxicity, emissions or wastes and any other chemical, material or substance, the handling, storage, release, transportation, or disposal of which is or becomes prohibited, limited or regulated by any federal, state, county, regional or local authority or which, even if not so regulated, is or becomes known to pose a hazard to the health and safety of the occupants of the Property, including, without limitation, (i) petroleum and petroleum by-products, (ii) urea formaldehyde foam insulation, (iii) polychlorinate biphenyls, (iv) all substances now or hereafter designated as "hazardous substances, "hazardous materials" or "toxic substances" pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C. Section 9601 et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986 (SARA), the Federal Water Pollution Control Act, 33 U.S.C. Section 1251 et seq., the Clean Air Act, 42 U.S.C. Section 7401 et seq., the Hazardous Materials Transportation Act, 49 U.S.C. Section 1801 et seq., or the Resource, Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq., or (vi) all substances now or hereafter designated as hazardous substances, hazardous materials, or toxic substances under any other federal, state or local laws or in any regulations adopted and publications promulgated pursuant to said laws. 8.3 Reportable Use. Tenant shall not engage in any activity in, on or about the Property that constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances without the express prior written consent of Landlord and compliance in a timely manner, at Tenant's sole cost and expense, with all 10 Applicable Law (as defined hereinafter). Reportable Use shall mean (i) the installation or use of any above or below ground storage tank (ii) the generation, possession, storage, use, transportation, or disposal of a Hazardous Substance that requires a permit from, or with respect to which a report and notice, registration or business plan is required to be filed with any governmental authority. Reportable Use shall also include Tenant's being responsible for the presence in, on or about the Property of a Hazardous Substance with respect to which any Applicable Law requires that a notice be given to persons entering or occupying the Property or neighboring properties. Notwithstanding the foregoing, Tenant may, without Landlord's prior consent, but in full compliance with all Applicable Law, use, generate and store any ordinary and customary materials reasonably required to be used by Tenant in the normal course of Tenant's business permitted on the Property by the terms of this Lease, so long as such use does not expose the Property or neighboring properties to any risk of contamination or damage or expose Landlord to any liability therefore. In addition Landlord may (but without any obligation to do so) condition its consent to the use or presence of any Hazardous Substance, activity or storage tank by Tenant upon Tenant's giving Landlord such additional assurances as Landlord, in its sole discretion, deems necessary to protect itself, the public, the Property, the Improvements and the environment against damage, contamination or injury and/or liability therefrom or therefore, including, but not limited to, the installation (and removal on or before the expiration of the term of the Lease or earlier termination) of reasonably necessary protective modifications to the Property and the Improvements and/or the disposal and/or the deposit of a security deposit or increase thereof. 8.4 Duty to Inform Landlord. If Tenant's officers, directors or general manager know, or have reasonable cause to believe, that a Hazardous Substance or a condition involving or resulting from same, has come to be located on, in or under the Property, the Improvements or adjoining properties, other than as previously consented to by Landlord, Tenant shall immediately give written notice of such fact to Landlord. Tenant shall also immediately give Landlord a copy of any statement, report, notice, registration, application, permit, business plan, license, claim, action or proceeding given to, or received from, any governmental authority or private party, any persons entering or occupying the Property concerning the presence, spill, release, discharge of, or exposure to any hazardous substance or contamination in, on or about the Property, including, but not limited to, all such documents as may be involved in any reportable uses involving the Property. 8.5 Indemnification. Tenant shall indemnify, protect, defend and hold Landlord, its agents, employees, members and lenders, if any, and the Property harmless from and against any and all loss of rents and/or damages, liabilities, judgments, costs, claims, liens, expenses, penalties, permits and attorneys fees and consultants fees arising out of or involving the presence, storage, use or transport of any Hazardous Substance or storage tank, whenever arising, or out of or as a result of Landlord's indemnification of Medical Provider Financial Corporation II, Inc. pursuant to an Environmental Indemnity Agreement dated as 11 of March 3, 2005 or any successor environmental indemnity which Landlord may extend in connection with a financing secured by the real property leased to Tenant hereby. Tenant's obligations under this Section shall include, but not be limited to, the effects of any contamination or injury to person, Property or the environment created or suffered by Landlord and for Tenant, and their respective agents, employees, guests, invitees and other persons on the Property, and the cost of investigation (including consultant's and attorney's fees and testing), removal, remediation, restoration, and/or abatement thereof, or of any contamination therein involved, and shall survive the expiration or earlier termination of this Lease. No termination, cancellation or release agreement entered into by Landlord and Tenant shall release Tenant from its obligations under this Lease with respect to the Hazardous Substances or storage tanks, unless specifically so agreed by Landlord in writing at the time of such release. 8.6 Tenant's Compliance With Applicable Laws. Tenant shall, at Tenant's sole cost and expense, fully, diligently and in a timely manner comply with all Applicable Law, which term is used in this Lease to include all laws, rules, regulations, ordinances, directives, covenants, easements, and restrictions of record, permits, the requirements of any applicable federal, state or municipal governmental authority, applicable fire insurance, underwriter or rating bureau and the recommendations of Landlord's engineers and/or consultants, relating, in any manner, to the Property including, but not limited to, matters pertaining to (i) industrial hygiene (ii) environmental conditions on, in, under, or about the Property, including soil and ground water contamination, (iii) the use, generation, manufacture, production, installation, maintenance, removal, transportation, signage, spill or release of any Hazardous Substances or storage tank), (iv) the American with Disabilities Act of 1990, as amended, (v) OSHA, (vi) the California Building Code, and (vii) Title 24 now in effect which may hereinafter come into effect, and whether or not reflecting a change in policy from any previous existing policy. Tenant shall, within five (5) days after receipt of Landlord's written request, provide Landlord with copies of all documents and information, including, but not limited to, permits, registrations, notices, applications, reports and certificates, evidencing Tenant's compliance with any Applicable Law specified by Landlord and shall immediately upon receipt notify Landlord, in writing (with copies of any documents involved), of any threatened or actual claim, notice, citation, warning, complaint or report pertaining to or involving failure by Tenant or the Property to comply with any Applicable Law. In the event that as a result of any alteration, addition or change to the Property, or any portion thereof or any improvement constructed thereon, by Tenant which results in the violation of an Applicable Law, then Tenant shall be responsible for compliance with such Applicable Law, including any asbestos abatement or containment required as a result of or in connection with such alteration, addition or change. ARTICLE IX INTENTIONALLY OMITTED 12 ARTICLE X EXCULPATION AND INDEMNITY 10.1 Waiver of Landlord Liability. Landlord shall not be liable for any loss, damage or injury of any kind or character to any person or Property (a) arising from any use and/or condition and extent of the Property, or any part thereof including, without limitation, environmental contamination, (b) caused by any defect in the equipment or other facility located therein, (c) caused by or arising from any act or omission of Tenant, or any of its agents, employees, licensees or invitees, (d) arising from or in connection with the conduct of any business, occupation, transaction, event or other activity occurring on the Property, (e) arising from any accident on the Property or any fire or casualty thereon, (f) occasioned by the failure of Tenant to maintain the Property in a safe condition, or (g) arising from any other cause whatsoever, except as occasioned by the act or gross negligence of any duty by Landlord or its agents or employees occurring after the Commencement Date. Tenant, as a material part of the consideration of this Lease, hereby waives, on its behalf, all claims and damages against Landlord for any such loss, damage or injury to Tenant. 10.2 Tenant Indemnification. Tenant, for itself and its successors and assigns, hereby agrees to indemnify Landlord, and Landlord's members, managers, agents, representatives, employees and attorneys, free and harmless from and against any and all claims, actions, damages, liabilities and expenses, including attorneys fees and costs, in connection with or arising out of (i) any loss of life, personal injury and/or damage to Property arising from or out of any occurrence in, upon or at the Property, (ii) the occupancy or use by Tenant of the Property, or any part thereof, (iii) arising from or out of Tenant's failure to comply with any provision of this Lease, and (iv) with respect to the violation of any of the provisions of this Lease including but not limited to Article VIII hereof, in the event Landlord shall, without fault on its part, be made a party to any litigation, arbitration or other proceeding commenced by or against Tenant, then Tenant shall protect and hold Landlord harmless, and shall pay all costs, expenses and attorneys fees incurred or paid by Landlord in connection with such litigation, arbitration or other proceeding. Landlord may, at its option, require Tenant to assume Landlord's defense in any action covered by this paragraph through counsel satisfactory to Landlord. 10.3 Survival of Indemnity Obligation. The obligations of Tenant under this Article X shall survive the expiration of the term, or the termination, of this Lease. ARTICLE XI INSURANCE 11.1 Liability. Tenant agrees to maintain, at its sole cost and expense, as additional rent, during the term of this Lease comprehensive public liability insurance insuring against liabilities related to the condition of or use of the Property and the Improvements, bodily injury, employment related liability, 13 liquor liability, blanket contractual liability, garage liability, garage keepers legal liability, non-owned auto liability and advertising injury, in such amount as may be required by any beneficiary of any deed of trust encumbering the Property, but in no event less than Ten Million Dollars ($10,000,000), combined single limit coverage, specifically insuring performance by Tenant of the indemnity set forth in Article X above, and containing the following provisions: (a) Providing that the coverage is primary and that any coverage Landlord may maintain shall be in excess thereto; (b) Naming Landlord and any beneficiary under any deed of trust encumbering the Property as additional insureds; (c) Providing that the policy cannot be canceled or modified without thirty (30) days prior written notice to Landlord and any beneficiary of a deed of trust encumbering the Property; (d) Providing for a cross liability or a severability of interest endorsement or equivalent thereof; (e) With respect to improvements, alterations, demolitions, and changes required or permitted to be made by Tenant pursuant to the terms of this Lease, contingent liability and builders- risk insurance; (f) Workers' compensation coverage as required by law, together with employer's liability coverage; (g) A waiver by Tenant's insurers of any right to subrogation against Landlord, its agents, members, managers, employees and representatives which arises or might arise by reason of any payment under such policy or by reason of any act or admission of Landlord, its agents, members, managers, employees or representatives; and 11.2 Adjustments. The foregoing limits of coverage and the coverages may be adjusted reasonably by Landlord and Tenant, with the consent of any beneficiary of any deed of trust encumbering the Property, from time to time, but not more often than once during any three (3) year period, during the term of this Lease based upon changes in the amounts of judgments for personal injury and Property damage, industry standards, inflation, and other relevant factors in order to maintain insurance protection at least equivalent to the protection afforded on the Commencement Date. In the event that the Landlord and Tenant are unable to agree upon an adjustment then Landlord and Tenant, the issue shall be resolved by arbitration in accordance with the binding arbitration provisions of Section 20.22. The cost of such arbitration shall be born by the party whose insurance proposal is closest to the insurance proposal decided upon by the arbitration process. 11.3 Property. Tenant agrees to maintain, at its sole cost and expense, as additional rent, during the term of this Lease (a) standard form fire, extended coverage, vandalism, malicious mischief, boiler and machinery coverage, and building ordinance and law coverage endorsements, and special extended insurance, including all risk insurance, and other Property insurance coverage (except earthquake coverage which shall not be required) as may be required by any beneficiary of any deed of trust encumbering the Property, with respect to the Improvements and the personal property located upon and used in connection with the Property (hereinafter referred to as the "Assets") in amounts at least equal to the greater of full replacement costs thereof or the amount required by 14 any beneficiary of a deed of trust encumbering the Property, (b) with respect to the construction, demolition, additions, alterations and the like required or permitted to be constructed by Tenant hereunder, builders all-risk insurance insuring the full replacement value of all construction in process on the Property, and (c) business interruption insurance, in an amount satisfactory to Landlord. Tenant shall also maintain, at Tenant's expense, earthquake insurance, including sprinkler leakage coverage, building, contents and loss of income, with a limit no less than the probable maximum loss limit as valued either through Landlord or any beneficiary under a deed of trust encumbering the Property. Each policy shall specifically (i) name the beneficiary under any deed of trust encumbering the Property and then Landlord as additional insureds, (ii) provide that all payments shall be made as provided in Article XII above, and that the beneficiary of a deed of trust encumbering the Property shall have first priority and claim to any payments as provided in its deed of trust, and (iii) provide that it cannot be canceled or modified by the insurer without thirty (30) days prior written notice to Landlord and such beneficiary. 11.4 Personal Property Insurance. Tenant, at Tenant's sole cost and expense, shall maintain a policy of standard fire and extended coverage insurance (with vandalism and malicious mischief endorsements) on all Tenant's personal Property and alterations to the extent of at least their full replacement value. Tenant shall use the proceeds from any such policy for the replacement of personal Property or the restoration of Tenant's improvements or alterations. 11.5 Rental Loss and Business Interruption. Tenant shall, at its sole cost and expense, as additional rent, at all times during the term of this Lease, maintain in force a policy of rental loss or business interruption insurance in an amount at least sufficient to pay, for a period of twelve (12) months following any applicable loss, the sum of the following: (a) the then applicable Base Rent as provided in Article II above; (b) all additional rent as provided in this Lease; and (c) the insurance premiums provided in this Article XI. 11.6 Quality of Policies. The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease. Such insurance policy shall be issued by an insurance company having a rating of not less than A (or equivalent) in Bests Insurance Guide or which is otherwise acceptable to Landlord, and licensed to do business in the State of California. Upon execution of this Lease and thereafter not less than thirty (30) days prior to the expiration date of each insurance policy required to be furnished hereunder, Tenant shall deliver to Landlord a certificate of the insurer reasonably satisfactory to Landlord bearing a notation evidencing the payment of the premium or accompanied by other evidence of payment reasonably satisfactory to Landlord. 15 11.7 Adjustments. All policies of insurance required or permitted under this Article XI shall provide for loss thereunder to be adjusted by and payable to the beneficiary under any deed of trust encumbering the Property and then to Landlord or its designee. 11.8 Payment of Loss. All policies of insurance shall provide for payment of loss to the holder of any security interest in the Property and Landlord, jointly, and if there is no such security interest, or as to any excess, the proceeds shall be paid to Landlord and Tenant, jointly, in trust or if Tenant so elects, to a mutually approved corporate trustee, to be held in trust and applied to the repair and restoration of the Property. When the Improvements have been fully repaired and restored, any excess shall be paid to Tenant. Landlord and Tenant shall use due diligence to cause the holder of any security interest in the Property to make the proceeds of such insurance available for repair and restoration following any casualty or loss covered thereby. 11.9 Cancellation. Each policy or certificate therefore issued by the insurer shall to the extent obtainable contain a provision that no act or omission of Tenant which would otherwise result in forfeiture or reduction of the insurance therein provided shall affect or limit the obligation of the insurance company to pay the amount of any loss sustained. 11.10 Compliance with Insurance Requirements. Tenant shall observe and comply with the requirements of all policies of public liability, fire and other policies of insurance in force with respect to the Property. 11.11 Failure to Obtain Insurance. In the event that Tenant fails to maintain and pay for any of the insurance required by this Article XI, Landlord may (but without obligation to do so) procure such insurance and pay the premiums therefore, in which event Tenant shall repay Landlord all sums so paid by Landlord within ten (10) days following Landlords written demand to Tenant for such payment. 11.12 Subrogation. The parties release each other, and their respective authorized representatives, from any claims for damage to any person or to the Property and to the fixtures, personal Property, Tenant's improvements, and alterations of either Landlord or Tenant in or on the Property that are caused by or result from risks insured against any insurance policies carried by the parties and in force at the time of any such damage. Each party shall cause each insurance policy obtained by it to provide that the insurance company waives all right of recovery by way of subrogation against either party in connection with any damage covered by any policy. Neither party shall be liable to the other for any damages caused by fire or any of the risks insured against under any insurance policy required by this Lease. 16 ARTICLE XII DESTRUCTION 12.1 Rent Continues. In case of damage to or destruction of the Property by fire or any other casualty whatsoever, Tenant's rental obligations shall continue as provided in Article III above (and elsewhere in this Lease), and Tenant shall, at no cost or expense to Landlord, restore, repair, replace or rebuild improvements of comparable value, use, design, size and utility as existed immediately prior to such damage or destruction. Such obligation of Tenant to restore, repair or rebuild is not conditioned upon the recovery of any insurance proceeds for such damage or destruction. Such restoration, repairs, replacements or rebuilding shall be commenced within a reasonable period of time following such damage and destruction and thereafter diligently prosecuted to completion. All work required to be performed by Tenant under this Article shall be performed in accordance with the provisions of Article VII above and may be performed by Tenant's agents, employees or subtenants. 12.2 Insurance Available. All insurance proceeds paid as provided in Section 11.9, less Landlord's actual costs, fees, and expenses, if any, incurred in connection with adjustment of the loss, shall be applied to pay or reimburse Tenant for the payment of the cost of the repair or restoration of the Improvements (including the cost of temporary repairs for the protection of the Improvements pending the completion of the permanent repair or restoration of the Improvements) and shall be paid out from time to time as such restoration progresses upon the written request of Tenant, which request shall be accompanied by a certificate signed by Tenant and Tenant's architect or engineer in charge of the restoration, dated not more than thirty (30) days prior to such request, setting forth the following: (a) That the sum then requested either has been paid by Tenant or is justly due to contractors, subcontractors, materialmen, engineers, architects, or other persons who have rendered services or furnished materials for the restoration; that no part of such request covers expenditures for which a request for payment has previously been made; and that to the best of Tenant's knowledge, the sum requested does not exceed the value of the services and materials described in the certificate; and (b) That, except for the amounts, if any, stated (pursuant to Subsection (a) above) in such certificate to be due for services and materials and except for work in progress on the restoration and materials and supplies ordered and services rendered but not yet billed, there is no outstanding indebtedness known to Tenant, after due inquiry, that is then due and payable for labor, wages, materials, supplies, or services in connection with the restoration. 12.3 Proceeds Payment. Upon compliance with the foregoing provisions of this Article XII, the person or persons holding the proceeds shall pay from such proceeds to Tenant or the persons named in Tenant's certificate the respective amounts stated in the certificate to have been paid by Tenant or to be due to them as the case may be. 17 12.4 Deficiencies. If the insurance proceeds received as a result of the damage or destruction, less the actual costs, fees, and expenses, if any, incurred in connection with the adjustment of the loss, are insufficient to pay the entire cost of restoration, Tenant shall promptly pay the deficiency. 12.5 Landlord Cure. Notwithstanding any of the foregoing provisions of this Article XII, if Tenant has not commenced construction or has not notified Landlord that it intends to promptly commence construction within thirty (30) days from the date of the damage or destruction which under the provisions of this Article XII Tenant is obligated to repair, Landlord may thereupon, and without further notice to Tenant, commence such work, or Landlord may exercise any of the rights or remedies provided in this Lease for a default by Tenant. If Landlord elects to undertake the work, all insurance proceeds payable under Article XII as a result of the damage or destruction to the Improvements shall then be held by Landlord for use by Landlord in doing such work. If Landlord undertakes such work, Tenant shall be liable to Landlord for any and all costs and expenses incurred by Landlord in connection therewith in excess of the insurance proceeds. 12.6 No Rent Abatement. There shall be no abatement of Base Rent or additional rent, or any other sums or obligations of Tenant under this Lease, by reason of any such damage or destruction. 12.7 No Surrender. Except as otherwise provided in this Lease, no destruction of or damage to the Property, or any part thereof, by fire or any other casualty shall terminate or permit Tenant to surrender this Lease, or relieve Tenant of its obligations to pay the full Base Rent, additional rent and other sums and charges payable under this Lease, or from any of its other obligations under this Lease, and Tenant waives any rights now or hereafter conferred upon it by statute or otherwise, to quit or surrender this Lease or the Property, or any part thereof, or to any suspension, diminution, abatement or reduction of rent, or other charges payable under this Lease on account of such destruction or damage. ARTICLE XIII CONDEMNATION 13.1 Lease Governs. If, during the term or during the period of time between the execution of this Lease and the Commencement Date, there is any taking by condemnation of all or any part of the Property, the rights of the parties shall be determined pursuant to the provisions of this Article XIII. 13.2 Total Taking. If the Property is totally taken by condemnation, this Lease shall terminate on the date of taking and the entire award shall be payable to Landlord. 13.3 Partial Taking. If only a portion of the Property is taken by condemnation, this Lease shall continue in effect. Provided, however, Tenant can elect to terminate this Lease if the remaining portion of the Property, other improvements or parking areas are rendered unsuitable for Tenant's continued use 18 of the Property. If Tenant elects to terminate this Lease, Tenant must exercise such right by giving written notice to Landlord within ninety (90) days after the nature and the extent of the taking have been fully determined. Such termination date shall not be earlier than ninety (90) days nor later than one hundred eighty (180) days after Tenant has given termination notice. If Tenant does not terminate this Lease within the time period set forth above, the Lease shall continue in force, except that the base monthly rent shall be reduced by an amount that is in the same ratio to base monthly rent as the value of the area of the portion of the Property taken bears the total value of the Property immediately before the date of taking. 13.4 Distribution of Award. The condemnation award shall belong to Landlord. ARTICLE XIV ASSIGNMENT 14.1 Assignment. Except for an assignment or sublease to an affiliated company, including, but not limited to, a wholly owned subsidiary or parent entity, Tenant shall not assign, mortgage or encumber this Lease, nor sublet, nor suffer or permit the Property or any part thereof to be used by others, without the prior written consent of Landlord in each instance, which consent, which may be granted or withheld in Landlord's reasonable discretion. Landlord shall be under no obligation to consider a request for Landlord's consent to an assignment until Tenant shall have submitted in writing to Landlord a request for Landlord's consent to such assignment together with audited financial statements of Tenant and the proposed assignee, a history of the proposed assignee's business experience and such other information as required by Landlord to verify that the creditworthiness and business background of the proposed assignee Tenant reimburse Landlord for its time and expense in considering such request. Notwithstanding any other provision of the Lease, Landlord shall have the right to condition Landlord's approval of the assignment or sublease of the Lease by Tenant to a third party on the payment to Landlord of any rent payable under said assignment or sublease in excess of the then current rent payable under the Lease. 14.2 No Release of Tenant. Regardless of Landlord's consent, no subletting or assignment shall release Tenant of Tenant's obligation or alter the primary liability of Tenant to pay the rent or to perform all other obligations to be performed by Tenant hereunder. The acceptance of rent by Landlord from any other person shall not be deemed to be a waiver by Landlord of any provision hereof. 19 Consent to one assignment or subletting shall not be deemed consent to any subsequent assignment or subletting. In the event of default by any assignee of Tenant or any successor of Tenant, in the performance of any of the terms hereof, Landlord may proceed directly against Tenant without the necessity of exhausting remedies against said assignee. Landlord may consent to subsequent assignments or subletting of this Lease or amendments or modifications to this Lease with assignees of Tenant, without notifying Tenant or the successor of Tenant, and without obtaining its or their consent thereto and such action shall not relieve Tenant of liability under this Lease. 14.3 Involuntary Assignment. No interest of Tenant in this Lease shall be assignable by operation of law. Each of the following acts shall be considered an involuntary assignment: (a) If Tenant becomes bankrupt or insolvent, makes an assignment for the benefit of creditors, or is the debtor " as defined in 11 U.S.C. Section 101 or any successor statute thereto; or, if Tenant is a partnership or consists of more than one person or entity, if any partner or other person or entity becomes bankrupt or insolvent, or makes an assignment for the benefit of others. Provided that in the event of an involuntary bankruptcy proceeding, Tenant shall have sixty (60) days in which to have the proceeding dismissed, before such proceedings shall be considered an involuntary transfer. (b) If a writ of attachment or execution if levied on this Lease and Tenant has not caused the same to be released or discharged within sixty (60) days. Any such involuntary assignment shall constitute a default by Tenant and Landlord shall have the right to elect to terminate this Lease upon fifteen (15) days prior written notice, if such event giving rise to the notice is not removed or cured within the notice period. ARTICLE XV DEFAULT 15.1 Default by Tenant. The occurrence of any one or more of the following events shall constitute a material default and breach of this Lease by Tenant: (a) The vacating or abandonment of the Property by Tenant; (b) The failure by Tenant to make any payment of Base Rent, additional rent or any other payment required to be made by Tenant hereunder, as and when due, where such failure shall continue for a period of fifteen (15) days after notice by Landlord to Tenant of the failure to receive payment; (c) The failure by Tenant to observe or perform any of the covenants, conditions, or provisions of any franchise agreement affecting the Property or the business operated thereon, or under this Lease to be observed or performed by Tenant, where such failure shall continue for a period of thirty (30) days after written notice thereof, from Landlord to Tenant; provided, however, that if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure, than Tenant shall not be deemed to be in default if Tenant commenced the cure within the thirty (30) day period and thereafter diligently prosecutes the cure to completion; 20 (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors without the consent of Landlord or the beneficiary under any deed of trust encumbering the Property; (e) The filing by or against Tenant, or any guarantor of this Lease, of a petition to have Tenant, or any guarantor of this Lease, adjudicated a bankrupt or a petition for reorganization or arrangement under any law relating to bankruptcy (unless, in the case of a petition filed against Tenant, or any guarantor of this Lease, the same is dismissed within sixty (60) days); (f) The appointment of a trustee or receiver to take possession of substantially all of Tenant's, or any guarantor's of this Lease, assets located at the Property or of Tenant's, or any guarantor's of this Lease, interest in this Lease, where possession is not restored to Tenant, or any guarantor of this Lease, within ninety (90) days; or (g) The attachment, execution or judicial seizure of substantially all of Tenant's, or any guarantor's of this Lease, assets located at the Property or of Tenant's, or any guarantor's of this Lease, interest in this Lease, if not discharged within ninety (90) days. 15.2 Termination Remedies. Subject to Section 15.7 below, should Tenant breach this Lease or abandon the Property before the end of the term of this Lease, Landlord may terminate this Lease. Upon termination, Tenant shall immediately surrender the Property, the Improvements and the Assets to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any of the remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Property, the Improvements and the Assets, and expel or remove Tenant and any other person who may be occupying the Property, or any part thereof, without being liable for prosecution or any claim or damages therefore, and Landlord may recover from Tenant the following: (a) The worth at the time of award of the unpaid Base Rent and additional rent which had been earned at the time of termination; plus (b) The worth at the time of award of the amount by which the unpaid Base Rent and additional rent which would have been earned after termination until the time of award exceeds the amount of such rental loss Tenant proves could have been reasonably avoided, subject to the provisions of this Section 15.2; plus (c) The worth at the time of award of the amount by which the unpaid Base Rent and additional rent for the balance of the term after time of award exceeds the amount of such rental loss for such period Tenant proves could be reasonably avoided, subject to the provisions of this Section 15.6; plus The worth at the time of award of the amount referred to in Subsections 15.2(a) and (b) above, is computed by allowing interest at ten percent (10%) per annum. The worth at the time of award of the amount referred to in Subsection 15.2(c) above is computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%). 21 For purposes of this Section 15.2, the Property shall be deemed to be abandoned by Tenant, and this Lease shall terminate, if Landlord gives written notice of its belief of abandonment to Tenant, personally delivered or sent by first class mail, postage prepaid to Tenant at Tenant's last known address and Tenant thereafter fails to give Landlord written notice, prior to the date of termination specified in Landlord's notice, stating that Tenant does not intend to abandon the Property and stating an address at which Tenant may be served by certified mail in any action for unlawful detainer. Landlord may give notice of belief of abandonment to Tenant only where the rent on the Property has been due and unpaid for at least twenty (20) consecutive days and Landlord reasonably believes that Tenant has abandoned the Property. The date of termination of this Lease shall be specified in Landlord's notice and shall not be less than fifteen (15) days after notice is personally served or not less than eighteen (18) days after notice is deposited in the mail. Nothing contained herein shall preclude Landlord from otherwise proving that the Property has been abandoned by Tenant within the meaning of this Section. 15.3 Breach Without Termination. Even though Tenant has breached this Lease or abandoned the Property, this Lease continues in effect for so long as Landlord does not terminate Tenant's right to possession, and Landlord may, from time to time, enforce all or any of its rights and remedies under this Lease, including the right to recover the rental amounts as they become due. For purposes of this Section 15.3, acts of maintenance or preservation, or efforts to relet the Property, or the appointment of a receiver on initiative of Landlord to protect its interest in this Lease, shall not constitute acts of termination of Tenant's right of possession of the Property. 15.4 Right of Landlord to Perform. In the event of any default of Tenant, including the payment of money, other than rent, or the performance of obligations required of Tenant under this Lease, then in addition to the other remedies herein granted to Landlord, Landlord may, but shall not be obligated to, and without waiving or releasing Tenant from any obligations of this Lease, make any payment and perform any other acts on Tenant's part to be made or performed. All sums paid by Landlord and all necessary costs incident thereto shall be deemed additional rent. 15.5 Remedies Not Exclusive. Except as otherwise provided herein, no right or remedy herein conferred on or reserved to Landlord is intended to be exclusive of any other remedy or right, and each and every right or remedy shall be cumulative and in addition to any right or remedy given hereunder or now or hereafter existing at law, in equity or by statute. 15.6 Default by Landlord. Landlord shall not be deemed to be in default of the performance of any obligation required to be performed by it hereunder unless and until it has failed to perform within thirty (30) days after written notice by Tenant to Landlord specifying therein that Landlord has failed to 22 perform its obligations; provided, however, that if the nature of Landlord's obligations are such that more than thirty (30) days are required for performance, then Landlord shall not be deemed to be in default if Landlord shall commence performance within the thirty (30) day period and thereafter diligently prosecute the same until completion. 15.7 Expenses of Reletting. Tenant shall be immediately liable to pay Landlord, in addition to any other indebtedness hereunder, the costs and expenses of retaking possession and reletting of the Property and of alterations or repairs to the Property incurred by Landlord for the purposes of reletting the Property after any default of Tenant. 15.8 Application of Rentals and Receipts. The rentals and receipts received by Landlord shall be applied. (a) First to the payment of any indebtedness other than rent due hereunder from Tenant to Landlord; and (b) Second, to the payment of any costs and expenses of retaking and reletting, and of all alterations and repairs as are expended by Landlord; and (c) Third, to the payment of Base Rent and additional rent due and unpaid hereunder. ARTICLE XVI WAIVER 16.1 Waiver. No delay or omission in the exercise of any remedies of a party upon the default of the other party shall be construed as a waiver. Landlord's approval of any of Tenant's acts which require Landlord's approval shall not be deemed to waive or render unnecessary Landlord's consent to any subsequent acts by Tenant. ARTICLE XVII LANDLORD'S ENTRY ONTO PROPERTY 17.1 Landlord's Entry onto Property. Landlord, and Landlord's agents, representatives and other acting on behalf of or with Landlord's authority, shall have the right to enter the Property at any time, upon reasonable notice and from time to time for purposes of inspection of the Property, to assure Tenant's performance of Tenant's obligations under this Lease, and for such other purposes as Landlord may reasonably determine. ARTICLE XVIII SURRENDER OF PROPERTY AND HOLDING OVER 18.1 Surrender of Property. On expiration of this Lease Tenant shall surrender the Property to Landlord (along with all Tenants improvements except those which Tenant has the right or obligation to remove) in good condition, 23 reasonable wear and tear excepted. Tenant shall also perform all restorations made necessary by the removal of Tenant's improvements and/or personal Property within the time periods stated in this Paragraph. 18.2 Holding Over. If Tenant remains in possession of the Property after expiration of the term, or after the date in any notice given by Landlord to Tenant to terminate this Lease, such possession by Tenant shall be deemed to be a month-to-month tenancy terminable on thirty (30) days' written notice given at any time by either party. During any such month-to-month tenancy, Tenant shall pay all rent required by this Lease, except that Base Rent shall be equal to the last month of the then term Base Rent multiplied by One Hundred Ten percent (110%). All provisions of this Lease, except those pertaining to the term and option to extend, shall apply to the month-to-month tenancy. XIX ESTOPPEL CERTIFICATES 19.1 Estoppel Certificates. At any time and from time to time, but not more frequently than twice per calendar year, Landlord, on fourteen (14) days' prior written request by Tenant, and Tenant, on fourteen (14) days' prior written request by Landlord, will deliver to the party making the request, and such designees specified by the requesting party, a statement in writing certifying that this Lease is unmodified and in full force and effect (or if there shall have been modifications, stating the modifications), the current monthly Base Rent, the dates to which the rent and any other deposits or charges have been paid, and stating whether or not, to the best knowledge of the party executing the certificate, the party requesting the statement is in default in the performance of any covenant, agreement or condition contained in this Lease and, if so, specifying each default of which the executing party may have knowledge. In addition, Tenant shall provide to Landlord such additional information, confirmations and/or statements as may reasonably be requested by Landlord or Landlord's lender. ARTICLE XX GENERAL PROVISIONS 20.1 Attorneys' Fees. If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to recover from the other party their reasonable attorneys' fees and costs. 20.2 Notice. Any notice the parties are required to give under this Lease shall be in writing and either served personally or sent by prepaid, first-class mail addressed as follows: If to Landlord: Pacific Coast Holdings Investment, LLC c/o Anil Shah, Co-Manager 2621 S. Bristol Street Suite 108 Santa Ana, CA 92704 Telephone: 714-290-5322 Telecopier: 714-279-9588 24 And Kali P. Chaudhuri, Co-Manager 6800 Indiana Avenue, Suite 130 Riverside, CA 92506 Telephone: 951-782-8812 Telecopier: 951-782-8850 With Copies to: Harry Lal 1000 South Anaheim Boulevard, Suite 230 Anaheim, CA 92805 Telephone: 714-635-1646 Telecopier: 714-635-2457 William E. Thomas 6800 Indiana Avenue, Suite 130 Riverside, CA 92506 Telephone: 951-782-8812 Telecopier: 951-782-8850 If to Tenant: Integrated Healthcare Holdings, Inc. Attn: Larry Anderson 695 Town Center Drive, Suite 260 Costa Mesa, CA 92626 Telephone: 714-434-9191 Telecopier: 714-434-9505 Notice shall be deemed communicated within forty-eight (48) hours from the time of mailing if mailed as provided in this Section. 20.3 Corporate Authority. If either party is a corporation, that party shall deliver to the other party on execution of this Lease a certified copy of a resolution of its board of directors authorizing the execution of this Lease and naming the officers that are authorized to execute this Lease on behalf of the corporation. 20.4 Headings. The word titles underlying the Article and Section designations contained herein are inserted solely for convenience and under no circumstances are they to be treated or construed as any part of this instrument. 20.5 Covenants and Conditions. Each term and each provision of this Lease performable by Tenant and/or Landlord shall be deemed both a covenant and a condition. 25 20.6 Successors and Assigns. Subject to the provisions hereof, this Lease shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. 20.7 Partial Invalidity. If any term or provision of this Lease or the application thereof to any person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Lease shall be valid and enforced to the fullest extent permitted by law. 20.8 Amendment. This Lease may be amended only by a writing signed by all the parties hereto. 20.9 Entire Agreement. This Lease contains the entire agreement of the parties hereto with respect to the matters set forth herein with respect to the leasing of the Property and the Improvements, and supersedes any prior written or oral agreement between them respecting the subject matter contained herein. 20.10 Construction of Lease. In determining the meaning of, or resolving any ambiguity with respect to, any word, phrase or provision of this Lease, no uncertainty or ambiguity shall be construed or resolved against any party under any rule of construction, including the party primarily responsible for the drafting and preparation of this Lease. 20.11 Currency. All sums payable hereunder shall be determined and paid in United States Dollars. 20.12 Quitclaim Deed. At the expiration or earlier termination of this Lease, Tenant shall, upon request of Landlord, execute, acknowledge and deliver to Landlord within thirty (30) days, any quitclaim deeds or other documents to remove the cloud of this Lease from the Property. 20.13 Recording of Memorandum of Lease. At the request of Tenant, Landlord shall execute and Tenant may record a Memorandum of Lease referencing the Lease in the Official Records of the County Recorder for the County in which the Property is located. 20.14 Financial Information. During the term of this Lease, Tenant shall provide to Landlord, monthly, quarterly and annual financial statements (audited annually) for the businesses conducted on the Property prepared by an independent certified public accountant using generally accepted accounting principles consistently applied. Landlord shall retain such financial statements in confidence, but may, nevertheless, deliver copies thereof to its advisors, lenders, buyers, investors, attorney, and accountants. In the event of default, Tenant shall provide Landlord full and complete access to all financial information. Provided however, that so long as Tenant is a "reporting company" under the Securities Exchange Act of 1934 ("1934 Act"), and so long as Tenant makes the 1934 Act filings required of a public reporting company in a timely manner, then the financial information required to be reported under this Section 20.14 shall be waived. 26 20.15 Relationship of the Parties. Nothing herein shall create between the parties hereto, or be relied upon by others as creating, any relationship of partnership, association, joint venture, or otherwise. The sole relationship of the parties hereto shall be that of Landlord and Tenant. 20.16 Time of Essence. Time is of the essence of each provision of this Lease. 20.17 Successors. Subject to the limitations on assignment, this Lease shall be binding on and inure to the benefit of the parties and their successors. 20.18 Integrated Agreement, Modification. This Lease contains all the agreements of the parties pertaining to the lease of the Property and cannot be amended or modified except by another written agreement. 20.19 Severability. The unenforceability, invalidity or illegality of any provision of this Lease shall not render the other provisions unenforceable, invalid or illegal. 20.20 Real Estate Brokers, Finders. Each party represents that it has not had dealings with any real estate broker, finder, or other person, with respect to this Lease in any manner. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder, or other person, with whom the other party has or purportedly has dealt. 20.21 State Law. This Lease shall be construed and interpreted in accordance with the laws of the State of California. 20.22 Dispute Resolution. All disputes under this Agreement shall be resolved by arbitration in accordance with the Judicial Arbitration and Mediation Service Comprehensive Arbitration Rules and Procedures before the Judicial Arbitration and Mediation Service ("JAMS"). The arbitration shall be held in Orange County, California (or any place agreed to by the Parties and the arbitrator). The decision of the arbitrator shall be final and binding as to any matters submitted hereunder; provided, however, the Superior Court for the County of Orange shall have jurisdiction for the purpose of compelling arbitration, awarding provisional or equitable relief, confirming the award of the arbitrator, enforcing judgment and similar matters. Notwithstanding any provision of the California Code of Civil Procedure or the applicable rules of the JAMS to the contrary, each Party will have all of the rights of discovery pertaining to civil litigation as provided in the California Code of Civil Procedure. Unless the Parties otherwise agree in writing, any arbitration hereunder will be conducted in accordance with the rules of evidence existing in the State of California at the time of the arbitration. 20.23 Landlord Authority. The parties recognize that Landlord is a manager managed California limited liability company operated by co-managers. Any approval, disapproval or other action by Landlord shall require a writing executed by both co-managers. 27 20.24 Subordination. This Lease shall be subject and subordinate at all times to the lien of any mortgage or deed of trust or other encumbrance(s) which may now or which may at any time hereafter be made upon the Property or any portion thereof, or upon Landlord's interest therein. This clause shall be self-operative, and no further instrument of subordination shall be required to effect the subordination of this Lease. Nonetheless, in confirmation of such subordination, Tenant shall execute and deliver such further instrument(s) subordinating this Lease to the lien of any such mortgage or deed of trust thereby, and Tenant hereby appoints Landlord the attorney-in-fact of Tenant, irrevocably, to execute and deliver any such instrument(s) for Tenant. If the interests of Landlord under this Lease shall be transferred by reason of foreclosure or other proceedings for enforcement of any mortgage or deed of trust on the Property, Tenant shall be bound to the transferee at the option of the transferee, under the terms, covenants and conditions of this Lease for the remaining term, including any extensions or renewals, with the same force and effect as if the transferee were Landlord under this Lease, and, if requested by such transferee, Tenant agrees to attorn to the transferee as its Landlord. The holder of any mortgage or deed of trust encumbering the Property shall have the right, unilaterally, at any time to subordinate fully or partially its mortgage or deed of trust or other security instrument to this Lease on such terms and subject to such conditions as such holder may consider appropriate in its discretion. Upon request, Tenant shall execute and deliver an instrument confirming any such full or partial subordination. 20.25 Sale by Landlord. In the event the original Landlord hereunder, or any successor owner of the Property or any portion thereof, shall sell or convey same, all liabilities and obligations on the part of the original Landlord, or such successor owner, under this Lease accruing thereafter shall terminate, and thereupon all such liabilities and obligations shall be binding upon the new owner. Tenant agrees to attorn to each such new owner. ARTICLE XXI TRANSFER OF OPERATIONS UPON TERMINATION OF LEASE 21.1. Closing Date. The date on which this Lease either terminates or expires pursuant to its terms or is terminated by either party whether pursuant to a right granted to it hereunder or otherwise shall be referred to as the "Closing Date" in this Article. On the Closing Date, this Lease shall be deemed and construed as an absolute assignment for purposes of vesting in Landlord (or Landlord's designee) all of Tenant's right, title and interest in and to the following intangible Property which is now or hereafter used in connection with the operation of the Property (the "Intangibles") and an assumption by Landlord of Tenant's obligations under the Intangibles from and after the Closing Date; provided that, from and after the Closing Date, Tenant shall indemnify, defend and hold harmless Landlord against any claims, losses, costs or damages, including reasonable attorneys' fees incurred or arising by reason of Tenant's obligations under the Intangibles prior to the Closing Date: 28 (a) service contacts and equipment leases for the benefit of the Property to which Tenant is a party, and which can be terminated without penalty by Tenant within sixty (60) or fewer days' notice or which Landlord requests be assigned to Landlord pursuant to this Article XXI; (b) any provider agreements with Medicare, Medicaid or any other third-party payor programs (excluding the right to any reimbursement for periods prior to the Closing Date, as defined above) entered in connection with the Property to the extent assignable by Tenant; (c) all existing agreements with residents and any guarantors thereof of the Property, to the extent assignable by Tenant (excluding the right to any payments for periods prior to the Closing Date) and any and all patient trust fund accounts; and (d) at Landlord's option, the business of Tenant as conducted at the Property as a going concern, including but not limited to the name of the business conducted thereon and all telephone numbers presently in use therein. 21.2. Proration. Landlord shall be responsible for and shall pay all accrued expenses with respect to the Property accruing on or after 12:01 a.m. on the day of the Closing Date and shall be entitled to receive and retain all revenues from the Property accruing on or after the Closing Date. Within fifteen (15) business days after the Closing Date, the following adjustments and prorations shall be determined as of the Closing Date: (a) Real estate taxes, ad valorem taxes, school taxes, assessments and personal Property, intangible and use taxes, if any. If the information as to the actual amount of any of the foregoing taxes and assessments are not available for the tax year in which the Closing Date occurs, the proration of such taxes shall be estimated based upon reasonable information available to the parties, including information disclosed by the local tax office or other public information, and an adjustment shall be made when actual figures are published or otherwise become available. (b) Tenant will terminate the employment of all employees on the Closing Date and shall be and remain liable for any and all wages, accrued vacation and sick leave pay for employees of the Property with respect to the period prior to and including the Closing Date. (c) Landlord shall receive a credit equal to any advance payments by patients at the Property to the extent attributable to periods on and after the Closing Date. (d) The present insurance coverage on the Property shall be terminated as of the Closing Date and there shall be no proration of insurance premiums. 29 (e) All other income from, and expenses of, the Property (other than mortgage interest and principal), including but not limited to public utility charges and deposits, maintenance charges and service charges shall be prorated between Tenant and Landlord as of the Closing Date. Tenant shall, if possible, obtain final utility meter readings as of the Closing Date. To the extent that information for any such proration is not available, Tenant and Landlord shall effect such proration within ninety (90) days after the Closing Date. (f) Tenant shall be and remain responsible for any employee severance pay and accrued benefits which may be payable as the result of any termination of an employee's employment on or prior to the Closing Date. 21.3. Possession. All necessary arrangements shall be made to provide possession of all personal property located upon or used in the operation of the Property (hereinafter the "Leased Property") to Landlord on the Closing Date, at which time Tenant shall also deliver to Landlord all medical records, patient records and other personal information concerning all patients residing at the Property as of the Closing Date and other relevant records used or developed in connection with the business conducted at the Property. Such transfer and delivery shall be in accordance with all applicable laws, rules and regulations concerning the transfer of medical records and other types of patient records. 21.4. Interim Operation. For the period commencing on the Closing Date and ending on the date Landlord, or its designee, obtains any and all appropriate state or other governmental licenses and certifications required to operate the hospitals located on the Property , Tenant hereby agrees that Landlord, or Landlord's designee, shall have the right, but not the obligation, to manage and operate the Property, on a triple net basis, and shall be entitled to all revenues of the Property during such period, and to use any and all licenses, certifications and provider agreements issued to Tenant by any federal, state or other governmental authority for such operation of the Property, if permitted by any such governmental authorities. If Landlord or its designee exercises the right described above in this Section 21.4, the provisions of this Section 21.4 shall be self-operative and shall constitute a management agreement between Tenant, on the one hand, and Landlord or its designee, on the other hand, on the terms set forth above in this Section 21.4 provided, however, that upon the request of Landlord or its designee, Tenant shall enter into a separate management agreement on the terms set forth in this Section 21.4 and on such other terms and provisions as may be specified by Landlord or its designee. 21.5. Patient Funds. Tenant shall provide Landlord with an accounting within fifteen (15) days after the Closing Date of all funds belonging to patients at the Property, which are held by Tenant in a custodial capacity. Such accounting shall set forth the names of the patients for whom such funds are held, the amounts held on behalf of each such patient and Tenant's warranty that the accounting is true, correct and complete. Additionally, Tenant, in accordance with all applicable rules and regulations, shall make all necessary arrangements to transfer such funds to a bank account designated by Landlord, and Landlord shall in writing acknowledge receipt of and expressly assume all Tenant's financial and custodial obligations with respect thereto. Notwithstanding the foregoing, Tenant will indemnify, defend and hold Landlord harmless from all liabilities, claims and demands, including reasonable attorney's fees, in the event the amount of funds, if any, transferred to Landlord's bank account as provided above, did not represent the full amount of the funds then or thereafter shown to have been delivered to Tenant as custodian that remain undisbursed for the benefit of the patient for whom such funds were deposited, or with respect to any matters relating to patient funds which accrued prior to the Closing Date. 30 21.6. Cash and Cash Equivalents. All cash, checks and cash equivalent at the Property and deposits in bank accounts (other than patient trust accounts) relating to the Property on the Closing Date shall remain Tenant's Property after the Closing Date. All accounts receivable, loans receivable and other receivables of Tenant, whether derived from operation of the Property or otherwise, shall remain the Property of Tenant after the Closing Date. Tenant shall retain full responsibility for the collection thereof. Landlord shall assume responsibility for the billing and collection of payments on account of services rendered by it on and after the Closing Date. In order to facilitate Tenant's collection efforts, Tenant agrees to deliver to Landlord, within a reasonable time after the Closing Date, a schedule identifying all of those private pay balances owing for the month prior to the Closing Date and Landlord agrees to apply any payments received which are specifically designated as being applicable to services rendered prior to the Closing Date to reduce the pre-Closing Date balances of said patients by promptly remitting said payments to Tenant. Landlord shall retain all other payments received as being applicable to services rendered after the Closing Date. Landlord shall cooperate with Tenant in Tenant's collection of its pre-Closing accounts receivable. Landlord shall have no liability for uncollectible receivables and shall not be obligated to bear any expense as a result of such activities on behalf of Tenant. Landlord shall remit to Tenant or its assignee those portions of any payments received by Landlord which are specifically designated as repayment or reimbursement arising out of cost reports filed for the cost reporting periods ending on or prior to the Closing Date. 21.7. Residents. With respect to residents at the Property on the Closing Date, Landlord and Tenant agree as follows: (a) With respect to Medicare and Medicaid residents, Landlord and Tenant agree payment for in-house residents covered by Medicare or Medicaid on the Closing Date will be made (on a per diem basis) by Medicare or Medicaid under current regulations directly to Tenant for services rendered at the Property prior to the Closing Date. Said payments shall be the sole responsibility of Tenant and Landlord shall in no way be liable therefore. After the Closing Date, Landlord and Tenant shall each have the right to review supporting books, records and documentation that are in the possession of the other relating to Medicaid or Medicare payments. (b) If, following the Closing Date, Landlord receives payment from any state or federal agency or third-party provider that represents reimbursement with respect to services provided at the Property prior to the Closing Date, Landlord agrees that it shall remit such payments to Tenant. A copy of the appropriate remittance shall accompany payments by Landlord to Tenant. 31 21.8. Additional Documents. In addition to the obligations required to be performed hereunder by Tenant and Landlord on and after the Closing Date, Tenant and Landlord agree to perform such other acts, and to execute, acknowledge, and/or deliver subsequent to the Closing Date such other instruments, documents and materials, as the other may reasonably request in order to effectuate the consummation of the transaction contemplated herein. 21.9. Tenant Indemnity. Tenant for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Landlord and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney's fees, costs and expenses) which any of them may suffer as a result of the breach by Tenant in the performance of any of its commitments, covenants or obligations under this Article XXI, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use by Tenant of the Property during the term of this Lease or for any liability which may arise from operation of the Property as an acute care hospital during the term of this Lease, including without limitation, any amounts due or to be reimbursed to any governmental authority based upon any audit or review of Tenant or of the hospitals or the operation thereof and pertaining to the period prior to the Closing Date or any amounts recaptured under Title XIX based upon applicable Medicaid/Medicare recapture regulations. The rights of Landlord under this paragraph are without prejudice to any other remedies not inconsistent herewith which Landlord may have against Tenant pursuant to the terms of this Lease. The foregoing indemnity shall survive the expiration or termination of this Lease, whether due to lapse of time or otherwise. 21.10. Landlord Indemnity. So long as the termination of this Lease is not due to a default by Tenant hereunder, Landlord for itself, its successors and assigns hereby indemnifies and agrees to defend and hold Tenant and its successors and assigns harmless from any and all claims, demands, obligations, losses, liabilities, damages, recoveries and deficiencies (including interest, penalties and reasonable attorney's fees, costs and expenses) which any of them may suffer as a result of the breach by Landlord in the performance of any of its commitments, covenants or obligations under this Article XXI, or with respect to any suits, arbitration proceedings, administrative actions or investigations which relate to the use of the Property after the term of this Lease or for any liability which may arise from operation of the Property as an acute care hospital after the term of this Lease. The rights of Tenant under this paragraph are without prejudice to any other remedies not inconsistent herewith which Tenant may have against Landlord pursuant to the terms of this Lease or otherwise. 21.11. Offset Rights. Landlord shall have the right to offset against any monies due Tenant pursuant to the terms of this Article XXI, any amounts due by Tenant to Landlord pursuant to this Lease or due by Tenant to any third party, including without limitation any amounts due for, utilities, insurance premiums, payroll obligations or any other obligation arising from the Property. 32 21.12. No Waiver. Anything to the contrary contained in this Article XXI notwithstanding, in the event of termination of this Lease is due to a default by Tenant hereunder, none of the provisions of this Article XXI shall in any way limit, reduce, restrict or modify the rights granted to Landlord. 21.13. Cooperation. Landlord and Tenant agree to cooperate with each other in order to effectuate the terms and provisions of this Article XXI. ARTICLE XXII LIMITATION OF LANDLORD'S LIABILITY 22.1. Limitation of Landlord's Liability. In the event of any conveyance or other divestiture of title to the Property the grantor or the person who is divested of title shall be entirely freed and relieved of all covenants and obligations thereafter accruing hereunder, and the grantee or the person who otherwise succeeds to title shall be deemed to have assumed the covenants and obligations of Landlord thereafter accruing hereunder and shall then be Landlord under this Lease. Notwithstanding anything to the contrary provided in this Lease, if Landlord or any successor in interest of Landlord shall be an individual, partnership, limited liability company, corporation, trust, tenant in common or mortgagee, there shall be absolutely no personal, corporate or entity liability on the part of Landlord or any individual or member of Landlord or any manager, stockholder, director, officer, employee, partner or trustee of Landlord with respect to the terms, covenants or conditions of this Lease, and Tenant shall look solely to the interest of Landlord in the Leased Property for the satisfaction of each and every remedy which Tenant may have for the breach of this Lease; such exculpation from personal, corporate or entity liability to be absolute and without any exception, whatsoever. ARTICLE XXIII TENANT OPTION TO PURCHASE Upon the condition that Tenant has exercised Tenant's option to renew as provided in Section 1.2 hereof, and provided that Tenant is not in default hereunder, Tenant shall have the option to purchase the Hospital Properties (this "Option") upon each and all of the following terms: (a) Tenant gives to Landlord, and Landlord actually receives, on a date which is at least six (6) and not more than nine (9) months prior to expiration of the Lease term as extended by the exercise of the renewal option. If said notification of the exercise of this Option is not so given and received, this Option shall automatically terminate and be of no further force and effect. (b) The purchase price for the Hospital Properties shall be the fair market value thereof. The parties agree to meet within thirty (30) days of the exercise of notice of the exercise of this Option and attempt to agree upon the fair market value of the Hospital Properties, which if agreed upon shall constitute the purchase price. If the parties are unable to agree, then each shall appoint an appraiser with not less than five (5) years experience in the 33 valuation of hospital properties, the two appraisers shall appoint a third appraiser. Each appraiser shall separately appraise the Hospital Properties. The three appraisals shall then be averaged, the appraisal which deviates the most from the average shall be disregarded and the remaining two appraisals and the average of the three appraisals shall then be averaged, the resulting average shall be deemed the fair market value and shall constitute the purchase price. (c) The Hospital Properties shall be transferred in "As Is" "Where Is" condition free of any liens other than for real estate taxes and installments of special assessments not yet due and payable and any other lien which is the obligation of the Tenant under this Lease. (d) The closing date for the sale of the Hospital Properties shall be the date of expiration of the Lease term as extended by the exercise of the renewal option, or such other date as the parties may agree upon. (e) Any dispute with respect to this Option shall be resolved in accordance with Section 20.22 hereof. 34 EXECUTION IN WITNESS THEREOF, Landlord and Tenant have executed this Lease in one or more counterparts which, taken together, shall constitute one agreement. TENANT Integrated Healthcare Holdings, Inc. /s/ Bruce Mogel ------------------------------------------ By: Bruce Mogel Its: Chief Executive Officer LANDLORD Pacific Coast Holdings Investment, LLC /s/ Dr. Anil Shah ------------------------------------------ By: Dr. Anil Shah Its: Co-manager 35 EXHIBIT A HOSPITAL PROPERTIES Western Medical Center-Santa Ana 1001 North Tustin Avenue Santa Ana, CA 92705 Together with the Administrative Building located at 1301 N. Tustin Ave. Santa Ana, CA Western Medical Center-Anaheim 1025 South Anaheim Boulevard Anaheim, CA 92805 Together with the parking lot located at 979 S, Anaheim Blvd. Anaheim, CA 92805 Coastal Communities Hospital 2701 South Bristol Street Santa Ana, CA 92704 MEDICAL OFFICE BUILDING PROPERTIES Doctor's Hospital MOB (Coastal) 1901/1905 N. College Ave. Santa Ana, CA 92706 AFTER ACQUIRED MOB PROPERTY TO BE ADDED TO LEASE (SEE ARTICLE III) Hospital Department (WMCSA) Condo Units 1, 2, 3, 4, 5, 6, 7, 8, 11, 12, 118, 120, 121, 201, 202, 203, 204, 213, 214, 216, 218, and 225 located in 999 North Tustin Ave. Santa Ana, CA 92705 36 AMENDMENT NO. 1 TO TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE THIS AMENDMENT NO. 1 TO TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE ("AMENDMENT #1") is made to be effective as of March 8, 2005 ("EFFECTIVE DATE") by and among PACIFIC COAST HOLDINGS, LLC, a California limited liability company ("LANDLORD") and INTEGRATED HEALTHCARE HOLDINGS, INC., a Nevada corporation ("TENANT"). RECITALS A. Landlord and Tenant are parties to that certain TRIPLE NET HOSPITAL AND MEDICAL OFFICE BUILDING LEASE dated March 7, 2005 ("LEASE"). Capitalized terms not defined in this Amendment #1 have the same meaning as set forth in the Lease. B. Tenant (as "BORROWER") intends to borrow the Operating Loan and Real Estate Loan from Medical Provider Financial Corporation II ("LENDER"). The Operating Loan and the Real Estate Loan are each due and payable in full on that date which is two (2) years from closing (for each Loan, the "MATURITY DATE"). As part of its securitization package for the Operating Loan and Real Estate Loan, Lender requires that the term of the Lease with respect to the MOB Properties extend be for a period of at least two (2) years beyond the Maturity Date. C. Landlord and Tenant desire to amend the Lease, on the terms and conditions set forth hereinbelow. NOW, THEREFORE, for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, and for other good and valuable consideration, the undersigned agree as follows: 1. Recitals. The foregoing Recitals are incorporated by reference as if fully set forth herein. 2. Amendment to Lease. Section 1.3 is hereby deleted in its entirety and replaced with the following new Section 1.3: 1.3 MOB Properties Lease Term. The term of this Lease for the MOB Properties shall be four (4) years, commencing upon the closing of the Tenent Transaction and acquisition of the MOB Properties by Landlord (the "MOB Commencement Date") and shall terminate ("MOB Termination Date") on the last day of the month following expiration of the fourth (4th) anniversary from the MOB Commencement Date. 3. Lease to Remain in Force and Effect. Except as amended by this Amendment #1, the Lease shall remain in force and effect. In the event of any inconsistency between this Amendment #1 and the Lease, this Amendment #1 shall prevail. 1 IN WITNESS WHEREOF, the parties hereto have executed this Amendment #1 on the Effective Date in Los Angeles, California. LANDLORD TENANT PACIFIC COAST HOLDINGS, INTEGRATED HEALTHCARE LLC, a California limited HOLDINGS, INC., a Nevada company, limited liability company, By: /s/ Dr. Anil Shah By: /s/ Bruce Mogel Name:___________________ Name:_____________________ Title:____________________ Title:______________________ 2 EX-99.10 11 v014292_ex99-10.txt Exhibit 99.10 Press Release Source: Integrated Healthcare Holdings, Inc. IHHI Acquires Four Hospitals in Orange County, California Tuesday March 8, 6:30 am ET COSTA MESA, Calif.--(BUSINESS WIRE)--March 8, 2005--Integrated Healthcare Holdings, Inc. (IHHI) (OTCBB:IHCH - News) announced today that it has completed the $70-million acquisition of four Orange County, California hospitals from subsidiaries of Tenet Healthcare Corporation. The California Department of Health Services recently indicated that it would approve IHHI's license to operate the acute-care hospitals. The company's outside financing arrangements include primary equity financing of up to $30 million provided by Orange County Physicians Investment Network, LLC (OC-PIN), a company founded by Dr. Anil V. Shah and owned by a number of physicians practicing at the hospitals. In addition, OC-PIN has formed a real estate holding company, which will own the real estate assets of the four hospitals. Institutional funding provides the balance of the funds for the acquisition, including working capital. According to IHHI President, Larry Anderson, "We are committed to continuing to serve the Orange County community by making a substantial investment in each of these important acute-care hospitals. In addition, IHHI's streamlined management and corporate structure provides us the flexibility to offer the employees, physicians and patients a much higher quality of care and better working environment at a lower cost." Dan Brothman, former CEO of Western Medical Center, will become senior vice president of IHHI with oversight responsibility for all four hospitals. The remaining CEOs of all four hospitals will remain in their current positions. IHHI does not anticipate any significant changes or reductions in staffing at any of the four hospitals. The four hospitals being acquired are: 282-bed Western Medical Center - Santa Ana; 188-bed Western Medical Center - Anaheim; 114-bed Chapman Medical Center in Orange; and 178-bed Coastal Communities Hospital in Santa Ana. Together these hospitals represent 12.1% of all hospital beds in Orange County. IHHI was represented by Robert Lundy and Todd Swanson of the Century City law firm of Hooper, Lundy & Bookman, which specializes in healthcare transactional law. SEC counsel was provided by Allen Sussman, from the Los Angeles office of Morrison & Forester. IHHI is also pleased to announce that effective March 7, 2005, Milan Mehta, former HealthSouth Corporation vice president of Managed Care Contracts, has joined IHHI as senior vice president of Contracting; and that effective March 1, 2005, Orange County-based corporate counsel Hari S. Lal, Esq. joined IHHI as executive vice president and general counsel. About Integrated Healthcare Holdings, Inc. IHHI is a predominantly physician-owned management company created to provide high-quality healthcare through the acquisition and management of financially distressed or poorly performing healthcare facilities. In March 2005 IHHI acquired from Tenet Healthcare Corp. four facilities representing approximately 12% of hospital beds in Orange County, Calif. Management's focus is on reducing overhead, improving relationships with insurance companies and HMOs, and enhancing financial and operating procedures, notably reduction of bad debt and collection of accounts receivable and government reimbursements. This press release contains forward-looking statements. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those discussed or projected. Statements in this press release regarding the business of Integrated Healthcare Holdings, Inc., which are not historical in nature, are "forward-looking statements" that involve risks and uncertainties. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to have been correct. Actual results may differ materially from those anticipated, estimated, or projected in the forward-looking statements due to risks and uncertainties, including those discussed in our Annual Report on Form 10-KSB under the caption "Risk Factors." Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. Contact: Waters & Faubel (Media) Meg Waters, 949-768-1600 949-584-4977 (cell) or Silverman Heller Associates (Investor Relations) Philip Bourdillon or Gene Heller, 310-208-2550 -----END PRIVACY-ENHANCED MESSAGE-----