**EXHIBIT 2.4**

**AGREEMENT AND PLAN OFREORGANIZATION**

**by and among**

**PROSPECT MEDICALHOLDINGS, INC.**

**PROSPECT HOSPITALSSYSTEM, LLC**

**ALTA HEALTHCARE SYSTEM,INC.**

**and**

**THE SHAREHOLDERSOF ALTA HEALTHCARE SYSTEM, INC.**

**Dated as of July 25, 2007**

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**TABLE OF CONTENTS**

 
| ARTICLE I DEFINITIONS                                               | 2                                                             |
|---------------------------------------------------------------------|---------------------------------------------------------------|
| 1.1                                                                 | Defined Terms                                                 | 2 |
| 1.2                                                                 | Interpretation                                                | 9 |
| ARTICLE II THE MERGER; CLOSING                                      | 9                                                             |
| 2.1                                                                 | The Merger                                                    | 9 |
| 2.2                                                                 | Effect of the Merger                                          | 9 |
| 2.3                                                                 | Conversion of Company Shares; Merger Consideration            | 10 |
| 2.4                                                                 | Membership Interests of Sub                                   | 11 |
| 2.5                                                                 | Articles of Organization, Operating Agreement                 | 11 |
| 2.6                                                                 | Managers and Officers                                         | 11 |
| 2.7                                                                 | Closing                                                       | 12 |
| 2.8                                                                 | Closing Deliveries                                            | 12 |
| 2.9                                                                 | No Further Ownership Rights in Company Shares                 | 13 |
| 2.10                                                                | Lost, Stolen or Destroyed Certificates                        | 13 |
| 2.11                                                                | Tax and Accounting Consequences                               | 13 |
| ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE  SHAREHOLDERS     | 13                                                            |
| 3.1                                                                 | Title to the Company Shares                                   | 13 |
| 3.2                                                                 | Organization and Power                                        | 13 |
| 3.3                                                                 | Authorization                                                 | 14 |
| 3.4                                                                 | No Conflicting Agreements; Consents                           | 14 |
| 3.5                                                                 | Investment Representations; Restricted Securities             | 15 |
| 3.6                                                                 | Brokers                                                       | 15 |
| 3.7                                                                 | No Agreements                                                 | 15 |
| ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE  ACQUIRED ENTITIES | 15                                                            |
| 4.1                                                                 | Organization and Capitalization of the Company                | 16 |
| 4.2                                                                 | Organization and Capitalization of the Acquired  Subsidiaries | 16 |
| 4.3                                                                 | Authorization                                                 | 17 |
| 4.4                                                                 | No Conflicting Agreements; Consents                           | 17 |
| 4.5                                                                 | Financial Statements                                          | 18 |
| 4.6                                                                 | Absence of Undisclosed Liabilities; No Missing  Assets        | 19 |
| 4.7                                                                 | Absence of Changes                                            | 19 |
| 4.8                                                                 | Material Contracts                                            | 21 |
| 4.9                                                                 | Accounts Receivable                                           | 22 |
| 4.10                                                                | Real Property                                                 | 22 |
| 4.11                                                                | Personal Property                                             | 23 |
| 4.12                                                                | Employees; Labor Matters; Company Plans; ERISA                | 24 |
| 4.13                                                                | Government Program Participation/Accreditation                | 25 |
| 4.14                                                                | Taxes                                                         | 27 |
| 4.15                                                                | Inventory                                                     | 28 |
| 4.16                                                                | Intellectual Property                                         | 28 |
| 4.17                                                                | Permits; Compliance With Laws                                 | 29 |
| 4.18                                                                | Environmental Conditions                                      | 30 |
| 4.19                                                                | Legal Proceedings, Court Orders                               | 31 |

 

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| 4.20                                                 | Insurance                                                                              | 31 |
|------------------------------------------------------|----------------------------------------------------------------------------------------|----|
| 4.21                                                 | Medical Staff                                                                          | 32 |
| 4.22                                                 | Brokers                                                                                | 32 |
| 4.23                                                 | Indebtedness                                                                           | 32 |
| 4.24                                                 | Business                                                                               | 32 |
| 4.25                                                 | No Omissions or Misstatements                                                          | 32 |
| 4.26                                                 | No Other Representations and Warranties                                                | 32 |
| ARTICLE V REPRESENTATIONS AND WARRANTIES OF HOLDINGS | 33                                                                                     |
| 5.1                                                  | Organization                                                                           | 33 |
| 5.2                                                  | Authorization                                                                          | 33 |
| 5.3                                                  | No Conflicting Agreements; Consents                                                    | 34 |
| 5.4                                                  | Legal Proceedings, etc                                                                 | 34 |
| 5.5                                                  | Issuance of Securities                                                                 | 35 |
| 5.6                                                  | SEC Documents; Holdings Consolidated Financial  Statements; No Undisclosed Liabilities | 35 |
| 5.7                                                  | Brokers                                                                                | 35 |
| 5.8                                                  | Solvency                                                                               | 35 |
| 5.9                                                  | No Omissions or Misstatements                                                          | 36 |
| 5.10                                                 | Sarbanes-Oxley                                                                         | 36 |
| 5.11                                                 | No Integration                                                                         | 37 |
| 5.12                                                 | Taxes                                                                                  | 37 |
| 5.13                                                 | No Material Adverse Change                                                             | 38 |
| 5.14                                                 | Financing                                                                              | 38 |
| 5.15                                                 | AMEX                                                                                   | 38 |
| 5.16                                                 | Material Definitive Agreements                                                         | 38 |
| 5.17                                                 | Board Approval                                                                         | 39 |
| 5.18                                                 | No Other Representations and Warranties                                                | 39 |
| ARTICLE VI COVENANTS OF THE COMPANY                  | 39                                                                                     |
| 6.1                                                  | Regulatory Approvals                                                                   | 39 |
| 6.2                                                  | Conduct Prior to the Closing                                                           | 39 |
| 6.3                                                  | Employee Matters                                                                       | 41 |
| 6.4                                                  | Transfer of Assets                                                                     | 41 |
| 6.5                                                  | Encumbrances                                                                           | 41 |
| 6.6                                                  | Condition of Assets                                                                    | 41 |
| 6.7                                                  | Intercompany Accounts                                                                  | 42 |
| 6.8                                                  | Investigation by Holdings                                                              | 42 |
| 6.9                                                  | Reports and Pre-Closing Deliverables                                                   | 43 |
| 6.10                                                 | Exclusivity                                                                            | 43 |
| 6.11                                                 | Resignations                                                                           | 44 |
| 6.12                                                 | Closing Conditions                                                                     | 44 |
| 6.13                                                 | Notification                                                                           | 44 |
| ARTICLE VII COVENANTS OF HOLDINGS AND SUB            | 44                                                                                     |
| 7.1                                                  | Confidentiality                                                                        | 44 |
| 7.2                                                  | Investigation by Shareholders                                                          | 44 |
| 7.3                                                  | Regulatory Approvals                                                                   | 45 |
| 7.4                                                  | WARN Act                                                                               | 46 |

 

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| 7.5                                                       | Employee Matters                                         | 46 |
|-----------------------------------------------------------|----------------------------------------------------------|----|
| 7.6                                                       | Employees                                                | 46 |
| 7.7                                                       | Closing Conditions                                       | 47 |
| 7.8                                                       | Indemnification of Officers and Directors                | 47 |
| 7.9                                                       | Financing                                                | 47 |
| 7.10                                                      | Conduct of Business of Holdings Prior to the Closing     | 47 |
| 7.11                                                      | Exclusivity                                              | 49 |
| ARTICLE VIII CERTAIN ADDITIONAL COVENANTS OF THE  PARTIES | 50                                                       |
| 8.1                                                       | Audit of Acquired Entities                               | 50 |
| 8.2                                                       | Stockholder Meeting; Holdings Proxy Statement            | 50 |
| 8.3                                                       | Holdings AMEX Filing                                     | 51 |
| 8.4                                                       | Right to Designate Two Directors At Effective Time       | 52 |
| 8.5                                                       | [INTENTIONALLY OMITTED]                                  | 52 |
| 8.6                                                       | [INTENTIONALLY OMITTED]                                  | 52 |
| 8.7                                                       | Post-Closing Access                                      | 52 |
| 8.8                                                       | Tax Matters                                              | 53 |
| 8.9                                                       | Non-Competition                                          | 54 |
| 8.10                                                      | Title Report and Survey; Defects and Cure; Title  Policy | 55 |
| 8.11                                                      | Rule 16b-3                                               | 56 |
| 8.12                                                      | SEC and AMEX Compliance                                  | 56 |
| ARTICLE IX CONDITIONS TO OBLIGATIONS OF HOLDINGS AND  SUB | 57                                                       |
| 9.1                                                       | Representations and Warranties                           | 57 |
| 9.2                                                       | Compliance with Agreement                                | 57 |
| 9.3                                                       | Closing Certificates                                     | 57 |
| 9.4                                                       | Secretary’s Certificates                            | 57 |
| 9.5                                                       | Articles of Incorporation of Acquired Entities           | 57 |
| 9.6                                                       | Opinion of Counsel                                       | 57 |
| 9.7                                                       | Consents, Authorizations, etc                            | 57 |
| 9.8                                                       | Compliance with Law                                      | 58 |
| 9.9                                                       | No Action or Proceeding                                  | 58 |
| 9.10                                                      | Good Standing Certificates                               | 58 |
| 9.11                                                      | Books                                                    | 58 |
| 9.12                                                      | Resignations                                             | 58 |
| 9.13                                                      | [INTENTIONALLY OMITTED]                                  | 58 |
| 9.14                                                      | Employment Agreements                                    | 58 |
| 9.15                                                      | Holdings Due Diligence                                   | 59 |
| 9.16                                                      | Title Policies                                           | 59 |
| 9.17                                                      | Merger Consideration Certificate                         | 59 |
| 9.18                                                      | No Material Adverse Effect                               | 59 |
| 9.19                                                      | Current Assets of Acquired Entities at the Closing       | 59 |
| 9.20                                                      | Holdings Financing                                       | 59 |
| 9.21                                                      | Certificate of Merger                                    | 59 |
| 9.22                                                      | No Dissenting Shareholders                               | 59 |
| 9.23                                                      | Waiver of Conditions                                     | 59 |

 

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| ARTICLE X CONDITIONS TO OBLIGATIONS OF  SHAREHOLDERS AND COMPANY | 59                                                                                                                          |
|------------------------------------------------------------------|-----------------------------------------------------------------------------------------------------------------------------|
| 10.1                                                             | Representations and Warranties                                                                                              | 59 |
| 10.2                                                             | Compliance with Agreement                                                                                                   | 60 |
| 10.3                                                             | Closing Certificates                                                                                                        | 60 |
| 10.4                                                             | Secretary’s Certificate                                                                                                | 60 |
| 10.5                                                             | Opinions of Counsel                                                                                                         | 60 |
| 10.6                                                             | Consents, Authorizations, etc                                                                                               | 60 |
| 10.7                                                             | Compliance with Law                                                                                                         | 61 |
| 10.8                                                             | No Action or Proceeding                                                                                                     | 61 |
| 10.9                                                             | Good Standing Certificates                                                                                                  | 61 |
| 10.10                                                            | Shareholder Tax Treatment                                                                                                   | 61 |
| 10.11                                                            | Holdings Common Stock Measurement Price and Closing  Price                                                                  | 61 |
| 10.12                                                            | Registration Rights Agreement                                                                                               | 61 |
| 10.13                                                            | Employment Agreements                                                                                                       | 61 |
| 10.14                                                            | Shareholder Due Diligence                                                                                                   | 61 |
| 10.15                                                            | Holdings Financing                                                                                                          | 61 |
| 10.16                                                            | Certificate of Merger                                                                                                       | 62 |
| 10.17                                                            | No Material Adverse Effect                                                                                                  | 62 |
| 10.18                                                            | Certificate of Designation                                                                                                  | 62 |
| 10.19                                                            | Voting Agreements                                                                                                           | 62 |
| 10.20                                                            | Power of Attorney                                                                                                           | 62 |
| 10.21                                                            | Waiver of Conditions                                                                                                        | 62 |
| ARTICLE XI INDEMNIFICATION                                       | 62                                                                                                                          |
| 11.1                                                             | Indemnification Period                                                                                                      | 62 |
| 11.2                                                             | Indemnification of Holdings, Sub, the Surviving  Entity and the Acquired Entities                                           | 62 |
| 11.3                                                             | Indemnification of the Shareholders                                                                                         | 63 |
| 11.4                                                             | Exclusion of Holdings Indemnifiable Damages from  Indemnification Period, Indemnification Threshold and Indemnification Cap | 64 |
| 11.5                                                             | Claims Timely Raised But Not Resolved                                                                                       | 66 |
| 11.6                                                             | Indemnification Procedures                                                                                                  | 66 |
| 11.7                                                             | Exclusive Remedy                                                                                                            | 67 |
| 11.8                                                             | Adjustments to Merger Consideration                                                                                         | 67 |
| ARTICLE XII TERMINATION                                          | 67                                                                                                                          |
| 12.1                                                             | Termination Events                                                                                                          | 67 |
| 12.2                                                             | Effect of Termination                                                                                                       | 68 |
| 12.3                                                             | Expense Reimbursement - Holdings                                                                                            | 68 |
| 12.4                                                             | Break-up Fee - Company                                                                                                      | 69 |
| 12.5                                                             | Termination Fee                                                                                                             | 69 |
| 12.6                                                             | Payment of Expense Reimbursement                                                                                            | 69 |
| ARTICLE XIII NOTICES                                             | 69                                                                                                                          |
| 13.1                                                             | Notices                                                                                                                     | 69 |
| ARTICLE XIV MISCELLANEOUS                                        | 70                                                                                                                          |
| 14.1                                                             | Fees and Expenses                                                                                                           | 70 |
| 14.2                                                             | Entire Agreement                                                                                                            | 71 |
| 14.3                                                             | Waiver                                                                                                                      | 71 |
| 14.4                                                             | Amendment                                                                                                                   | 71 |

 

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| 14.5  | Counterparts; Facsimile Signatures | 71 |
|-------|------------------------------------|----|
| 14.6  | No Third Party Beneficiary         | 71 |
| 14.7  | GOVERNING LAW, CONSTRUCTION        | 71 |
| 14.8  | Binding Effect                     | 72 |
| 14.9  | No Assignment                      | 72 |
| 14.10 | Headings, Gender, Etc              | 72 |
| 14.11 | Public Announcement                | 72 |
| 14.12 | Severability; Invalid Provisions   | 72 |
| 14.13 | Arbitration                        | 72 |
| 14.14 | No Inferences                      | 73 |
| 14.15 | Reasonable Access                  | 73 |
| 14.16 | Further Assurance Clause           | 73 |

 

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**LIST OF EXHIBITS ANDSCHEDULES:**
|                  |                                                                |
|------------------|---------------------------------------------------------------------|
| Exhibit A   | Shareholders/Shareholders                                           |
| Exhibit B   | Business                                                            |
| Exhibit C   | Certificate of Merger                                               |
| Exhibit D   | Certificate of Designation                                          |
| Exhibit E        | Knowledge of Company Individuals                                    |
| Exhibit F   | Knowledge of Holdings Individuals                                   |
| Exhibit G   | Merger Consideration Certificate                                    |
| Exhibit H   | Registration Rights Agreement                                       |
| Exhibit I   | Managers of Surviving Entity                                        |
| Exhibit J   | Officers of Surviving Entity                                        |
| Exhibit K   | Lee Employment Agreement                                            |
| Exhibit L   | Topper Employment Agreement                                         |
| Exhibit M-1 | Form of Voting Agreement (Non-Management)                           |
| Exhibit M-2 | Form of Voting Agreement (Management)                               |
| Exhibit N-1      | Form of Limited Power of Attorney (Norwalk Community  Hospital)     |
| Exhibit N-2      | Form of Limited Power of Attorney (Los Angeles  Community Hospital) |
| Exhibit N-3      | Form of Limited Power of Attorney (Van Nuys  Community Hospital)    |
| Exhibit N-4      | Form of Limited Power of Attorney (Hollywood  Community Hospital)   |
| Exhibit O        | Extraordinary Collections                                           |
|             | Company Disclosure Schedules                                        |
|             | Holdings Disclosure Schedules                                       |

 

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**AGREEMENT AND PLAN OFREORGANIZATION**

**THISAGREEMENT AND PLAN OF REORGANIZATION**(the “Agreement”) is made and entered into asof July 25, 2007, by and among Prospect Medical Holdings, Inc., a Delawarecorporation (“Holdings”), Prospect Hospitals System, LLC, a Californialimited liability company and wholly-owned subsidiary of Holdings (“Sub”),Alta HealthCare System, Inc., a California corporation (“Company”) andthe shareholders of the Company (individually, a “Shareholder” andcollectively, the “Shareholders”). The Shareholders are listed on Exhibit A to this Agreement.

**R E C I T A L S:**

**WHEREAS**, the Shareholders collectively own 100%of the issued and outstanding equity securities of the Company; and

**WHEREAS**, the Companyowns 100% of the issued and outstanding equity securities of each of (a) AltaHollywood Hospitals, Inc., a California corporation, dba Hollywood CommunityHospital (“Hollywood/Van Nuys Subsidiary”)**and(b) Alta Los Angeles Hospitals, Inc. a California corporation, dba Los AngelesCommunity Hospital (“LA/Norwalk Subsidiary”); Hollywood/Van NuysSubsidiary and LA/Norwalk Subsidiary are each an “Acquired Subsidiary” andcollectively, the “Acquired Subsidiaries”); and

**WHEREAS**, the Company and the AcquiredSubsidiaries (collectively, the “Acquired Entities”) own and operateeach of the hospitals and other facilities incident to the operation of thehospitals listed on Exhibit B (each hospital, along with thefacilities and assets incident to its operation a “Hospital” andcollectively, the “Hospitals”; and the business and operation of theHospitals, the “Business”); and

**WHEREAS**, Holdings owns 100% of the issued andoutstanding equity securities of Sub; and

**WHEREAS**, the parties intend that, subject to theterms and conditions hereinafter set forth, the Company shall be merged withand into Sub, with Sub as the surviving entity and continuing as a subsidiaryof Holdings (the “Merger”), pursuant to a Certificate of Mergersubstantially in the form attached hereto as Exhibit C (the “Certificate ofMerger”) and the applicable provisions of the laws of the State ofCalifornia; and

**WHEREAS**, pursuant to the Merger, among otherthings, and subject to the terms and conditions of this Agreement, all of theissued and outstanding shares of capital stock of the Company shall beconverted into the right to receive cash and Holdings Stock as provided inSection 2.3 hereof; and

**WHEREAS**, the parties intend that the Mergerqualify as a “reorganization” within the meaning of Section 368(a) of the Code(as hereinafter defined), and this Agreement constitutes a “plan ofreorganization” within the meaning of Section 1.368-1(c) of the TreasuryRegulations; and

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**WHEREAS**, the Board of Directors or Board ofManagers, as applicable, of each of Holdings, Sub and the Company havedetermined that the Merger is advisable and in the best interest of theirrespective equity holders, and such Boards have approved the Merger upon theterms and subject to the conditions set forth in this Agreement.

**NOW,THEREFORE**, inconsideration of the foregoing premises, the mutual covenants and otheragreements set forth herein, and other good and valuable consideration, thereceipt and sufficiency of which are hereby acknowledged, the parties heretocovenant and agree as follows:

**ARTICLEIDEFINITIONS**

1.1           Defined Terms.  As used inthis Agreement, the following defined terms shall have the meanings indicatedbelow:

“Acquired Entities”means the Company and the Acquired Subsidiaries, taken as a whole.

“Acquired Subsidiaries”has the meaning set forth in the Recitals.

“Acquired SubsidiaryShares” has the meaning set forth in Section 4.2(c).

“Affiliate” meansany Person that directly, or indirectly through one or more intermediaries,controls or is controlled by or is under common control with the Personspecified.

“Agreement” meansthis Agreement and Plan of Reorganization.

“AMEX” means theAmerican Stock Exchange.

“Audit” has themeaning set forth in Section 8.1.

“Books and Records”means all existing patient, medical staff, employee, accounting, business,marketing, corporate, partnership, limited liability company and other files,documents, instruments, papers, books and records, including withoutlimitation, financial statements, budgets, ledgers, journals, deeds, titles,policies, manuals, minute books, stock certificates and books, equity transferledgers, contracts, franchises, permits, supplier lists, reports, computerfiles and data, retrieval programs and operating data or plans.

“Business” has themeaning set forth in the Recitals.

“Business Day”means a day other than Saturday, Sunday, or any day on which the principalcommercial banks located in the State of California are authorized or obligatedto close under the Laws of the State of California.

“Business MaterialAdverse Effect” means a material adverse effect on the assets, financialcondition or operations of the Acquired Entities, taken as a whole, provided,however, that none of the following shall be or will be deemed to constituteand shall not be taken into account in determining the occurrence of a BusinessMaterial Adverse Effect:  (i) any effector change that results from the announcement or pendency of the transactionscontemplated by this 

2

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Agreement, (ii)any effect or change that results from the taking of any action contemplated bythis Agreement or expressly permitted by Holdings pursuant to this Agreement,(iii) any effect or change relating to the economy in general, (iv) any effector change relating to the industries in which the Acquired Entities operate or(v) any change in Laws or GAAP or interpretations thereof.

“California Code”has the meaning set forth in Section 2.1.

“Certificate ofDesignation” means the Certificate of Designation of Series B PreferredStock of Holdings, in substantially the form of Exhibit D.

“Closing” has themeaning set forth in Section 2.7.

“Closing Date” hasthe meaning set forth in Section 2.3.

“COBRA” has themeaning set forth in Section 4.12(d).

“Code” means theInternal Revenue Code of 1986, as amended, and the rules and regulationspromulgated thereunder.

“Company” has themeaning set forth in the Recitals.

“Company Auditors”has the meaning set forth in Section 8.1.

“Company Shares”has the meaning set forth in Section 4.1(b).

“Company Plans”means each “employee benefit plan” (within the meaning of Section 3(3) ofERISA) and each stock purchase, stock option, severance, change-in-control,fringe benefit, bonus, incentive, deferred compensation and other employeebenefit plan, program, policy or other arrangement, including deferred compensationarrangements that are referenced in an employment agreement in which anyemployee of the Business participates and, with respect to any employee pensionbenefit plan (as defined in Section 3(2) of ERISA), which is sponsored ormaintained by any of the Acquired Entities or to which an Acquired Entity is aparty or has any expense, liability or obligation.

“Competing Business”means the business of owning, leasing, managing or operating one or moregeneral acute care hospitals, psychiatric care hospitals or ambulatory urgentcare centers.

“ConfidentialityAgreement” means that certain Confidentiality Agreement, dated as ofOctober 12, 2006, between the Company and Holdings.

“Constituent Documents”means, for any corporation, partnership, limited partnership, limited liabilitycompany or other organization, its Charter, Articles of Incorporation,Certificate of Incorporation, bylaws, partnership agreement, operatingagreement, certificate of limited partnership, certificate of formation orother similar formation and governance documents, each as amended to therelevant date.

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“Contract” meansany agreement, Lease, licensing agreement, sublicensing agreement, promissorynote, evidence of indebtedness, or other contract, and all amendments, waivers,extensions, schedules, exhibits and appendices thereof to which any of theAcquired Entities is a party, by which assets of any of the Acquired Entitiesare bound or by which the Business is benefited or otherwise primarily relatedto the Hospitals; provided, however, that the term “Contract” shall not includeany Permits (as hereinafter defined).

“Conversion Price”shall have the meaning set forth in the Certificate of Designation.

“Conversion Stock”shall mean the shares of Holdings Common Stock into which the HoldingsPreferred Stock may be convertible pursuant to the Certificate of Designationsubject to Section 8.2.

“Court Order”means any judgment, order, award or decree of any federal, state, local orother court or judicial or quasi-judicial tribunal and any award in any bindingarbitration proceeding.

“Damages” meansany and all losses, damages, claims, costs, fines, fees, penalties, interest,obligations and deficiencies (including, without limitation, reasonableattorneys fees and other expenses of litigation).

“Defects” has themeaning set forth in Section 8.10.

“EBITDA” meansearnings before interest, taxes, depreciation and amortization determined inaccordance with GAAP.

“Effective Time”has the meaning set forth in Section 2.1.

“Encumbrance”means any mortgage, pledge, security interest or lien.

“Environmental Claim”means any claim, action, cause of action, investigation or written notice byany person or entity alleging potential liability (including, withoutlimitation, potential liability for investigatory costs, cleanup costs,governmental response costs, natural resources damages, property damages,personal injuries or penalties) arising out of, based on or resulting from theviolation of any Environmental Law.

“Environmental Laws”means all federal, state, local and foreign laws and regulations relating topollution or protection of human health or the environment (including, withoutlimitation, ambient air, surface, water, ground water, land surface orsubsurface strata), including without limitation laws relating to emissions,discharges, Releases or threatened Releases of Hazardous Substances orotherwise relating to the manufacture, processing, distribution, use,treatment, storage, disposal, transport or handling of Hazardous Substances.  Environmental Laws include but are notlimited to RCRA, CERCLA and TSCA.

“Environmental Reports”has the meaning set forth in Section 4.18(g).

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“Equity Security”and “equity interest” mean any “equity security” as such term is definedin the Securities Exchange Act of 1934, as amended, and the rules andregulations promulgated thereunder.

“ERISA” means theEmployee Retirement Income Security Act of 1974, as amended.

“GAAP” has themeaning set forth in Section 4.5.

“GovernmentalAuthority” means, unless otherwise specified, any national, state or localgovernment, any political subdivision thereof or any other governmental,quasi-governmental, judicial, public or statutory instrumentality, authority,body, agency, department, bureau, commission or entity, or any arbitrator withauthority to bind a party at law.

“Government Programs”has the meaning set forth in Section 4.13(a).

“Hazardous Substances”shall mean any and all materials and substances which are or have beendetermined to be harmful to health or the environment including but not limitedto (i) “hazardous wastes” as defined in the Resource Conservation and RecoveryAct (“RCRA”) or other applicable federal, state or local law, ordinance, ruleor regulation; (ii) “hazardous substances” as defined in the ComprehensiveEnvironmental Response, Compensation and Liability Act (“CERCLA”) or any otherapplicable federal, state and local law, ordinance, rule or regulation; (iii)gasoline or any other petroleum product or byproduct, polychlorinatedbiphenyls, asbestos and urea formaldehyde; (iv) “toxic substances” as definedin the Toxic Substances Control Act (“TSCA”); and (v) any radioactive materialsor substances.

“Historical FinancialStatements” has the meaning set forth in Section 4.5.

“Holdings” has themeaning set forth in the Preamble.

“Holdings Common Stock”means the common stock, $0.01 par value, of Holdings.

“Holdings DueDiligence Period” has the meaning set forth in Section 6.8.

“Holdings Indemnitee”has the meaning set forth in Section 11.2.

“Holdings MaterialAdverse Effect” means a material adverse effect on the assets, financialcondition or operations of Holdings and its subsidiaries, taken as a whole,provided, however, that none of the following shall be or will be deemed toconstitute and shall not be taken into account in determining the occurrence ofa Holdings Material Adverse Effect:  (i)any effect or change that results from the announcement or pendency of thetransactions contemplated by this Agreement, (ii) any effect or change thatresults from the taking of any action contemplated by this Agreement orexpressly permitted by Shareholders or Company pursuant to this Agreement,(iii) any effect or change relating to the economy in general, (iv) any effector change relating to the industries in which Holdings and its subsidiariesoperate or (v) any change in Laws or GAAP or interpretations thereof.

“Holdings PreferredStock” means the Series B preferred stock, $0.01 par value, of Holdings,with the rights, privileges and preferences as set forth in the Certificate ofDesignation.

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“Holdings Stock”means, collectively, the Holdings Common Stock and the Holdings Preferred Stock(including, without limitation, the Conversion Stock).

“Hospital” or “Hospitals”has the meaning set forth in the Recitals.

“HSR Act” meansthe Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and therules and regulations promulgated thereunder.

“Indebtedness”means the aggregate amount of (i) all indebtedness of the Acquired Entities formoney borrowed from others (in the form of direct loans (term and revolver)),(ii) interest expense accrued but unpaid, on or relating to any of suchindebtedness, and (iii) indebtedness of the type described in clause (i) aboveguaranteed, directly or indirectly by any of the Acquired Entities.

“Intellectual Property”has the meaning set forth in Section 4.16.

“Interim Balance Sheet”has the meaning set forth in Section 4.5(a).

“Interim Balance SheetDate” has the meaning set forth in Section 4.6.

“Interim FinancialStatements” has the meaning set forth in Section 4.5(a).

“JCAHO” means theJoint Commission on Accreditation of Healthcare Organizations.

“Knowledge of Company”(and any similar expression, including, the expression “Company’s Knowledge”)means, as to a particular matter, the actual knowledge of any Person specifiedwith respect to Company on Exhibit E in each case after reasonableinquiry.

“Knowledge ofShareholder” (and any similar expression, including, the expression “Shareholder’sKnowledge”) means, as to a particular matter, the actual knowledge of anyShareholder (which, in the case of the David & Alexa Topper Family Trust,U/D/T September 29, 1997, shall mean the actual knowledge of David Topper) ineach case after reasonable inquiry.

“Knowledge of Holdings”(and any similar expression, including the expression, “Holdings’ Knowledge”)means, as to a particular matter, the actual knowledge of any Person specifiedwith respect to Holdings on Exhibit F in each case after reasonableinquiry.

“Laws” means all statutes,laws, ordinances, rules, regulations and other pronouncements of anyGovernmental Authority having the effect of law of the United States, any stateor commonwealth of the United States, or any city, county, municipality,department, commission, board, bureau, agency or instrumentality thereof.

“Leases” mean(a) all of those leases, subleases, licenses and occupancy agreements towhich any of the Acquired Entities is a party as the lessee/tenant orsublessee/subtenant or occupant of any portion of the Real Property, and(b) all the following agreements to which****anyof the Acquired Entities is a party as the landlord/lessor orsublandlord/sublessor or occupant of any portion of the Real Property,including: (i) medical office leases, subleases and occupancy 

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agreements; (ii)leases, subleases and occupancy agreements for other medical uses, services orfacilities; and (iii) leases, subleases and occupancy agreements for foodservices and other ancillary services at the Hospitals, including as examplesand not as limitations, wireless communication services, gift shops, pharmaciesor florist shops.

“Material Contract”means any Contract (i) to which a party thereto is a referral source (includingphysicians) to any Hospital; or (ii) which involves an expenditure of greaterthan $100,000 per contract per year; or (iii) which an Acquired Entity is boundby a covenant not to compete; or (iv) which is an executive employmentagreement; or (v) which is a joint venture or partnership agreement; or (vi)any other contract or agreement whether written or oral to which the Company isa party as to which the breach, nonperformance, cancellation or failure torenew by any party thereto would have a Business Material Adverse Effect.

“Material Permit”means all Permits required by Law and/or required or necessary to operate theBusiness, the failure of which to obtain or maintain would have a BusinessMaterial Adverse Effect.

“Medicaid” has themeaning set forth in Section 4.13(a).

“Medicare” has themeaning set forth in Section 4.13(a).

“Merger” has themeaning set forth in the Recitals.

“Merger Consideration”has the meaning set forth in Section 2.3(b).

“Multiemployer Plan”means any “multiemployer plan” within the meaning of Section 3(37) of ERISA.

“Pension Plan” hasthe meaning set forth in Section 4.12(b).

“Permits” meansall licenses, permits, franchises, rights, registrations, approvals,authorizations, consents, waivers, exemptions, releases, variances or ordersof, or filings with, or otherwise issued by, any Governmental Authority.

“Permitted Encumbrance”mean (a) any Encumbrance approved in writing by Holdings; (b) anyEncumbrance for Taxes or other governmental charges or assessments which arenot yet due and payable; (c) any Encumbrance of the lender, lessor orother financing source that is disclosed in a Schedule attached to thisAgreement and specifically authorized herein to remain after the EffectiveTime, (d) any carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s,landlords and other similar Encumbrance if payment is not yet due on theunderlying obligation, (e) any Encumbrance arising in the ordinary course ofbusiness in compliance with workers’ compensation, unemployment insurance andother social security laws or regulations, (f) any Encumbrance related to anyinterest or title of a vendor or lessor in property subject to a capital oroperating lease and vendors’ Encumbrance on inventory arising in the ordinarycourse of business; (g) any Encumbrance incidental to the conduct of the businessof the Acquired Entities or the lease of real property, including easements,rights of way, zoning and similar restrictions, and sub-leases granted toothers; or (h) any Encumbrance arising under the Securities Act or anyapplicable state securities laws.

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“Person” means anynatural person, corporation, general partnership, limited partnership, limitedliability company, union, association, court, agency, government, tribunal,instrumentality, commission, arbitrator, board, bureau or other entity or authority.

“Real Property”means all real property together with all buildings and improvements thereonand all appurtenances and rights pertaining thereto, held by any of theAcquired Entities that is used or held for use in the operation of theBusiness.

“Release” meansreleases as defined in CERCLA or any other Environmental Laws.

“Returns” meansall reports, estimates, declarations, schedules, disclosures, informationstatements, claims for refunds and returns relating to, or required to be filedin connection with, any Taxes, including any amendments thereto.

“SEC” means theSecurities and Exchange Commission.

“SEC Documents”has the meaning set forth in Section 5.6.

“Securities Act”means the Securities Act of 1933, as amended, and the rules and regulationspromulgated thereunder.

“Selected AccountingFirm” means an independent accounting firm mutually acceptable to Holdingsand Shareholders other than Moss Adams LLP or Ernst & Young, LLP.

“Shareholders” hasthe meaning set forth in the Recitals.

“ShareholderIndemnitee” has the meaning set forth in Section 11.3.

“Shareholder’sDue Diligence Period” has the meaning set forth in Section 7.2.

“ShareholderEmployment Agreements” has the meaning set forth in Section 7.6.

“Shares” means theoutstanding shares of stock of any Acquired Entity that is a corporation.

“Surviving Entity”has the meaning set forth in Section 2.1.

“Tax” or “Taxes”means all federal, state, local or income, gross receipts payroll and employeewithholding, unemployment, social security, gross receipt, business license,transfer, and other governmental taxes or charges, and other obligations of thesame or a similar nature to any of the foregoing including all interest,penalties, fines, additions to tax or additional amounts imposed by anyGovernmental Authority.

“Territory” meansLos Angeles and Orange County, California.

“Title Company”has the meaning set forth in Section 8.10(d).

“Title Evidence”has the meaning set forth in Section 8.10(c).

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“Title Policy” hasthe meaning set forth in Section 8.10(d).

“Title Report” hasthe meaning set forth in Section 8.10(a).

“WARN Act” meansthe Worker Adjustment and Retraining Notification Act, 29 U.S.C.  Section 2101 et. seq.

“Year End AuditedFinancial Statements” has the meaning set forth in Section 4.5(a).

“2006 Year End BalanceSheet Date” has the meaning set forth in Section 4.5(a).

1.2           Interpretation.  The words “hereof,”“herein” and “herewith” and words of similar import shall, unless otherwisestated, be construed to refer to this Agreement as a whole and not to anyparticular provision of this Agreement, and article, section, paragraph,exhibit and schedule references are to the articles, sections, paragraphs,exhibits and schedules of this Agreement unless otherwise specified.  Whenever the words “include,” “includes” or “including”are used in this Agreement, they shall be deemed to be followed by the words “withoutlimitation” and the phrase “in the ordinary course of business” and phrases ofsimilar import shall be deemed to be followed by the words “consistent withpast practice.” All terms defined in this Agreement shall have the definedmeanings contained herein when used in any certificate or other document madeor delivered pursuant hereto unless otherwise defined therein.  The definitions contained in this Agreementare applicable to the singular as well as the plural forms of such terms and tothe masculine as well as to the feminine and neuter genders of such terms.  Any reference to this Agreement includes theAgreement as well as any exhibits or schedules hereto.  References to a Person are also to itspermitted successors and assigns.

**ARTICLEIITHE MERGER; CLOSING**

2.1           The Merger.  At theEffective Time (as hereinafter defined) and subject to and upon the terms andconditions of this Agreement and the applicable provisions of the CorporationsCode of the State of California (the “CaliforniaCode”), the Company shall be merged with and into Sub, the separatecorporate existence of the Company shall cease and Sub shall continue as thesurviving entity and as a wholly-owned subsidiary of Holdings.  Sub as the surviving entity after the Mergeris hereinafter sometimes referred to as the “Surviving Entity”. The parties hereto shall cause the Merger to be consummated by filingthe Certificate of Merger with the Secretary of State of the State ofCalifornia, executed in accordance with the relevant provisions of theCalifornia Code.  The Merger shall becomeeffective (the “Effective Time”)on the date set forth in the Certificate of Merger as the “Future EffectiveDate”, or, if no such date is set forth in the Certificate of Merger, at thetime the Certificate of Merger is filed with and accepted by the Secretary ofState of the State of California.

2.2           Effect of the Merger.  At the EffectiveTime, the effect of the Merger shall be as provided in the applicableprovisions of the California Code. Without limiting the generality of the foregoing, and subject thereto,at the Effective Time, all the property, rights, privileges, powers and franchisesof the Company and Sub (the “ConstituentEntities”) shall vest in the Surviving Entity, and all debts,liabilities and duties of the Company and Sub shall become the debts,liabilities and duties of the Surviving Entity.

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2.3           Conversion of Company Shares; Merger Consideration. Subject to the terms and conditions of this Agreement, as of theEffective Time, by virtue of the Merger and without any action on the part ofHoldings, Sub, the Company or the holder of Company Shares the following shalloccur:

(a)           Each Company Share issued and outstanding immediatelyprior to the Effective Time will be canceled and extinguished and be convertedautomatically into the right to receive, upon surrender of the certificaterepresenting such Company Share in the manner provided in Section 2.8(a),an amount in cash and Holdings Stock, as provided in Section 2.3(d),equal to the Merger Consideration (as defined in Section 2.3(b)),divided by the total number of Company Shares outstanding immediately prior tothe Effective Time.

(b)           The merger consideration for the Company Shares to beconveyed hereunder (the “Merger Consideration”) shall be an amount equalto the difference between (a) $144,000,000 and (b) the Indebtedness as of theClosing Date.  Assuming, by way ofexample only, Indebtedness as of the Closing Date of $40 million,the Merger Consideration would be $104 million (i.e. $144 million minus $40million).

(c)           Not less than three (3) business days prior to theClosing Date, Holdings, Company and Shareholders shall execute the certificateattached as Exhibit G hereto, to document the Indebtedness as of theClosing Date, and the resulting Merger Consideration (the “MergerConsideration Certificate”).

(d)           The Merger Considerationshall be payable at Closing, (a) one-half in cash plus (b) one-half in HoldingsStock, with the number of shares of Holdings Stock calculated as follows:

(i)            That number of shares of Holdings Common Stock whichis equal to 19.9% of the total number of issued and outstanding shares of HoldingsCommon Stock immediately prior to the Effective Time (with each share ofHoldings Common Stock valued, for this purpose, at $5.00 per share (the “MeasurementPrice”); and

(ii)           That number of shares of Holdings Preferred Stockwhich is equal to ([(x) minus (y)] divided by (z)) where (x) equals one-half ofthe Merger Consideration, (y) equals the number of shares of Holdings CommonStock issued upon the Closing Date pursuant to subsection (i) above multipliedby the Measurement Price, and (z) equals the Original Issue Price (as such termis defined in the Certificate of Designation).

Forpurposes of example only, assuming that (a) the Merger Consideration is $104million, (b) the Original Issue Price is $25.00 per share, and (c) immediatelyprior to the Effective Time the total number of issued and outstanding sharesof Holdings Common Stock is 9,515,000, then (x) will equal $52,000,000 (i.e. 1⁄2of $104,000,000), (y) will equal $9,467,425 (i.e. 1,893,485 shares(representing 19.9% of 9,515,000) multiplied by $5.00 per share); (z) willequal $25.00; (x) minus (y) will equal $42,532,575 (i.e. $52,000,000 minus$9,467,425); and ([(x) minus (y)] divided by (z)) will equal 1,701,303 (i.e.$42,532,575 divided by $25.00).  Therefore,the Merger Consideration would be payable at Closing in the form of $52 millionin cash; 1,893,485 shares of Holdings Common Stock; and 1,701,303 shares ofHoldings Preferred Stock.

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(e)           The Merger Consideration shall be allocated inaccordance with Schedule 2.3(e) of this Agreement.

(f)            Each certificate evidencing any shares of HoldingsCommon Stock to be issued as part of the Merger Consideration shall bear thefollowing legend:

“THE SECURITIESEVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACTOF 1933, AS AMENDED, AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION FROMTHE REQUIREMENTS FOR SUCH REGISTRATION FOR NONPUBLIC OFFERINGS.  ACCORDINGLY, THE SALE, TRANSFER, PLEDGE,HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES EVIDENCED HEREBY OR ANYPORTION THEREOF OR INTEREST THEREIN, MAY NOT BE ACCOMPLISHED IN THE ABSENCE OFAN EFFECTIVE REGISTRATION STATEMENT UNDER THAT ACT OR AN OPINION OF COUNSELSATISFACTORY IN FORM AND SUBSTANCE TO THE COMPANY TO THE EFFECT THAT SUCHREGISTRATION IS NOT REQUIRED.”

(g)           All Holdings Common Stock issued as part of the MergerConsideration (including Holdings Common Stock issuable (subject to Section 8.2 below) upon conversion of HoldingsPreferred Stock) shall be entitled to registration rights pursuant to the termsand conditions of that Registration Rights Agreement attached as Exhibit H(the “Registration Rights Agreement”).

2.4           Membership Interests of Sub. Each membership interest of Sub issued and outstanding immediately priorto the Effective Time shall remain unchanged as a membership interest of theSurviving Entity.

2.5           Articles of Organization, Operating Agreement.

(a)           Unless otherwise determined by Holdings prior to theEffective Time, at the Effective Time, the Articles of Organization of Subshall be the Articles of Organization of the Surviving Entity until thereafteramended; provided, however, that pursuant to the Certificate of Merger, thename of the Surviving Entity shall be changed to “Alta Hospitals System, LLC”.

(b)           The Operating Agreement of Sub, as in effectimmediately prior to the Effective Time, shall be the Operating Agreement ofthe Surviving Entity until thereafter amended.

2.6           Managers and Officers.  From andafter the Effective Time, the managers of the Surviving Entity shall consist ofthe individuals identified on Exhibit I attached hereto until replacedin accordance with the Surviving Entity’s Articles of Organization andOperating Agreement.  From and after theEffective Time, the officers of the Surviving Entity shall consist of the individualsidentified on Exhibit J attached hereto until replaced in accordancewith the Surviving Entity’s Operating Agreement.

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2.7           Closing.  The closingof the transactions contemplated by this Agreement (the “Closing”) willtake place at the offices of Theodora Oringher Miller & Richman P C, 2029Century Park East, 6th Floor, Los Angeles, California, or such otherplace as shall be mutually agreed upon by the parties hereto, at10:00 a.m., Pacific Time, on the earliest practicable day following thesatisfaction (or due waiver) of the conditions set forth in Articles IX and Xor such other date as may be mutually agreed upon by the parties hereto.  The date on which the Closing takes place isreferred to herein as the “Closing Date.”  The Closing shall be deemed to have occurredand to be effective as between the parties as of the Effective Time.

2.8           Closing Deliveries.  At theClosing, the following events will occur:

(a)           Exchange Procedures.  TheShareholders will deliver to Holdings certificates representing the CompanyShares and the Acquired Subsidiary Shares in exchange for receipt of suchShareholder’s pro-rata share of the Merger Consideration.  Until so surrendered, each outstandingcertificate that, prior to the Effective Time, represented Company Shares, willbe deemed from and after the Effective Time, for all corporate purposes, toevidence only the right to receive the Merger Consideration specified above,without interest.

(b)           Payment for Company Shares. At the Closing, Holdings shall deliver to the Shareholders the MergerConsideration (a) one-half in immediately available funds by electronic wiretransfer to an account or accounts designated by Shareholders and (b) the otherhalf in Holdings Stock in accordance with Section 2.3(d) above by issuance of certificatesrepresenting the appropriate number of shares of Holdings Common Stock andHoldings Preferred Stock, or, alternatively at the option of Holdings, throughthe delivery by Holdings to its transfer agent of irrevocable instructions forthe issuance and delivery by the transfer agents to the Shareholders of suchcertificates not later than seven (7) business days following the Closing.

(c)           Legal Opinions.

(i)            The Company shall cause an original opinion ofStrategic Law Partners, LLP, counsel for the Company and the Shareholders, tobe delivered to Holdings as contemplated by Section 9.6; and

(ii)           Holdings shall cause an original opinion of TheodoraOringher Miller & Richman P C, counsel for Holdings, to be delivered toShareholders as contemplated by Section 10.10.

(d)           Closing Certificates and Documents.

(i)            The Company shall deliver the other certificates anddocuments required to be delivered by the Company pursuant to Article IX;and

(ii)           Holdings shall deliver the other certificates and documentsrequired to be delivered by Holdings pursuant to Article X.

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2.9           No Further Ownership Rights in Company Shares. All Merger Consideration paid upon the surrender for exchange of CompanyShares in accordance with the terms hereof shall be deemed to have been issuedin full satisfaction of all rights pertaining to such Company Shares, and thereshall be no further registration of transfers on the records of the SurvivingEntity of Company Shares which were outstanding immediately prior to the EffectiveTime.  If, after the Effective Time,certificates representing Company Shares are presented to the Surviving Entityfor any reason, they shall be cancelled and exchanged as provided in thisArticle II.

2.10         Lost, Stolen or Destroyed Certificates. In the event any certificates evidencing Company Shares shall have beenlost, stolen or destroyed, Holdings shall issue in exchange for such lost,stolen or destroyed certificates, upon the making of an affidavit of that factby the holder thereof, such Merger Consideration as may be required pursuant toSection 2.3, provided, however, that Holdings may, in its discretion andas a condition precedent to the issuance thereof, require the owner of suchlost, stolen or destroyed certificates to deliver a bond in customary amount asindemnity against any claim that may be made against Holdings with respect tothe certificates alleged to have been lost, stolen or destroyed.

2.11         Tax and Accounting Consequences. Each party has consulted with its own tax advisors and accountants withrespect to the tax and accounting consequences, respectively, of the Merger.

**ARTICLEIIIREPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS**

Each Shareholder hereby,severally as to himself or itself only and not jointly with or as to the otherShareholder, represents and warrants to Holdings and Sub (subject to thelimitations and exemptions disclosed in the correspondingly numbered disclosureschedules prepared by Shareholders and the Company and delivered to Holdingsprior to the execution of this Agreement (the “Company Disclosure Schedules”))as of the date hereof that:

3.1           Title to the Company Shares. (i) each Shareholder has good and valid title to, and owns, beneficiallyand of record, that number of Company Shares set forth opposite his, her, orits name on Schedule 3.1, which in each case constitutes 50% of alloutstanding Shares of the Company; (ii) the Company Shares owned by suchShareholder are free and clear of all Encumbrances; (iii) each Shareholderhas full voting power over the Company Shares, subject to no proxy,shareholders’ agreement, voting trust or other agreement relating to the votingof any of the Company Shares; and (iv) other than this Agreement, there isno agreement between such Shareholder or any of its Affiliates and any otherPerson with respect to the disposition of the Company Shares.

3.2           Organization and Power.  Ifapplicable, Shareholder is a corporation, limited liability company,partnership or trust duly organized or formed, validly existing, and in good standingunder the Laws of the jurisdiction of its incorporation or formation and hasall requisite power and authority (corporate, partnership or otherwise) toconsummate the transactions contemplated hereby.  If applicable, Holdings has been furnished withtrue, correct and complete copies of Shareholder’s Constituent Documents, ineach case as amended and in effect on and as of the date this representation isbeing made and is deemed made hereunder.

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3.3                                 Authorization.

(a)                                  Theexecution, delivery and performance by each Shareholder of this Agreement andby each Shareholder of the other agreements to be entered into by suchShareholder pursuant to the terms of this Agreement, and the consummation byeach Shareholder of the transactions contemplated hereby and thereby are withinsuch Shareholder’s powers (corporate or partnership or otherwise), are not incontravention of the terms of such Shareholder’s Constituent Documents, andhave been duly authorized and approved by such Shareholder.  No other corporate, partnership, limitedliability company or other proceedings on the part of each Shareholder arenecessary to authorize the execution, delivery and performance of thisAgreement or the other agreements to be entered into by such Shareholderpursuant to the terms of this Agreement.

(b)                                 ThisAgreement has been duly and validly executed and delivered by eachShareholder.  As of the Closing, theother agreements and Closing documents to be entered into by each Shareholderpursuant to the terms of this Agreement will have been duly and validlyexecuted and delivered by such Shareholder. This Agreement constitutes (and upon their execution and delivery byeach Shareholder, the other agreements and Closing documents to be entered intopursuant to the terms of this Agreement by each Shareholder will constitute)the legal, valid and binding obligations of each Shareholder, enforceableagainst such Shareholder in accordance with their respective terms (assuming thevalid authorization, execution and delivery hereof and thereof by Holdings andSub), subject to bankruptcy, insolvency, reorganization, moratorium and similarLaws of general application relating to or affecting creditors’ rights and togeneral principles of equity.

3.4                                 NoConflicting Agreements; Consents. Neither the execution and delivery of this Agreement or any of the otheragreements to be entered into by either Shareholder pursuant to the terms ofthis Agreement nor the consummation of any of the transactions contemplatedhereby or thereby will:

(a)                                  violate, conflict with, result in a breach ortermination of the terms, conditions or provisions of, constitute a defaultunder, or entitle any party to terminate or accelerate (whether with notice orlapse of time or both as a result of events that occurred on or prior toClosing), (i) the respective Constituent Documents of such Shareholder (ifapplicable), (ii) any Contract or any contract, arrangement,commitment or restriction relating to the issuance, sale, transfer, purchase orobtaining of capital stock or other equity securities of the Company, includingvoting trusts or other agreements relating to the voting of any of the CompanyShares to which such Shareholder is a party; (iii) any Court Order to which either Shareholder is a party orby which either Shareholder is bound, or (iv) any requirements of Lawaffecting either Shareholder;

(b)                                 result in the creation or imposition of anyEncumbrance upon any Company Shares; or

(c)                                  require either Shareholder to obtain any permit, approval, consent orauthorization from, or the making by either Shareholder of any declaration,filing or registration with, any Governmental Authority or other Person(including, but not limited, to any party to an

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agreement with suchShareholder), the failure to obtain or make would have a Business MaterialAdverse Effect, except for the information regarding the Shareholders requiredto be provided in connection with any Healthcare Approvals (as defined inSection 4.4).

3.5                                 InvestmentRepresentations; Restricted Securities. Each Shareholder understands that the offer and sale of Holdings Stock(as a portion of the Merger Consideration) have not been registered under theSecurities Act of 1933, as amended (the “Securities Act”).  Each Shareholder also understands that theHoldings Stock is being offered and sold pursuant to an exemption fromregistration contained in the Securities Act based in part upon suchShareholder’s representations contained in this Section 3.5.

(a)                                  EachShareholder is acquiring Holdings Stock for his, her or its own account forinvestment only, and not with a view towards its distribution. Each Shareholderrepresents that by reason of his, her or its, or of their management’s,business or financial experience, they have the capacity to protect their owninterests in connection with the transactions contemplated in this Agreementand all other agreements pertaining to the consummation of this transaction(the “Transaction Documents”). Further, such Shareholder is not aware ofany publication of any advertisement in connection with the transactionscontemplated in the Transaction Documents. Each Shareholder represents that he, she or it is an accredited investorwithin the meaning of Regulation D under the Securities Act.

(b)                                 EachShareholder acknowledges and agrees that the shares of Holdings Stock issued aspart of the Merger Consideration are “restricted securities” as defined in Rule144 promulgated under the Securities Act as in effect from time to time andmust be held indefinitely unless they are subsequently registered under theSecurities Act or an exemption from such registration is available, and willbear a legend to this effect.  EachShareholder has been advised or is aware of the provisions of Rule 144, whichpermits limited resale of shares purchased in a private placement subject tothe satisfaction of certain conditions, including, among other things: theavailability of certain current public information about the issuer (Holdings),the resale occurring following the required holding period under Rule 144 andthe number of shares being sold during any three-month period not exceedingspecified limitations.

3.6                                 Brokers.  Neither Shareholder nor any of its Affiliateshas paid or become obligated to pay any fee or commission to any broker, finderor intermediary for or on account of the transactions contemplated by thisAgreement.

3.7                                 NoAgreements.  The Shareholders have nobinding written contract or agreement with each other with respect to thevoting of the Holdings Stock or the giving or withholding of proxies relatingthereto.

**ARTICLE IVREPRESENTATIONS AND WARRANTIES OF THE ACQUIRED ENTITIES**

The Acquired Entities represent and warrant toHoldings and Sub (subject to the limitations and exemptions disclosed in thecorrespondingly numbered Company Disclosure Schedules) as of the date hereof(or, if made as of a specified date, as of such date) that:

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4.1                                 Organizationand Capitalization of the Company.

(a)                                  TheCompany (i) is a corporation duly organized, validly existing and in goodstanding under the Laws of the state of California and (ii) has thecorporate power and authority to own or lease and to operate its assets and toconduct its business as currently conducted.

(b)                                 Schedule4.1 sets forth the authorized capital stock of the Company and indicatesthe number of issued and outstanding shares of the Company (such issued andoutstanding shares of the Company, the “Company Shares”), together withthe par value, if applicable.  TheCompany Shares have been duly authorized and validly issued and are fully paidand non-assessable.  Except for theCompany Shares, there are no outstanding equity securities of the Company,including (i) securities which are convertible into or exchangeable forany capital stock of the Company, (ii) contracts, arrangements,commitments or restrictions relating to the issuance, sale, transfer, purchaseor obtaining of capital stock or other equity securities of the Company,including voting trusts or other agreements relating to the voting of any ofthe Company Shares, or (iii) options, warrants, rights, calls orcommitments of any character granted or issued by the Company governing theissuance of shares of its capital stock.

(c)                                  Allof the Company Shares are held, beneficially and of record, by the Shareholdersas set forth on Schedule 4.1 without Encumbrances except as otherwiseset forth thereon.

(d)                                 NoPerson has any preemptive right to purchase any equity security of the Company,and other than the Company Shares, there are no outstanding equity securitiesin the Company giving the owner or holder thereof the right to vote on anymatters on which shareholders of the Company may vote.

4.2                                 Organizationand Capitalization of the Acquired Subsidiaries.

(a)                                  Exceptas set forth on Schedule 4.2, and except for the Acquired Subsidiaries,the Acquired Entities do not directly or indirectly own, of record orbeneficially, any equity security of any Person.

(b)                                 EachAcquired Subsidiary is a corporation duly organized, validly existing and ingood standing under the Laws of the State of California, and (ii) has thecorporate power and authority to own or lease and to operate its assets and toconduct its business as currently conducted.

(c)                                  Schedule4.2 sets forth the authorized capital stock of each Acquired Subsidiary andindicates the number of issued and outstanding shares of such AcquiredSubsidiary (such issued and outstanding shares for both of the AcquiredSubsidiaries, the “Acquired Subsidiary Shares”), together with the parvalue for each, if applicable.  TheAcquired Subsidiary Shares have been duly authorized and validly issued and arefully paid and non-assessable.  Exceptfor the Acquired Subsidiary Shares, there are no outstanding equity securitiesof either of the Acquired Subsidiaries, including (i) securities which areconvertible into or exchangeable for any capital stock of an AcquiredSubsidiary, (ii) contracts, arrangements, commitments or restrictionsrelating to the issuance, sale, transfer, purchase or obtaining of capitalstock or other equity securities of an Acquired Subsidiary, or(iii) options, warrants,rights, calls or commitments of any charactergranted or issued by an Acquired Subsidiary governing the issuance of shares ofits capital stock.

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(d)                                 (i)The Company has good and valid title to, and owns, all of the AcquiredSubsidiary Shares, beneficially and of record; (ii) the Acquired SubsidiaryShares are free and clear of all Encumbrances, (iii) the Company has fullvoting power over the Acquired Subsidiary Shares, subject to no proxy,shareholders’ agreement, voting trust or other agreement relating to the votingof any of the Acquired Subsidiary Shares; and (iv) other than this Agreement,there is no agreement between either the Company or the Shareholders and anyother Person with respect to the disposition of the Acquired Subsidiary Sharesor otherwise relating to the Acquired Subsidiary Shares.

(e)                                  NoPerson has any preemptive right to purchase any equity security in either ofthe Acquired Subsidiaries, and other than the Acquired Subsidiary Shares, thereare no outstanding equity securities in either of the Acquired Subsidiariesgiving the owner or holder thereof the right to vote on any matters on whichshareholders of the applicable Acquired Subsidiary may vote.

4.3                                 Authorization.

(a)                                  Theexecution, delivery and performance by the Company of this Agreement and theother agreements to be entered into by the Company pursuant to the terms ofthis Agreement, and the consummation by the Company of the transactionscontemplated hereby and thereby are within the Company’s corporate powers, arenot in contravention of the terms of the Company’s Constituent Documents, andhave been duly authorized and approved by the board of directors andshareholders of the Company.  No othercorporate proceedings on the part of the Company are necessary to authorize theexecution, delivery and performance of this Agreement or the other agreementsto be entered into by the Company pursuant to the terms of this Agreement.

(b)                                 ThisAgreement has been duly and validly executed and delivered by the Company and,as of the Closing, the other agreements to be entered into by the Companypursuant to the terms of this Agreement will have been duly and validlyexecuted and delivered by the Company. This Agreement constitutes, and upon its execution and delivery by theCompany, such other agreements will constitute, the legal, valid and bindingobligations of the Company, enforceable against the Company in accordance withtheir respective terms (assuming the valid authorization, execution anddelivery hereof and thereof by Holdings and Sub), subject to bankruptcy,insolvency, reorganization, moratorium and similar Laws of general applicationrelating to or affecting creditors’ rights and to general principles of equity.

4.4                                 NoConflicting Agreements; Consents. Neither the execution and delivery of this Agreement or any of the otheragreements to be entered into by the Company or any other Acquired Entitypursuant to the terms of this Agreement nor the consummation of any of thetransactions contemplated hereby or thereby will:

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(a)                                  Exceptas set forth on Schedule 4.4, violate, conflict with, result in a breachor termination of the terms, conditions or provisions of, constitute a default(or trigger change of control provisions) under, or entitle any party toterminate or accelerate (whether with notice or lapse of time or both as aresult of events that occurred on or prior to Closing), (i) the respectiveConstituent Documents of the Acquired Entities, (ii) any MaterialContract, (iii) any Court Order to which any of the Acquired Entities is aparty or by which any of the Acquired Entities is bound, or (iv) anyrequirements of Law affecting any of the Acquired Entities, except where suchviolation, conflict, breach, termination or default (other than with respect toclause (i) above) would not result in a Business Material Adverse Effect;

(b)                                 resultin the creation or imposition of any Encumbrance upon any of the assets of anyAcquired Entity (except for Permitted Encumbrances); or

(c)                                  requireany of the Acquired Entities to obtain any permit, approval, consent orauthorization from, or the making by any of the Acquired Entities of anydeclaration, filing or registration with, any Governmental Authority or otherPerson (including, but not limited to, any party to a Material Contract withthe Acquired Entities) the failure to obtain or make would have a BusinessMaterial Adverse Effect, except (i) as provided in Schedule 4.4, (ii)the filing of the Certificate of Merger with the Secretary of State of theState of California on the Closing Date, (iii) the filing under the HSR Act,and (iv) any Healthcare Approvals (as hereinafter defined).  For purposes of this Agreement, “HealthcareApprovals” shall mean all licenses, permits, certificates, no objectionletters, clearances and other authorization of, or notices to or filings with,any Governmental Authority which are or may be required to be made by anyAcquired Entity under any Healthcare Laws (as hereinafter defined) inconnection with this Agreement.  Forpurposes of this Agreement, “Healthcare Laws” shall mean all Laws, federal andCalifornia statutes, codes, regulations, orders and rules of any GovernmentalAuthorities having jurisdiction over general acute care hospitals in Californiawhich are generally applicable to, or regulate, the ownership and operation of,or changes in ownership or operation of, or provision of any services by, ageneral acute care hospital in California, or which relate to the right of ageneral acute care hospital in California to participation in, or receivereimbursement for services from, the Medicare and Medi-Cal programs or othergovernmental or private third party payors.

4.5                                 FinancialStatements.

(a)                                  Schedule4.5(a) contains true, correct and complete copies of the following: (i) theaudited consolidated balance sheet of the Acquired Entities as ofDecember 31, 2006 (the “2006 Balance Sheet”) and December 31,2005 and the related consolidated statements of income and cash flows for thefiscal years then ended, and for the fiscal year ended December 31, 2004,including any footnotes and schedules thereto (such audited balance sheets andrelated documents are collectively referred to as the “Year End AuditedFinancial Statements”); and (ii) the unaudited consolidated balancesheet of the Acquired Entities as of April 30, 2007 (the “Interim BalanceSheet”) and the unaudited consolidated statements of income and cash flowsfor the four-month period then ended, including any and all footnotes andschedules thereto (all of the foregoing, including the Interim Balance Sheet,being collectively referred to as the “Interim Financial Statements”).  The Year End Audited Financial Statements andthe Interim Financial Statements are collectively referred to as the “HistoricalFinancial Statements”).

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(b)                                 TheHistorical Financial Statements are true, correct and complete in all materialrespects.  The Historical FinancialStatements have been prepared in all material respects in accordance withgenerally accepted accounting principles (“GAAP”) consistently appliedthroughout the periods covered thereby (except *(x)*as may be otherwise indicated in such Historical Financial Statements or thenotes thereto, or *(y)* in the case of the InterimFinancial Statements, to the extent they may exclude footnotes or may becondensed or summary statements) and, fairly present in all material respectsthe financial position of the Acquired Entities as of the respective datesthereof and the results of their operations for the respective periods thenended (subject, in the case of the unaudited statements, to normal year-endaudit adjustments and to any other adjustments expressly described therein,including the notes thereto).  TheHistorical Financial Statements have been prepared in accordance with the Booksand Records of the Acquired Entities, which Books and Records are true, correctand complete in all material respects and have been maintained in a mannerconsistent with historical practice.

(c)                                  TheAcquired Entities will be Solvent as of the Effective Time.  For purposes of this Section 4.5(c), the term“Solvent” means, as to the Acquired Entities (expressly excluding the DebtFinancing) (a) the amount of the fair saleable value of the assets of theAcquired Entities, taken as a whole, exceeds, as of such date, the sum of (i)the value of all liabilities of the Acquired Entities, taken as a whole,including contingent and other liabilities, as of such date, as such quotedterms are generally determined in accordance with the applicable federal Lawsgoverning determinations of the solvency of debtors, and (ii) the amount thatwill be required to pay the probable liabilities of the Acquired Entities,taken as a whole on its existing debts (including contingent liabilities) assuch debts become absolute and matured; (b) the Acquired Entities will nothave, as of such date, an unreasonably small amount of capital for theoperation of the business in which they are engaged or proposed to be engagedfollowing such date; and (c) the Acquired Entities will be able to pay theirliabilities, including contingent and other liabilities, as they mature.

4.6                                 Absenceof Undisclosed Liabilities; No Missing Assets.

(a)                                  Exceptas set forth on Schedule 4.6 or on any other Company Disclosure Schedule, noAcquired Entity has any material liabilities of any nature except for (i)liabilities reflected or reserved against in the Historical FinancialStatements, (ii) liabilities incurred in the ordinary course of the Businesssince April 30, 2007 (the “Interim Balance Sheet Date”), and (iii)liabilities incurred in connection with the transactions contemplated by thisAgreement.

4.7                                 Absenceof Changes.

(a)                                  SinceDecember 31, 2006 (the “2006 Year End Balance Sheet Date”), there hasnot been any occurrence in which the Acquired Entities has suffered anymaterial damage, destruction or loss with respect to the assets of any AcquiredEntity or Hospital.

(b)                                 Exceptas set forth on Schedule 4.7(b), since the 2006 Year End Balance Sheet Date,except for the transactions contemplated hereby, there has not been anytransaction or occurrence in which any of the Acquired Entities, has:

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(i)                                     suffereda Business Material Adverse Effect and the Company does not have Knowledge of anyfact or circumstance reasonably likely to cause a Business Material AdverseEffect;

(ii)                                  determinedas collectible any account receivable or any portion thereof which waspreviously considered uncollectible, or written off as uncollectible anyaccount receivable or any portion thereof, except for write-downs, write-ups,and write-offs in the ordinary course of business;

(iii)                               disposedof or permitted to lapse any material right to the use of any IntellectualProperty;

(iv)                              sold,transferred or otherwise removed or disposed of any assets of the Hospitalsexcept in the ordinary course of business;

(v)                                 grantedor incurred any obligation for any increase in the compensation of any employeewho is employed by any of the Acquired Entities (including any increasepursuant to any bonus, insurance pension, profit-sharing, retirement, or otherplan or commitment) except in the ordinary course of business;

(vi)                              madeany material change in any method of accounting or accounting principle,practice, or policy;

(vii)                           terminatedor amended any Material Contract, Lease or other agreement to which anyAcquired Entity is a party, other than in the ordinary course of business;

(viii)                        had aGovernmental Authority revoke, cancel, rescind, modify or refuse to renew anyMaterial Permit of such Acquired Entity;

(ix)                                mortgaged,pledged or imposed any lien or encumbrance on the assets of any Acquired Entityin excess of $25,000 in the aggregate;

(x)                                   initiatedor settled any Proceeding before any court or Governmental Authority;

(xi)                                takenany other action neither in the ordinary course of business nor provided for inthis Agreement; or

(xii)                             agreed,so as to legally bind Holdings, Sub or the Acquired Entities, whether inwriting or otherwise, to take any of the actions set forth in this Section 4.7(b)and not otherwise permitted by this Agreement.

(c)                                  Exceptas set forth on Schedule 4.7(c), since the 2006 Year End Balance Sheet Date,except for the transactions contemplated hereby:

(i)                                     noneof the Acquired Entities has amended its respective Constituent Documents;

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(ii)                                  therehas been no change in the number or amount of authorized or issued capitalstock of any of the Acquired Entities; nor has any other equity security of anykind been granted or issued by any of the Acquired Entities; nor has theCompany entered into or permitted any of the Acquired Subsidiaries to enterinto any other agreement with respect to any equity security of the AcquiredEntities;

(iii)                               theCompany has not declared or paid dividends or made any other distributions inrespect of the Company Shares;

(iv)                              theAcquired Entities have not made or entered into any commitment to make anycapital expenditure at the Hospitals or otherwise on behalf of such AcquiredEntities in an aggregate amount greater than $25,000;

(v)                                 theAcquired Entities have not (A) incurred any indebtedness for borrowedmoney, other than intercompany indebtedness which will be paid in full andterminated at Closing in accordance with Section 6.7 hereof;(B) assumed, guaranteed, endorsed or otherwise become liable orresponsible for the obligations of any Person other than another AcquiredEntity; (C) made any loans, advances or capital contributions to, orinvestments in, any Person other than another Acquired Entity, other thanintercompany loans which will be forgiven at Closing in accordance with Section 6.7hereof; or (D) made any commitments to do any of the foregoing;

(vi)                              theAcquired Entities have maintained the insurance for the Hospitals and theBusiness in full force and effect;

(vii)                           noAcquired Entity has agreed, whether in writing or otherwise, to take any of theactions set forth above or described in Section 4.7(b) and nototherwise permitted by this Agreement.

4.8                                 MaterialContracts.

(a)                                  Copiesof all Material Contracts have been provided or will be provided to Holdingsduring the Holdings Due Diligence Period, but in no event later than 10 daysafter the execution of this Agreement.  Schedule 4.8(a)hereto sets forth a complete and accurate list of all Material Contracts.

(b)                                 EachMaterial Contract to which an Acquired Entity is bound is valid, binding andenforceable in all material respects against the applicable Acquired Entityand, to the Company’s Knowledge, against third parties, and the applicableAcquired Entity has duly performed in all material respects its obligationsunder each Material Contract to which it is a party (to the extent that suchobligations to perform have accrued), subject, in each case, to bankruptcy,insolvency, reorganization, moratorium and similar Laws of general applicationrelating to or affecting creditors’ rights and to general principles of equity.

(c)                                  Noneof the Acquired Entities are in default (nor would they be in default withnotice or lapse of time or both as a result of events that have occurred) underany Material Contract.

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(d)                                 Nopurchase commitment by any Acquired Entity is in excess of its respectiveordinary business requirements.

(e)                                  Exceptfor Permitted Encumbrances, no Encumbrance exists on any interest created underany of the Material Contracts.

4.9                                 AccountsReceivable.  The accounts receivableincluded in the Interim Balance Sheet and all accounts receivable of theAcquired Entities incurred subsequent to the Interim Balance Sheet Date andreflected on the books and records of the Acquired Entities, to the extentuncollected as of the Effective Time, are or will be, as the case may be, validand existing and represent monies due for goods sold and delivered and servicesperformed in the ordinary course of business.

4.10                           RealProperty.

(a)                                  TheReal Property is accurately described in Schedule 4.10(a) and includesall real estate owned, leased, used or held for use in connection with theBusiness.

(b)                                 TheAcquired Entities hold fee title to all the Real Property described in Schedule4.10(a) except where a leasehold or other interest is specifically notedthereon.

(c)                                  Noneof the Acquired Entities has allowed the creation of, suffered, assumed, oragreed to any Encumbrance (other than Permitted Encumbrances) on the RealProperty.

(d)                                 Thecurrent use of the Real Property, and the number of parking spaces on the RealProperty, comply with applicable zoning laws, rules and regulations, theviolation of which would result in a Business Material Adverse Effect.  The buildings and improvements constitutingthe Hospitals on the Real Property are in compliance with all applicable publichealth, fire safety or building codes and regulations, the violation of whichwould result in a Business Material Adverse Effect.  Certificates of occupancy and/or use havebeen duly issued by the applicable Governmental Authority having jurisdictionfor all of the Hospitals.

(e)                                  Tothe Company’s Knowledge, the Real Property is not subject to any conditions,restrictions, ordinances, or other limitations that would make such propertyunusable for its current use or the title to such property unmarketable, orwhich materially restrict or impair the current use of the Real Property, orwhich would materially affect the value of the Real Property or operations ofthe Business.

(f)                                    Tothe Company’s Knowledge, no part of the Real Property is subject to anyexisting, proposed or contemplated plans to modify or realign any street orhighway or any existing, proposed or contemplated condemnation proceeding thatwould result in the taking of all or any part of the Real Property or thatwould adversely affect the current use of any of the Hospitals or any materialpart thereof.  To the Knowledge of theCompany, there are no existing or contemplated public improvements which willresult in special assessments against the Real Property.

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(g)                                 Thereare no outstanding options to purchase, rights of first offer, rights of firstrefusal or any similar rights to purchase any parcel of the Real Property ownedby the Acquired Entities, or any portion thereof or interest therein.

(h)                                 Tothe Company’s Knowledge, (i) the lessors named in the respective leases ofthe leased Real Property (under which an Acquired Entity is the lessee) are thefee owners of the Real Property leased thereunder except as otherwise providedin the Leases; and (ii) except as set forth in each Lease, none of theLeases under which an Acquired Entity is the lessor is subject to any option torenew, options to purchase, rights of first refusal, rights of first offer orany similar rights.

(i)                                     Withrespect to any of the Leases under which an Acquired Entity is the lessor, (i)no tenant is entitled to any rebate, concession or free rent, other than as setforth in the Lease or Contract with such tenant; (ii) no commitments have beenmade to any tenant for material repairs or improvements other than for normalrepairs and maintenance in the future except as otherwise provided in the Leaseor Contract; (iii) the Acquired Entity’s obligations as lessor for any suchcommitments for material repairs or improvements in the future that haveaccrued have been fully performed; (iv) no rents due under any leases withtenants have been assigned or hypothecated to, or encumbered by, the lessor,and (v) no broker’s commission is payable by the Acquired Entities as a resultof the consummation of the transactions in this Agreement except as provided inthe Leases.  Schedule 4.8(a)includes all Leases and amendments thereto.

(j)                                     Thereis no pending or, to the Company’s Knowledge threatened, litigation orgovernmental action which would materially adversely affect the value of theReal Property or the right of Sub to acquire the Real Property.

(k)                                  Tothe Company’s Knowledge, no facts or conditions exist which would result in thetermination of the current access from the Real Property to any currentlyexisting highway or road adjoining, or situated on, the Real Property, or toany existing sewer or other utility facility servicing, adjoining, or situatedon the Real Property.

(l)                                     Thereare no adverse or other parties in possession of the Real Property, or anyparty thereof except the Acquired Parties and any tenant.

(m)                               Noneof the Acquired Entities is a “foreign person” as defined in Section 1445 ofthe Code.

4.11                           PersonalProperty.

(a)                                  TheAcquired Entities are in possession of and have good title to, or have validleasehold interests in or valid rights under contract to use, free and clear ofany Encumbrance, excepting Permitted Encumbrances and Encumbrances set forth onSchedule 4.11, all of the personal property used by the AcquiredEntities in the conduct of the Business, including all Books and Records andall personal property reflected on the Historical Financial Statements and allof the personal property purchased or otherwise acquired for use in theBusiness since the Interim Balance Sheet Date, other than personal propertydisposed (and replaced if such replacement would have been done in the ordinarycourse of business) since the Interim Balance Sheet Date in the ordinary courseof business.

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(b)                                 Thereare no outstanding rights (including purchase options, rights of first refusal,rights of first offers, agreements or other commitments made by the Company orany of its Affiliates) that give any Person a current or future right to requirethe Acquired Entities to sell or transfer to a third party any materialinterests in the personal property owned by them.

4.12                           Employees;Labor Matters; Company Plans; ERISA.

(a)                                  (i) TheAcquired Entities are not a party to, or bound by, any collective bargainingagreement, contract or other agreement or understanding with a labor union orlabor organization other than as set forth on Schedule 4.12(a);(ii) there is no unfair labor practice or labor arbitration proceedingpending, or to the Company’s Knowledge, threatened against any of the AcquiredEntities relating to the Business; (iii) to the Company’s Knowledge,except as specifically set forth on Schedule 4.12(a), there are noorganization efforts with respect to the formation of a collective bargainingunit presently being made or threatened involving employees of the Business;and (iv) there is no labor strike, material slowdown or material work stoppageor lockout actually pending or, to the Company’s Knowledge, threatened againstor affecting the Business, and the Business has not experienced any strike,material slowdown or material work stoppage or lockout.

(b)                                 Schedule 4.12(b)contains a list of each Company Plan. There is no Multiemployer Plan under which any employee of the Businesshas any present or future right to benefits or under which any Acquired Entityhas any present or future liability.  Forany Company Plan that is a “defined benefit plan,” as defined in section 414(j)of the Code (collectively, the “Pension Plans”), the funded status ofeach Pension Plan is disclosed on Schedule 4.12(b).  With respect to the Pension Plans and theCompany Retirement Plan, for purposes of section 412 of the Code, the annualminimum funding requirements have been timely satisfied, there are no accumulatedfunding deficiencies and no funding waiver has been applied for.  There is no Pension Plan under which anyemployee of the Business or any Acquired Entity has any present or future rightto benefits.  No Acquired Entity has anypresent or future liability with respect to any Pension Plan.

(c)                                  Exceptas set forth on Schedule 4.12(c), any contributions, including salarydeferrals, required to be made under the terms of the Company Plans as of thedate of this Agreement have been made in a timely fashion.

(d)                                 Exceptas provided in Schedule 4.12(d), no Company Plans provide for, andno written or oral agreements have been entered into promising or guaranteeing,the continuation of medical, dental, vision, life or disability insurancecoverage for any employees of the Acquired Entities or their beneficiaries forany period of time beyond the earlier of (i) the end of the current planyear or (ii) the termination of employment (except to the extent ofcoverage required under Title I, Part 6 of ERISA (“COBRA”)).  The Company Plans are in material compliancewith the continuation coverage provisions of COBRA.  The Company has provided Holdings or willprovide during the Holdings Due Diligence Period a copy of each Company Planlisted on Schedule 4.12(d).

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(e)                                  Nomaterial changes in the basis for remuneration of employees of the AcquiredEntities have been made, promised or authorized by any of the Acquired Entitiessince the Interim Balance Sheet Date, except in the ordinary course ofbusiness.  Schedule 4.12(e)lists all written employment contracts and agreements relating to the Hospitalsthat provide for employment for a term or restrictions upon any of the AcquiredEntities’ right to terminate employment without any post-termination paymentobligation.  No employment agreement(including, without limitation, any professional services agreement orrecruiting agreement listed on Schedule 4.8(a)) creates or modifiesany Company Plan or promises to provide benefits that cannot be terminated bythe Acquired Entities, or the Holdings without the prior consent of the otherparty thereto and without prior notice.

(f)                                    Exceptas set forth in Schedule 4.12(f), no Company Plan has any unfundedliabilities with respect to any employee of the Business for which the AcquiredEntities have any responsibility or liability, other than for salarycontributions made pursuant to section 401(k) of the Code that have beenwithheld from employees’ compensation but may not have been deposited to suchPlan as a result of such amounts not yet being due.

(g)                                 AnyCompany Plan subject to the qualification requirements of section 401(a) or501(a) of the Code is in material compliance with such qualificationrequirements.

(h)                                 Schedule 4.12(h) sets forth a complete list (as of the dateset forth therein which date is not greater than 5 days prior to the date ofexecution of this Agreement) of the names, positions and current annualsalaries or wage rates of all employees of the Business at the level ofcorporate director or above (for purposes hereof, an employee shall be deemedto be at the director level or above if he or she has the title of Director orVice-President or is the Administrator of a hospital).  All employees of the Business are “at will”.

4.13                           GovernmentProgram Participation/Accreditation.

(a)                                  Allof the Hospitals have historically received Medicare or Medicaid reimbursementand are eligible to receive such payments without restriction (other than asthe result of limitations under the various programs of general applicability)under Title XVIII of the Social Security Act (“Medicare”) and Title XIXof the Social Security Act (“Medicaid”).

(b)                                 EachHospital is a “provider” with valid and current provider agreements and withone or more provider numbers with the federal Medicare and the California stateMedicaid (“Medi-Cal”) programs (the “Government Programs”), and a complete list of all providernumbers is included in Schedule 4.13(b).

(c)                                  Eachof the Hospitals is in compliance in all material respects with the materialconditions of participation in the Government Programs.

(d)                                 Tothe extent that any of the Hospitals has historically received payments underTricare or its predecessor programs, each such Hospital is a “provider” withvalid and current provider agreements and with one or more provider numberswith Tricare and successor programs.  Atrue and correct copy of each of such agreement has been provided to Holdingsor will be provided during the Holdings Due Diligence Period by the Company.

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(e)                                  Thereis not pending or, to the Company’s Knowledge, threatened any proceeding orinvestigation under the Government Programs involving the Business or any ofthe Acquired Entities.

(f)                                    TheCompany has provided Holdings or will provide during the Holdings Due DiligencePeriod true, correct and complete copies of the Hospitals’ most recent Medicareand Medi-Cal certification survey reports (as conducted by either JCAHO or theCalifornia Health and Human Services as the agent of the Government Programs),including any statements of deficiencies and plans of correction.

(g)                                 TheAcquired Entities have filed and caused to be filed all cost reports and allother material reports that are required by Law or contract to have been filedor made with respect to the purchase of services of the Hospitals by thirdparty payors, including Government Programs and other insurance carriers.

(h)                                 TheAcquired Entities are and have been in material compliance with filingrequirements with respect to cost reports of the Hospitals, and such reports donot claim, and none of the Hospitals has received, payment or reimbursement inexcess of the amount provided by applicable law or any applicable agreement,except where excess reimbursement was noted on the cost report.

(i)                                     Trueand correct copies of all such reports for the three (3) most recentfiscal years of the Hospitals have been provided to Holdings or will beprovided during the Holdings Due Diligence Period.  Schedule 4.13(i) indicates whichof such cost reports for cost reporting periods ended within the three mostrecent fiscal years have been audited by the fiscal intermediary and finallysettled.

(j)                                     Tothe Company’s Knowledge, there are no facts or circumstances which mayreasonably be expected to give rise to any material disallowance under any suchcost reports.

(k)                                  Notices of program reimbursement have beenissued by the applicable fiscal intermediary with respect to the cost reportsof the Hospitals for Medicare, Medi-Cal (if required) and Blue Cross (ifrequired) through the periods set forth in Schedule 4.13(i).

(l)                                     Each of the cost reports referenced bySection 4.13(g) was timely filed. Neither Shareholders, nor the Acquired Entities, have received notice ofany material dispute between the Hospitals and the applicable governmentalagency or private entity, or their intermediaries or representatives, regardingsuch cost reports for periods subsequent to the periods specified in Schedule4.13(i).

(m)                               There are no pending, or to the Company’sKnowledge, threatened material claims by any of such programs against theHospitals with respect to the periods set forth in Schedule 4.13(i) orthereafter.

(n)                                 Allof the billing practices with respect to the Hospitals to all third partypayors, including the Government Programs and private insurance companies, havebeen and are in material compliance with all applicable Laws, regulations andpolices of such third party payors and Government Programs.

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(o)                                 TheHospitals have not billed or received any payment or reimbursement in excess ofamounts allowed by Law.

(p)                                 TheHospitals are not obligated and will not become obligated to repay any amountpreviously paid or currently owing to the Shareholders or the Acquired Entitiesby any Governmental or other third party reimbursement agency or program.

(q)                                 Exceptfor JCAHO or licensing deficiencies and plans of correction provided toHoldings as referenced in subsection (r) below, each of the Hospitals for whichsuch accreditation is available is duly accredited with no contingencies by theJCAHO.

(r)                                    TheCompany has provided Holdings or will provide during the Holdings Due DiligencePeriod copies of the JCAHO accreditation survey report and deficiency list foreach of the Hospitals, together with (i) such Hospital’s most recent statementof deficiencies and plan of correction; (ii) the most recent state licensingreport and list of deficiencies, if any; (iii) the most recent fire marshal’ssurvey and deficiency list, if any, and (iv) the corresponding plans ofcorrection or other responses.  Anydeficiencies have been addressed and any plans of corrective action have beenimplemented.

(s)                                  Exceptas specifically set forth on Schedule 4.13(s), no Acquired Entityhas received written notice of any threatened, pending or likely revocation,early termination, suspension or limitation of any such accreditation.

(t)                                    NeitherShareholders nor the Acquired Entities have participated in any transaction inviolation of state or federal anti-kickback, self-referral, or false orfraudulent claims statute.

(u)                                 Tothe Company’s Knowledge, no past or current officers or directors  nor any current employee of the Business hasbeen excluded from participating in any federal health care program (as definedin 42 U.S.C.  Section 1320a-7b(f))

(v)                                 Tothe Company’s Knowledge, none of the Hospitals, or the Acquired Entities’current officers, directors, governing board members, agents or managingemployees (as such term is defined in 42 U.S.C. Section 1320a-5(b)), has beenexcluded from Medicare or any federal health care program (as defined in 42U.S.C. Section 1320a-7b(f)) or been subject to sanction pursuant to 42U.S.C.  Section 1320a-7a or 1320a-8 orbeen convicted of a crime described at 42 U.S.C.  Section 1320a-7b.

4.14                           Taxes.

(a)                                  Eachof the Acquired Entities has duly filed or caused to be filed on its behalf, ina timely manner with the appropriate Governmental Authorities all Returns whichwere required to be filed by or on behalf of the Acquired Entities.  All such Returns were correct and complete inall material respects.  Except as setforth on Schedule 4.14(a), all Taxes of the Acquired Entities (whether or notshown on any Returns) due and owing prior to the date of this

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Agreement have been paidin full or otherwise have been (or will be) adequately reserved for in the YearEnd Audited Financial Statements or the Interim Financial Statements, and allTaxes of the Acquired Entities (whether or not shown on any Returns) due andowing with respect to the period (or portion thereof) after the date of thisAgreement and ending on or before the Closing Date will be incurred in theordinary course of business and will be paid in full to the extent required tobe paid prior to the Closing Date or otherwise adequately reserved for on thebooks and records of the Acquired Entities. Except as set forth in Schedule 4.14(a), there are noEncumbrances on any of the assets of the Acquired Entities with respect toTaxes, other than Permitted Encumbrances.

(b)                                 Withrespect to each of the Acquired Entities, (i) no deficiencies for Taxeshave been claimed, proposed or assessed by any Governmental Authority for whichthe Acquired Entities may have any liability, (ii) there are no pending,or, to the Company’s Knowledge, threatened audits, investigations or claims foror relating to any liability in respect of Taxes with any GovernmentalAuthority, and (iii) there are no matters under discussion by any of theAcquired Entities with any Governmental Authority with respect to Taxes thatmay result in an additional amount of Taxes for which the Acquired Entities mayhave any liability.

(c)                                  Noneof the Acquired Entities has made any payments, is obligated to make anypayments, or is a party to any agreement that under certain circumstances couldobligate it to make any payments that (i) would be considered “excessparachute payments” under Code Section 280G (or any correspondingprovision of state or local law), (ii) that will not be deductible underCode Section 280G (or any corresponding provision of state or local law), or(iii) that would not be fully deductible as a result of Code Section162(m) (or any corresponding provision of state or local law).  None of the Acquired Entities have been aUnited States real property holding corporation within the meaning of Code Section 897(c)(2)during the applicable period specified in Code Section 897(c)(1)(A)(ii).

(d)                                 Nostatute of limitations in respect of Taxes has been waived and no extension oftime with respect to a Tax assessment or deficiency has been agreed to by or onbehalf of the Acquired Entities.

4.15                           Inventory.  The inventory, supplies, food,pharmaceuticals, janitorial and office supplies and other similar disposableslocated at the Hospitals are, as of the date of this Agreement and will be, asof the Effective Time, of a quality and quantity useable in the Business in theordinary course of business.

4.16                           IntellectualProperty.  Schedule 4.16 setsforth all material patents, trademarks, trade names, service marks, tradesecrets, copyrights and other material intellectual property rights andlicenses owned or used by the Acquired Entities and which are necessary toconduct the Business as currently conducted (the “Intellectual Property”).  To the Company’s Knowledge, (i) noinfringement exists by any of the Acquired Entities on the intellectualproperty rights of any other Person that results in any way from the operationsof the businesses of the Acquired Entities, and (ii) there is noinfringing use of any of the Intellectual Property owned by any Acquired Entityby any other Person.  No Court Orders orproceedings are pending, or to the Company’s Knowledge, threatened, against anyof the Acquired Entities that challenge the validity of, or such AcquiredEntity’s ownership of or right to use, any of the Intellectual Property.

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4.17                           Permits;Compliance With Laws.

(a)                                  TheAcquired Entities possess all Material Permits required or necessary to operatethe Business, and all such Permits are valid, and in good standing.

(b)                                 TheAcquired Entities have not violated any of the conditions or provisions oftheir Material Permits, except where such violation would not result in aBusiness Material Adverse Effect.

(c)                                  Trueand complete copies of all Material Permits issued or granted by a GovernmentalAuthority in connection with the current operation of the Business have beenprovided or will be provided to Holdings during the Holdings Due DiligencePeriod.  Such Permits constitute allMaterial Permits necessary for the conduct of the Business and the operation ofthe Hospitals as currently conducted. Each Acquired Entity is the duly authorized holder of such Permits ashave been issued in its name or pursuant to which it is conducting itsbusiness.

(d)                                 Tothe Knowledge of the Company, each Hospital’s pharmacies, laboratories and allother material ancillary departments located at such Hospital or operated forthe benefit of such Hospital (and which are owned or operated by the any of theAcquired Entities any of their Affiliates), which is required to be speciallylicensed, is licensed by the appropriate Governmental Authority.

(e)                                  Schedule 4.17(e)hereto sets forth a complete and accurate list of all Material Permits requiredor necessary to operate the Business as presently conducted.

(f)                                    Betweenthe date of execution of this Agreement and the Closing Date, the AcquiredEntities shall timely file any renewal applications which are routinelyrequired to be filed in order to maintain the Permits in good standing and takeadditional steps after each such filing as is reasonably necessary tofacilitate the renewal process.

(g)                                 EachHospital is in compliance with all Material Permits required by Law.

(h)                                 Thereare no provisions in, or agreements relating to, any such Permits whichpreclude or limit in any respect any Acquired Entity from operating any of theHospitals as they are currently operated.

(i)                                     Thereis not now pending or, to the Company’s Knowledge, threatened, any action by orbefore any Governmental Authority to revoke, cancel, rescind, modify or refuseto renew any of the Material Permits, and all of such Permits are in goodstanding.

(j)                                     Exceptas set forth in Schedule 4.17(j) (and subject to Section 4.18(a) withrespect to Environmental Laws), the Acquired Entities are in compliance withall applicable Laws, policies, guidelines, licenses, certificates, judgments ordecrees of all judicial or Governmental Authorities, except where the failureto be in such compliance did not or would

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not have a BusinessMaterial Adverse Effect.  Except as setforth in Schedule 4.17(j), the Acquired Entities have not been charged withor given notice of, and to the Shareholders’ Knowledge, is not underinvestigation with respect to, any violation of, or any obligation to takeremedial action under, any applicable (i) material Law, policy or guidelinepromulgated, (ii) material license, certificate or certificate of need issued,or (iii) order, judgment or decree entered, by any federal, state, local orforeign court or Governmental Authority relating to the Acquired Entities orthe Business.

4.18                           EnvironmentalConditions.

(a)                                  Tothe Company’s Knowledge, (i) each of the Acquired Entities is in compliancewith all Environmental Laws except where non-compliance would not have aBusiness Material Adverse Effect; and (ii) all operations or activities upon,or any use, occupancy or operation of the Real Property, or any portionthereof, are in compliance with all Environmental Laws except wherenon-compliance would not have a Business Material Adverse Effect;

(b)                                 NoAcquired Entity has stored, manufactured, used, generated or dumped any HazardousSubstances on, in, under or upon any of the Real Property, except for uses andtemporary storage of Hazardous Substances reasonably necessary to the customaryoperation of a general acute care hospital in material compliance withapplicable Environmental Laws;

(c)                                  NoAcquired Entity has ever received any written communication from a GovernmentalAuthority or any other Person that alleges that such Acquired Entity is not inmaterial compliance with Environmental Laws or is otherwise subject to liabilityrelating to Environmental Laws;

(d)                                 Thereis no Environmental Claim pending or, to the Company’s Knowledge, threatenedagainst any Acquired Entity or any of the Real Property, and, to the Company’sKnowledge, no material work, repairs, remedy, remediation, clean-up,construction or capital expenditures are required by any Environmental Lawswith respect to the Real Property in order for the continued lawful use of theReal Property as it has been and is currently used, subject to such exceptionsthat would not have a Business Material Adverse Effect;

(e)                                  Eachof the Acquired Entities is in compliance with OSHA requirements respectingfriable asbestos, if any, located on the Real Property, or any portion thereof,except where non-compliance would not have a Business Material Adverse Effect;and in this regard, each Acquired Entity has properly implemented an operationsand maintenance training program where required for certain of its employees inthe proper handling and removal of asbestos in compliance with OSHArequirements except where non-compliance would not have a Business MaterialAdverse Effect;

(f)                                    (i) Tothe Company’s Knowledge, no portion of the Real Property has ever been used asa landfill, garbage or refuse dump site, waste disposal facility, transferstation or other type of facility for the processing, treatment or disposal ofwaste materials other than in material compliance with applicable EnvironmentalLaws; and (ii) to the Company’s Knowledge, no petroleum hydrocarbons havemigrated on or below the surface of any of the Real Property in amounts thatwould violate any applicable Environmental Laws except for violations thatwould not have a Business Material Adverse Effect;

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(g)                                 Schedule4.18(g) contains a list of all reports, investigations, studies, tests,assessments and inspections of the Real Property concerning its environmentalcondition that are in the possession or control of the Acquired Entities orShareholders (“Environmental Reports”). There are no above or underground storage tanks located on or beneaththe Real Property except as disclosed in the Environmental Reports.  All above or underground storage tankscurrently operated on any of the Real Property by the Acquired Entities, ifany, are in compliance with applicable Environmental Laws, except wherenon-compliance would not have a Business Material Adverse Effect.  For any underground storage tanks which wereformally located on any Real Property, and of which the Company has Knowledge,such tanks were removed or closed in place in compliance with applicableEnvironmental Laws except where non-compliance would not have a BusinessMaterial Adverse Effect, and any remediation work required as a result of anyrelease, leakage or discharge of Hazardous Substances from such tanks orrelated lines has been fully completed in accordance with Environmental Lawsand accepted by the applicable Governmental Authority, subject to suchexceptions that would not have a Business Material Adverse Effect.

4.19                           LegalProceedings, Court Orders.

(a)                                  Schedule 4.19contains an accurate list of and summary description of all actions, suits,proceedings, audits or investigations (“Proceedings”) with respect tothe Hospitals, the Business and the Acquired Entities to which any of theAcquired Entities or their Affiliates is a party which, individually or in theaggregate, have had or would be reasonably likely to have a Business MaterialAdverse Effect.  Other than as set forthin Schedule 4.19, there are no Proceedings pending, or to theCompany’s Knowledge, threatened against any Acquired Entity or its Affiliateswith respect to the Hospitals, the Business or the Acquired Entities which,individually or in the aggregate, have had or would be reasonably likely tohave a Business Material Adverse Effect. Except as specifically set forth on Schedule 4.19, the costs ofdefense, and any amount that may be owing upon any judgment or settlement ofthe matters described on Schedule 4.19 are covered by one or more of theinsurance policies described in Section 4.20, subject only to thecustomary deductibles set forth in such insurance policies.

(b)                                 NoAcquired Entity is subject to any Court Order with respect to the Hospitals,the Business or the Acquired Entities.

4.20                           Insurance.  Schedule 4.20 includes a list ofall insurance policies maintained by or for the benefit of any Hospital orAcquired Entity, including fire and extended coverage and casualty,professional liability, general liability and other forms of insurance.  All of such policies are valid, outstanding,in full force and effect, and enforceable with no premium arrearages.  Except as specifically set forth on Schedules4.20, (i) there is no outstanding written requirement or recommendation byany insurance company that issued any such policy or by any board of fireunderwriters or other similar body (including any Governmental Authority)exercising similar functions which requires or recommends any repairs or otherwork to be done or with respect to any of Hospitals, (ii) the AcquiredEntities have given to their insurer in a timely manner all notices required tobe given under its insurance policies with respect to all

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claims and actionscovered by insurance with respect to the Business and the assets thereof, andno insurer has denied coverage of any such claims or actions or reserved itsrights with respect to or rejected any such claims, and (iii) no AcquiredEntity has (A) received any notice or other written communication from anysuch insurance company canceling or materially amending any of said insurancepolicies with respect to the Business or its assets, and to the Company’sKnowledge no such cancellation or amendment is threatened, or (B) failedto give any required notice or present any claim which is still outstandingunder any of said policies with respect to the Business or its assets.

4.21                           MedicalStaff.  The Company has providedHoldings or will provide during the Holdings Due Diligence Period a true andcorrect copy of the by-laws, and any other rules and regulations, of themedical staff applicable to each of the Hospitals.  There are no pending or, to the Company’sKnowledge, threatened appeals, challenges, disciplinary or corrective actions,disputes, lawsuits or other legal or administrative actions or claims involvingapplicants, current or former medical staff members, or health professionals atany of the Hospitals that would result in a Business Material Adverse Effect,and any appeal periods in respect of any such persons against whom an adverseaction was previously taken have expired.

4.22                           Brokers.  None of the Acquired Entities has paid orbecome obligated to pay any fee or commission to any broker, finder orintermediary for or on account of the transactions contemplated by thisAgreement.

4.23                           Indebtedness.  The Indebtedness, as set forth on the MergerConsideration Certificate, will be true and correct as of the Closing Date.

4.24                           Business.  None of the Acquired Entities is engaged inany business other than the business of owning, leasing, managing or operatingone or more general acute care hospitals, psychiatric care hospitals orambulatory urgent care centers and services incidental thereto.

4.25                           NoOmissions or Misstatements.  To theCompany’s Knowledge, this Agreement and the Schedules hereto delivered by anyor all of the Shareholders and the Acquired Entities do not include any untruestatement of a material fact or omit to state any material fact necessary tomake the statements made in this Agreement by the Shareholders and/or theCompany not misleading.  True and correctcopies of all documents referred to in any Schedule hereto have been madeavailable to Holdings, including amendments, exhibits, schedules, appendices,supplements or modifications thereto or waivers thereunder.

4.26                           NoOther Representations and Warranties. Except for the representations and warranties contained in this ArticleIV, Holdings and Sub acknowledge that neither Shareholders nor the AcquiredEntities (nor any other Person on behalf of Shareholders or the AcquiredEntities) makes any express or implied representation or warranty with respectto the Acquired Entities or with respect to any other information provided toHoldings in connection with the transactions contemplated hereby.

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**ARTICLEVREPRESENTATIONS AND WARRANTIES OF HOLDINGS**

Holdings represents andwarrants to the Shareholders and the Company (subject to the limitations andexemptions disclosed in the corresponding numbered disclosure schedulesprepared by Holdings and delivered to Shareholders and the Company prior to theexecution of this Agreement (the “Holdings Disclosure Schedules”)) as of thedate hereof (or, if made as of a specified date, as of such date) that:

5.1                                 Organization.

(a)                                  Holdings is a corporation duly organized,validly existing and in good standing under the Laws of the State of Delawareand has the corporate power and authority to own or lease and to operate itsassets and to conduct its business as currently conducted.  Sub is a limited liability company dulyorganized, validly existing and in good standing under the Laws of the State ofCalifornia and has the corporate power and authority to own or lease and tooperate its assets and to conduct its business as currently conducted.

(b)                                 Schedule 5.1 sets forth the authorized capital stockof Holdings and indicates the number of issued and outstanding shares ofHoldings, together with the par value. All of Holdings’ outstanding shares have been duly authorized andvalidly issued and are fully paid and non-assessable.  Holdings is the sole member of Sub.  Except as set forth on Schedule 5.1,the membership interests of Sub held by Holdings, and as otherwise disclosed inthe SEC Documents, there are no outstanding equity securities of Holdings orSub, including (i) securities which are convertible into or exchangeablefor any capital stock or other equity securities of Holdings or Sub,(ii) contracts, arrangements, commitments or restrictions relating to theissuance, sale, transfer, purchase or obtaining of capital stock or otherequity securities of Holdings or Sub, including voting trusts or otheragreements relating to the voting of any of Holdings’ or Sub’s outstandingshares or membership interests, as applicable, or (iii) options, warrants,rights, calls or commitments of any character granted or issued by Holdings orSub governing the issuance of shares of its capital stock or other equitysecurities.  Except as set forth inreasonable detail on Schedule 5.1, Holdings has not granted any Personany registration rights with respect to its capital stock or other equitysecurities.

5.2                                 Authorization.

(a)                                  The execution, delivery and performanceby each of Holdings and Sub of this Agreement and the other agreements to beentered into by Holdings and Sub pursuant to this Agreement, and theconsummation by Holdings and Sub of the transactions contemplated hereby andthereby are within Holdings’ and Sub’s corporate or limited liability powers,as applicable, are not in contravention of the terms of Holdings’ or Sub’sConstituent Documents, and have been duly authorized and approved by the boardof directors of Holdings and by the board of managers and sole member ofSub.  Except as provided in the foregoingsentence, no other corporate proceedings on the part of Holdings or limitedliability proceedings on the part of Sub are necessary to authorize Holdings’or Sub’s execution, delivery and performance of this Agreement or the otheragreements to be entered into by Holdings or Sub pursuant to this Agreement.

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(b)                                 This Agreement has been duly and validlyexecuted and delivered by Holdings and by Sub, and as of the Closing, the otheragreements to be entered into by Holdings or by Sub pursuant to the terms ofthis Agreement will have been duly and validly executed and delivered byHoldings and by Sub.  This Agreementconstitutes, and upon their execution and delivery by Holdings and by Sub, suchother agreements will constitute, the legal, valid and binding obligations ofHoldings and Sub, enforceable against Holdings and Sub in accordance with theirrespective terms (assuming the valid authorization, execution and deliveryhereof and thereof by the Shareholders, the Company and any other unaffiliatedentity that is a party thereto), subject, in each case, to bankruptcy, insolvency,reorganization, moratorium and similar Laws of general application relating toor affecting creditors’ rights and to general principles of equity.

5.3                                 No Conflicting Agreements; Consents. Neither the execution and delivery of this Agreement or any of the otheragreements to be entered into by Holdings or Sub pursuant to this Agreement northe consummation of any of the transactions contemplated hereby or therebywill:

(a)                                  violate, conflict with, result in abreach of the terms, conditions or provisions of, or constitute a default (ortrigger change of control provisions) under or entitle any party to terminateor accelerate (whether with notice or lapse of time or both as a result ofevents that occurred on or prior to Closing), (i) the ConstituentDocuments of Holdings or Sub, (ii) any material agreement, lease,sublease, license, sublicense, promissory note, evidence of indebtedness orother Contract (whether written or oral) to which assets of Holdings or Sub area party or by which Holdings or Sub is bound, (iii) any Court Order towhich Holdings or Sub is a party or by which Holdings or Sub is bound, or(iv) any requirements of Law affecting Holdings or Sub, except where suchviolation, conflict, breach, termination or default (other than with respect toclause (i) above) would not result in a Holdings Material Adverse Effect; or

(b)                                 require Holdings or Sub to obtain anypermit, approval, consent or authorization from, or the making by Holdings orby Sub of any declaration, filing or registration with, any GovernmentalAuthority or other Person the failure to obtain or make would have a HoldingsMaterial Adverse Effect, except (i) as provided on Schedule 5.3, (ii)the filing of the Certificate of Merger with the Secretary of State of theState of California on the Closing Date, and (iii) the filing under the HSRAct.  Holdings and Sub shall use theirbest efforts to obtain all permits, approvals, consents, authorizations,filings and registrations set forth on Schedule 5.3  prior to the Closing Date.

5.4                                 Legal Proceedings, etc. Other than as set forth in the SEC Documents, there are no Proceedingspending or, to the Knowledge of Holdings, threatened against Holdings or Sub,which, individually or in the aggregate, have had or would be reasonably likelyto have a Holdings Material Adverse Effect.. Holdings and Sub are in compliance with all applicable Laws, policies,guidelines, licenses, certificates, judgments or decrees of all judicial orGovernmental Authorities, except where the failure to be in such compliance didnot or would not have a Holdings Material Adverse Effect.

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5.5                                 Issuance of Securities. The Holdings Stock being issued as part of the Merger Consideration isduly authorized and, upon issuance in accordance with the terms hereof, shallby duly issued, fully paid and non-assessable, and free from all Encumbrancesexcept as provided in Section 3.5(b). The certificates representing such Holdings Stock will be in due andproper form.

5.6                                 SEC Documents; Holdings ConsolidatedFinancial Statements; No Undisclosed Liabilities.  Since May 27,2004, Holdings has filed all reports, schedules, forms, statements,certifications and other documents required to be filed by it with the SEC (allof the foregoing filed prior to the date hereof or amended after the datehereof and all exhibits included therein and financial statements and schedulesthereto and documents incorporated by reference therein, being hereinafterreferred to as the “SEC Documents”). None of Holdings’ subsidiaries is required to file periodic reports withthe SEC pursuant to the Securities Exchange Act of 1934, as amended (the “ExchangeAct”).  Each of the SEC Documents, asamended, complied as to form in all material respects with the applicablerequirements of the Securities Act of 1933, as amended (the “Securities Act”)and the rules and regulations promulgated thereunder and the Exchange Act andthe rules and regulations promulgated thereunder, each as in effect on the dateso filed.  Holdings has delivered toShareholders or their representatives, or made available through the SEC’swebsite at http://www.sec.gov., true and complete copies of the SECDocuments.  As of their respective dates,the financial statements of Holdings disclosed in the SEC Documents (the “HoldingsConsolidated Financial Statements”) complied as to form in all materialrespects with applicable accounting requirements and the published rules andregulations of the SEC with respect thereto. Such Holdings Consolidated Financial Statements are true, correct andcomplete in all material respects and have been prepared in accordance withGAAP, applied on a consistent basis throughout the periods covered thereby(except (i) as may be otherwise indicated in such Holdings ConsolidatedFinancial Statements or the notes thereto, or (ii) in the case of unauditedinterim statements, to the extent they may exclude footnotes or may becondensed or summary statements) and, fairly present in all material respectsthe financial position of Holdings as of the dates thereof and the results ofits operations.  None of the SECDocuments contained, when filed, or, if amended prior to the date hereof, as ofthe date of such amendment, any untrue statement of a material fact or omittedto state any material fact necessary in order to make the statements therein,in the light of the circumstances under which they were made, notmisleading.  Except as set forth on Schedule5.6, there are no outstanding or unresolved comments in comment lettersreceived from the SEC staff with respect to the SEC Documents.  Except as set forth on Schedule 5.6,to the Knowledge of Holdings, none of the SEC Documents is the subject ofongoing SEC review or outstanding SEC comment. Except as set forth on Schedule 5.6, Holdings has no materialliabilities of any nature except for liabilities reflected or reserved againstin the Holdings Consolidated Financial Statements, liabilities incurred in theordinary course of the Business since the filing of Holdings’ most recentquarterly report on Form 10-Q), and liabilities incurred in connection with thetransactions contemplated by this Agreement.

5.7                                 Brokers.  NeitherHoldings nor Sub has paid or become obligated to pay any fee or commission toany broker, finder or intermediary for or on account of the transactionscontemplated by this Agreement.

5.8                                 Solvency.  Assuming, forpurposes of this Section 5.8 only, that the Historical Financial Statementsfairly present in all material respects the financial position of the AcquiredEntities as of the Effective Time, then Holdings and the Surviving Entity willbe Solvent as of

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the Effective Time.  For purposes of this Section 5.8, the term “Solvent”means, as to the Surviving Entity, that, as of any date of determination, (a)the amount of the fair saleable value of the assets of the Surviving Entity andits subsidiaries, taken as a whole, exceeds, as of such date, the sum of (i)the value of all liabilities of the Surviving Entity and its subsidiaries,taken as a whole, including contingent and other liabilities, as of such date,as such quoted terms are generally determined in accordance with the applicablefederal Laws governing determinations of the solvency of debtors, and (ii) theamount that will be required to pay the probable liabilities of the Surviving Entityand its subsidiaries, taken as a whole on its existing debts (includingcontingent liabilities) as such debts become absolute and matured; (b) theSurviving Entity will not have, as of such date, an unreasonably small amountof capital for the operation of the business in which it is engaged or proposedto be engaged by Holdings following such date; and (c) the Surviving Entitywill be able to pay its liabilities, including contingent and otherliabilities, as they mature.  Forpurposes of this Section 5.8, the term “Solvent” means, as to Holdings, that,as of any date of determination, (a) the amount of the fair saleable value ofthe assets of Holdings and its subsidiaries, taken as a whole, exceeds, as ofsuch date, the sum of (i) the value of all liabilities of Holdings and itssubsidiaries, taken as a whole, including contingent and other liabilities, asof such date, as such quoted terms are generally determined in accordance withthe applicable federal Laws governing determinations of the solvency ofdebtors, and (ii) the amount that will be required to pay the probableliabilities of Holdings and its subsidiaries, taken as a whole on its existingdebts (including contingent liabilities) as such debts become absolute andmatured; (b) Holdings will not have, as of such date, an unreasonably smallamount of capital for the operation of the business in which it is engaged orproposed to be engaged following such date; and (c) Holdings will be able topay its liabilities, including contingent and other liabilities, as theymature.

5.9                                 No Omissions or Misstatements. To the Knowledge of Holdings, this Agreement and the Schedules heretodelivered by Holdings and Sub do not include any untrue statement of a materialfact or omit to state any material fact necessary to make the statements madein this Agreement by Holdings or Sub not misleading.

5.10                           Sarbanes-Oxley. Since the enactment of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-OxleyAct”), Holdings has been and is in compliance in all material respects with(i) the applicable provisions of the Sarbanes-Oxley Act and the rules andregulations promulgated thereunder and (ii) the applicable listing andcorporate governance rules and regulations of the American Stock Exchange.  Holdings has designed disclosure controls andprocedures to ensure that material information relating to Holdings, includingits subsidiaries, is made known to the Chief Executive Officer and the ChiefFinancial Officer of Holdings by others within those entities.  Holdings has disclosed, based on its mostrecent evaluation prior to the date hereof, to Holdings’ auditors and the auditcommittee of Holdings’ Board of Directors (i) any significant deficiencies andmaterial weaknesses in the design or operation of internal controls over financialreporting which are reasonably likely to adversely affect in any materialrespect Holdings’ ability to record, process, summarize and report financialinformation and (ii) any fraud or allegation of fraud, whether or not material,that involves management or other employees who have a significant role inHoldings’ internal controls over financial reporting.  Holdings has not received any complaintsregarding accounting, internal accounting controls or auditing matters,including any such complaint regarding questionable accounting or auditingmatters, and Holdings has not identified any material weaknesses in the designor operation of

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internal controls overfinancial reporting.  To the Knowledge ofHoldings, there is no reason to believe that its auditors and its ChiefExecutive Officer and Chief Financial Officer will not be able to give thecertifications and attestations required pursuant to the rules and regulationsadopted pursuant to Section 404 of the Sarbanes-Oxley Act, when first due.  There are not outstanding loans made byHoldings or any of its subsidiaries to any executive officer (as defined inRule 3b-7 under the Exchange Act) or director of Holdings.

5.11                           No Integration. Neither Holdings nor any subsidiary of Holdings or any other Personacting on Holdings’ behalf has, directly or through any agent, sold, offeredfor sale, solicited offers to buy or otherwise negotiated in respect of, anysecurity (as defined in the Securities Act) which is or will be integrated withthe issuance of the Holdings Stock being issued as part of the MergerConsideration in a manner that would require the registration of such HoldingsStock.

5.12                           Taxes.

(a)                                  Each of Holdings and its Affiliates hasduly filed, or caused to be filed on its behalf, in a timely manner with theappropriate Governmental Authorities all Returns which were required to befiled by or on behalf of Holdings and each of its Affiliates.  All such Returns were correct and complete inall material respects.  All Taxes ofHoldings and each of its Affiliates (whether or not shown on any Returns) dueand owing prior to the date of this Agreement have been paid in full orotherwise have been (or will be) adequately reserved for in the HoldingsConsolidated Financial Statements and/or any subsequent financial statements ofHoldings for the periods relevant for such Tax period, and all Taxes ofHoldings and its Affiliates (whether or not shown on any Returns) due and owingwith respect to the period (or portion thereof) after the date of this Agreementand ending on or before the Closing Date will be incurred in the ordinarycourse of business and will be paid in full to the extent required to be paidprior to the Closing Date or otherwise adequately reserved for on the books andrecords of Holdings.  There are noEncumbrances on any of the assets of Holdings and its Affiliates with respectto Taxes, other than Permitted Encumbrances.

(b)                                 With respect to each of Holdings and itsAffiliates, (i) no deficiencies for Taxes have been claimed, proposed orassessed by any Governmental Authority for which Holdings or its Affiliates mayhave any liability, (ii) there are no pending, or, to Holdings’ Knowledge,threatened audits, investigations or claims for or relating to any liability inrespect of Taxes with any Governmental Authority, and (iii) there are nomatters under discussion by any of Holdings or its Affiliates with anyGovernmental Authority with respect to Taxes that may result in an additionalamount of Taxes for which Holdings or its Affiliates may have any liability.

(c)                                  Except as set forth in the SEC Documents,neither Holdings nor any of its Affiliates has made any payments, is obligatedto make any payments, or is a party to any agreement that under certaincircumstances could obligate it to make any payments that (i) would beconsidered “excess parachute payments” under Code Section 280G (or anycorresponding provision of state or local law), (ii) that will not bedeductible under Code Section 280G (or any corresponding provision of state orlocal law), or (iii) that would not be fully deductible as a result ofCode Section 162(m) (or any corresponding provision of state or locallaw).  Neither

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Holdings nor any of itsAffiliates is a United States real property holding corporation within themeaning of Code Section 897(c)(2) during the applicable period specifiedin Code Section 897(c)(1)(A)(ii).

(d)                                 No statute of limitations in respect ofTaxes has been waived and no extension of time with respect to a Tax assessmentor deficiency has been agreed to by or on behalf of Holdings or its Affiliates.

5.13                           No Material Adverse Change. Except as set forth in the SEC Documents or in Schedule 5.13, since thedate of Holdings’ most recent audited Holdings Consolidated FinancialStatements, neither Holdings nor Sub has suffered a material adverse effect,and Holdings does not have Knowledge of any fact or circumstance reasonablylikely to cause a Holdings Material Adverse Effect.

5.14                           Financing.  Holdings hasdelivered to the Shareholders true and complete copies of (i) the commitmentletter (as the same may be amended pursuant to section 7.9, the “Debt FinancingCommitments”), dated as of May 23, 2007, between Holdings and Banc of AmericaSecurities, pursuant to which the financing parties thereto have agreed to lendthe amounts set forth therein (the “Debt Financing”).  The Debt Financing Commitments have not beenamended or modified prior to the date of this Agreement, and the commitmentscontained in the Debt Financing Commitments have not been withdrawn orrescinded in any respect.  The DebtFinancing Commitments are in full force and effect.  There are no conditions precedent or othercontingencies related to Debt Financing, other than as set forth in orcontemplated by the Debt Financing Commitments. The aggregate proceeds contemplated by the Debt Financing Commitments,together with available cash of Holdings, will be sufficient for Holdings topay the cash portion of the Merger Consideration and any other repayment orrefinancing of debt contemplated in this Agreement or the Debt FinancingCommitments and to pay all related fees and expenses.  As of the date of this Agreement, Holdingsdoes not, to its Knowledge, have any reason to believe that any of the conditionsto the Debt Financing will not be satisfied or that the Debt Financing will notbe available to Holdings on the Closing Date.

5.15                           AMEX.  AMEX hastelephonically advised Holdings that, other than as contemplated by Section8.2 hereof, AMEX does not require that Holdings obtain the approval of theholders of its outstanding shares prior to the execution of this Agreement orthe consummation of the transactions contemplated by this Agreement including,without limitation, the consummation of the Merger or the delivery to theShareholders of the Merger Consideration.

5.16                           Material Definitive Agreements.  Holdings has delivered to the Company a true and complete copy of anymaterial definitive agreement not made in the ordinary course of its business,and all amendments of any such agreement that is material to Holdings, whichhas been entered into by Holdings subsequent to the filing with the SEC of itsmost recently quarterly report on Form 10-Q and which has not previously beenfiled by Holdings as an exhibit to an SEC Document.

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5.17                           Board Approval. The Board of Directors of Holdings has, by resolutions duly adopted atmeeting duly called and held, unanimously approved the terms of this Agreementand the consummation of the Merger and the other transactions contemplated bythis Agreement, and such approval represents all the action necessary to renderinapplicable to this Agreement, the Merger and the other transactionscontemplated by this Agreement, the restrictions on “business combinations” (asdefined in Section 203 of the DGCL (“Section 203”)) set forth in Section 203,to the extent, if any, such restrictions would otherwise be applicable to thisAgreement, the Merger and the other transactions contemplated by thisAgreement.  No other state takeover statuteor similar statute or regulation or provision of the Constituent Documents ofHoldings applies or purports to apply to this Agreement, the Merger or theother transactions contemplated by this Agreement.

5.18                           No Other Representations and Warranties . Except for the representations and warranties contained in this ArticleV, Shareholders and Company acknowledge that neither Holdings nor any otherPerson on behalf of Holdings makes any express or implied representation orwarranty with respect to Holdings or Sub or with respect to any otherinformation provided to Shareholders or the Company in connection with thetransactions contemplated hereby.

**ARTICLEVICOVENANTS OF THE COMPANY**

6.1                                 Regulatory Approvals. The Company will, and will cause the Acquired Entities to, cooperatewith Holdings and Sub as requested in obtaining or making application for, assoon as practicable, any Permits, approvals, authorizations, clearances,filings and declarations of or with Governmental Authorities that Holdings isrequired to obtain pursuant to this Agreement or which otherwise will berequired for the operation of the Hospitals subsequent to the Closing.  Without limiting the foregoing, the Companywill promptly (i) make a filing and assist Holdings in making its filingof a pre-merger notification report form pursuant to the HSR Act, and(ii) assist Holdings and Sub in filing any applications or amendments forthe provider numbers described in Section 4.13 and all other HealthcareApprovals to the extent required under federal or California Law to consummatethe transactions contemplated hereunder and to operate the Hospitals, as theyare presently operated, after Closing, or that Holdings otherwise deemsnecessary or appropriate.  Holdings, onthe one hand, and Company, on the other hand, shalleach share equally the payment of all filing fees in connection with the HSRfiling.  Holdings and Sub shall havethe sole responsibility for paying all filing fees in connection with allPermits, any Healthcare Approvals and any other approvals, authorizations,clearances and filings which will be required for the operation of theHospitals subsequent to the Closing, subject to the obligations of the AcquiredEntities and/or the Company under Section 4.17(f) and the foregoing provisionsof this Section 6.1.

6.2                                 Conduct Prior to the Closing. On or after the date hereof and prior to the Closing, except (i) as setforth on the Company Disclosure Schedules, (ii) as otherwise consented to orapproved in writing by an authorized officer of Holdings (not to be unreasonablywithheld or delayed) or (iii) as contemplated by this Agreement:

(a)                                  The Company shall not act or omit to act,and shall cause the Acquired Subsidiaries not to act or omit to act, otherwisethan in accordance with the following:

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(i)                                     None of the Acquired Entities shall amendits respective Constituent Documents;

(ii)                                  No change shall be made in the number oramount of authorized or issued capital stock of any of the Acquired Entities;nor shall any other equity security of any kind be granted or issued by any ofthe Acquired Entities; nor shall the Company enter into or permit any of theAcquired Subsidiaries to enter into any other agreement with respect to anyequity security of the Acquired Entities;

(iii)                               the Acquired Entities shall not declareor pay dividends or make any other distributions in respect of the CompanyShares or Acquired Subsidiary Shares, except as may be necessary to effect theTax Distribution Amount (as such term is defined in Section 8.8(a)) inrespect of the Company Shares;

(iv)                              The Company will not make or enter intoany commitment to make any capital expenditure at the Hospitals or otherwise onbehalf of any Acquired Entity in an aggregate amount greater than $100,000 permonth;

(v)                                 The Company will not change or permit anychange to be made in any accounting policy, practice or method of the AcquiredEntities except any such changes as are required to conform to modifications ingenerally accepted accounting principles;

(vi)                              The Acquired Entities will not(A) incur any indebtedness for borrowed money, other than intercompanyindebtedness which will be paid in full and terminated at Closing in accordancewith Section 6.7 hereof and Indebtedness that will be paid off byHoldings or Sub at Closing in accordance with the Debt Financing;(B) assume, guaranty, endorse or otherwise become liable or responsiblefor the obligations of any Person other than another Acquired Entity;(C) make any loans, advances or capital contributions to, or investmentsin, any Person other than another Acquired Entity, other than intercompanyloans which will be forgiven at Closing in accordance with Section 6.7hereof; or (D) make any commitments to do any of the foregoing;

(vii)                           The insurance maintained with respect tothe Hospitals and the Business, or comparable insurance, shall be maintained infull force and effect until the Effective Time;

(viii)                        No Acquired Entity shall terminate oramend any material Contract, Lease or other agreement to which any AcquiredEntity is a party, other than in the ordinary course of business;

(ix)                                No Acquired Entity shall agree, whetherin writing or otherwise, to take any of the actions set forth above ordescribed in Section 4.7(b) and not otherwise permitted by thisAgreement; and

(x)                                   No Acquired Entity shall take any actionthat would, or is reasonably likely to, prevent or impede the Merger fromqualifying as a “reorganization” within the meaning of Section 368(a) of theCode.

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(b)                                 The Company shall use commerciallyreasonable efforts not to act or omit to act, and shall cause the AcquiredSubsidiaries to use commercially reasonable efforts not to act or omit to act,otherwise than in accordance with the following:

(i)                                     The operations, activities and practicesof the Business shall be conducted consistent with the ordinary course ofbusiness and in conformity with past practice in all material respects;

(ii)                                  The respective business organizations ofthe Acquired Entities will be preserved intact, and the services of the presentemployees, agents and representatives of the Business will be kept availablefor Holdings (except with respect to those employees or relationshipsterminated for cause or other termination in the ordinary course of business)in all material respects; and

(iii)                               The relationships with, and the goodwillof, the customers of the Business and others having business relations with theBusiness will be preserved in all material respects.

(c)                                  The Acquired Entities shall not, directlyor indirectly, take, or agree to or commit to take, any action that would or isreasonably likely to result in any of the conditions to the Closing set forthin Article IX not being satisfied.

6.3                                 Employee Matters. Pending the Closing, except as otherwise consented to or approved inwriting by an authorized officer of Holdings, the Company shall not, and shallcause the Acquired Subsidiaries not to, (a) make any general increase inthe rate of compensation payable to any employees of the Business, other thannormal and customary increases consistent with past practice or increases thatotherwise may be required by obligations pursuant to Contracts or applicableLaw, or (b) increase severance or termination obligations to any employeesof the Business (except increases that are the result of increases to anemployee’s underlying compensation that are permitted under this Section 6.3).

6.4                                 Transfer of Assets. From and after the date hereof and until the Closing, the Company shallcause the Acquired Entities not to sell or dispose of any material amount oftheir assets or properties without the prior written consent of Holdings,except for dispositions or sales of inventory or obsolete or immaterialproperty in the ordinary course of business.

6.5                                 Encumbrances. From and after the date hereof and until the Closing, the Company shall notpermit the Acquired Subsidiaries to enter into or assume any mortgage, pledge,conditional sale or other agreement affecting title to or a security interestin any of its assets or permit any Encumbrance to attach upon any of itsassets, whether now owned or hereafter acquired, except for (i) PermittedEncumbrances, or (ii) Encumbrances incurred in the ordinary course ofbusiness and in conformity with past practice.

6.6                                 Condition of Assets. From and after the date hereof and until the Closing, the Company shalluse commercially reasonable efforts, and shall cause the Acquired Subsidiariesto use commercially reasonable efforts, to maintain, subject to ordinary wearand tear, all real property improvements, inventory, machinery, equipment andother tangible personal property owned or leased by the Acquired Entities ortheir Affiliates and used in connection with the operation of the Business.

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6.7                                 Intercompany Accounts. Except as otherwise provided in this Agreement, at or prior to theEffective Time, (a) all indebtedness and other amounts (i) owed byeither Shareholder, or any of Shareholders’ Affiliates (other than an AcquiredEntity) to an Acquired Entity or (ii) owed by an Acquired Entity to eitherShareholder or any of Shareholders’ Affiliates (other than an Acquired Entity)shall be paid in full and terminated (whether or not then due), and(b) all Encumbrances relating to any of the aforesaid indebtedness oramounts shall be canceled and shall be discharged of record.

6.8                                 Investigation by Holdings.

(a)                                  During the Holdings Due Diligence Period(unless this Agreement has been terminated on such earlier date) and subject toSection 7.1, to the extent permitted by Law, the Company will provide Holdingsand its counsel, accountants and other representatives (including, for purposesof this Section 6.8, any lender which is a party to the Debt Financing), withreasonable access during normal business hours, to all of the assets,properties, facilities, employees, agents, accountants and Books and Records ofthe Business and will furnish or make available to Holdings and suchrepresentatives during such period all such information and data (including,without limitation, copies of Material Contracts) concerning the Business inthe possession or control of the Acquired Entities, the Shareholders or theirAffiliates as they or their representatives reasonably may request.

(b)                                 Holdings’inspection and examination rights under this Section 6.8 shall include aright to make a physical inspection (including environmental assessments,engineering studies and an appraisal) of the Real Property, to review theLeases and to examine all relevant books and records maintained by the AcquiredEntities relating to the Real Property. The Company agrees to provide to Holdings copies of the Leases and theEnvironmental Reports and copies of the Acquired Entities’ existing title policies, ad valorem tax information, boundary surveys,topographical and engineering studies, leases, easements, encumbrances andcovenants, documentation relating to public infrastructure, services orutilities with regard to the Real Property that is in the possession or controlof the Acquired Entities and any other information, documents and materialsrelating to the Real Property available to the Acquired Entities or in theirpossession that may be relevant to a reasonable decision of Holdings toparticipate in the transactions contemplated by this Agreement.

(c)                                  Holdings’ right of access and inspectionshall be made in such a manner as not to interfere unreasonably with theoperation of the Business or the Acquired Entities.

(d)                                 The Company’s obligations to provideinformation to Holdings under this Section 6.8 may be satisfied by providing Holdingsand Holdings’ representatives with electronic access to the diligencematerials.

(e)                                  The Holdings’ due diligence period underthis Section 6.8 shall continue until thirty (30) days after Holdings has received allreasonably requested diligence materials from the Company (“Holdings DueDiligence Period”); provided, however, that if any lender

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which is a party to theDebt Financing requests a longer due diligence period as a condition to theconsummation of the Debt Financing, then the Holdings Due Diligence Periodshall be extended to such date as such lender may reasonably request.

(f)                                    Holdings shall notify Company no laterthan five (5) business days of the end of the Holdings Due Diligence Period ifHoldings determines for any reason and in Holdings’ sole discretion that anycomponent of the Business is not suitable for its purposes, or if there arespecific concerns that Holdings desires that the Company address and remedy, ifpossible (“Holdings Diligence Objection Notice”).  If Holdings’ Diligence Objection Notice underthis Section 6.8(f) includes specific concerns that Holdings desires theCompany address (“Specific Objections”), the Company may elect to cureany such Specific Objections on or before Closing (“cure” means asolution to the Specific Objection that is acceptable to Holdings), or theCompany may elect to not cure the Specific Objection and shall give writtennotice to Holdings within three (3) business days of its receipt of Holdings’Diligence Objection Notice of its decision. Within 10 days of Holdings’ receipt of notice from the Company ofuncured Specific Objections, Holdings may waive such uncured SpecificObjections and close, or may terminate this Agreement as if it were atermination pursuant to Section 12.1.  If the Company fails to timely give suchnotice, the Company shall be deemed to have elected not to cure the SpecificObjection, whereupon Holdings may waive such Specific Objection and close, ormay terminate this Agreement.   Nothingherein requires Holdings to provide any Specific Objections in its HoldingsDiligence Objection Notice.  Holdings canchoose to terminate this Agreement in its Holdings Diligence Objection Noticeif it determines that the Business or any component thereof is not suitable forits purposes as a result of its diligence investigation, subject to its expensereimbursement obligation, if any, set forth in Section 12.3.

6.9                                 Reports and Pre-Closing Deliverables.

(a)                                  From and after the date hereof and priorto the Closing Date, the Company will deliver to Holdings true and completecopies of the Acquired Entities’ Financial Statements for each month thenended, as soon as practicable after such Statements have been prepared in theordinary course of business.

(b)                                 As promptly as possible after theoccurrence of any of the following, the Company shall give Holdings notice of(i) any material damage, destruction or loss with respect to the assets ofany Hospital or (ii) a Business Material Adverse Effect.

(c)                                  The Company shall promptly notifyHoldings in writing of any order, notice of violation or noncompliance with anyapplicable Environmental Laws, or order, threatened or pending action by anyregulatory agency or other Governmental Authority, or any claims made by anythird party, in each case, of which it is aware, relating to HazardousSubstances on, emanations on or from, releases on or from, or threats ofreleases on or from any of the Real Property which relate to the period priorto Closing; and shall promptly furnish Holdings with copies of anycorrespondence, notices, or legal pleadings in connection therewith.

6.10                           Exclusivity. From the date hereof until the earlier of the Closing or the terminationof this Agreement, the Company agrees that neither it nor any Affiliate nor anyof their respective officers, directors or representatives will (a) negotiatewith any other Persons

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with respect to a sale,merger, consolidation, reorganization or other business combination pursuant towhich the stock, assets or business of any Acquired Entity would be combinedwith that of, or sold to, any acquirer or any other business or entity;(b) solicit or respond to any offers, bids, negotiations or inquiries withrespect to the same; (c) furnish any information with respect to thebusiness, activities, operations, assets or liabilities of the Acquired Entities,or other similar matters, to any Persons whatsoever (other than as described inthis Agreement) with respect to the foregoing; nor (d) proceed or continuewith negotiations in respect of the foregoing which may be in progress as ofthe date of this Agreement.

6.11                           Resignations. Subject to Sections 7.6 and 7.8, the Company shall obtain the writtenresignations of all directors and officers of the Acquired Entities as arerequested by Holdings in advance of the Closing, such resignations to beeffective as of the Effective Time.  Tothe extent that any such officer or director is also an employee of an AcquiredEntity, such resignation shall be applicable only to the Person’s position asan officer or director and not to such Person’s employment.

6.12                           Closing Conditions. The Company will use its commercially reasonable efforts to cause eachof the conditions set forth in Article IX to be satisfied as soon asreasonably practicable, but in all events on or prior to the Closing Date.

6.13                           Notification. From the date hereof until the Closing, the Acquired Entities may updatethe Schedules to this Agreement to promptly disclose matters which, if notdisclosed, would cause a representation or warranty of the Acquired Entitiescontained in this Agreement to be untrue as of the Closing Date.  Any such update of the Schedules shall notconstitute a failure of any condition precedent to Holdings’ obligation toconsummate the transaction unless the matters disclosed pursuant to suchupdate, or pursuant to the aggregated updates to the Schedules pursuant to thisSection 6.13, has had or is reasonably likely to result in a Business MaterialAdverse Effect.

**ARTICLEVIICOVENANTS OF HOLDINGS AND SUB**

7.1                                 Confidentiality. Holdings and the Company acknowledge and agree that the ConfidentialityAgreement shall survive the execution and delivery of this Agreement by theparties hereto and that all information provided to each other or theirrepresentatives shall be considered subject to the Confidentiality Agreement tothe extent applicable thereto.

7.2                                 Investigation by Shareholders.

(a)                                  During the Shareholder Due DiligencePeriod (unless this Agreement has been terminated on such earlier date) andsubject to Section 7.1, to the extent permitted by Law, Holdings will providethe Company and the Shareholders and their counsel, accountants and otherrepresentatives with reasonable access during normal business hours, to all ofthe assets, properties, facilities, employees, agents, accountants and booksand records of Holdings’ business and will furnish or make available to theCompany and the Shareholders and their representatives during such period allsuch information and data concerning Holdings in the possession of Holdings orits Affiliates Shareholders and their representatives reasonably may request.

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(b)                                 The Company’s and Shareholders’ right ofaccess and inspection shall be made in such a manner as not to interfereunreasonably with the operation of Holdings.

(c)                                  Holdings’ obligations to provideinformation to the Company and Shareholder may be satisfied by providing theCompany, the Shareholders and their representatives with electronic access tothe diligence materials.

(d)                                 The Shareholders’ due diligence periodunder this Section 7.2 shall continue until thirty (30) days after theShareholders have received all requested diligence materials from Holdings (“ShareholderDue Diligence Period”).

(e)                                  Shareholders shall notify Holdings nolater than five (5) business days of the end of the Shareholder Due DiligencePeriod if Shareholders determine for any reason and in Shareholder’s solediscretion that its diligence investigation of Holdings for purposes of theHoldings Common Stock component of the Merger Consideration, is not suitablefor its purposes, or if there are specific concerns that Holdings desires thatHoldings address and remedy, if possible (“Shareholder Diligence ObjectionNotice”).  If Shareholders’ DiligenceObjection Notice under this Section 7.2(e) includes specific concernsthat Shareholders desire Holdings address (“Specific Objections”),Holdings may elect to cure any such Specific Objections on or before Closing (“cure”means a solution to the Specific Objection that is acceptable to Shareholders),or Holdings may elect to not cure the Specific Objection and shall give writtennotice to Shareholders within three (3) business days of its receipt ofShareholders’ Diligence Objection Notice of its decision.  Within 10 days of Shareholders’ receiptof notice from Holdings of uncured Specific Objections, Shareholders may waivesuch uncured Specific Objections and close, or may terminate this Agreement asif it were a termination pursuant to Section 12.1.  If Holdings fails to timely give such notice,Holdings shall be deemed to have elected not to cure the Specific Objection,whereupon Shareholders may waive such Specific Objection and close, or mayterminate this Agreement.   Nothingherein requires Shareholders to provide any Specific Objections in itsShareholder Diligence Objection Notice. Notwithstanding anything in this Agreement to the contrary, Shareholdersmay choose to terminate this Agreement in its Shareholder Diligence ObjectionNotice if it determines that Holdings and/or Holdings’ Common Stock is notsuitable for Shareholders.

7.3                                 Regulatory Approvals. Holdings and Sub will cooperate with the Company in obtaining or making,as soon as practicable, any Permits, approvals, authorizations, clearances,filings and declarations of or with Governmental Authorities that the Companyor the Shareholders are required to obtain or make pursuant to this Agreement,and otherwise comply with Section 6.1. Without limiting the foregoing, Holdings and Sub will promptly(i) make a filing, and assist the Shareholders in making their filing, ofa pre-merger notification report form pursuant to the HSR Act, and(ii) file all applications or amendments for the provider numbersdescribed in Section 4.13 and all other Healthcare Approvals to theextent required under federal or California Law to consummate the transactionscontemplated hereunder and to operate the Hospitals, as they are presentlyoperated, after Closing, or that Holdings or Sub otherwise reasonably deemsnecessary or appropriate.  Holdings, onthe one hand, and Company, on the

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other hand, shall each share equally the payment of all filing fees in connectionwith the HSR filing.

7.4                                 WARN Act.  NeitherHoldings nor Sub will take any action that results in the imposition ofliability on either the Company, the Shareholders or their respectiveAffiliates under the WARN Act due to a “plant closing” or “mass layoff” orotherwise under the provisions of the WARN Act, or any similar state or locallaws relating to plant closings, with respect to the Acquired Entities.  All quoted terms used in this Section 7.4and not defined herein shall have the meanings ascribed to such terms under theWARN Act.

7.5                                 Employee Matters.

(a)                                  As of the Effective Time, Holdings or Subshall continue the employment of all of the then-current employees of theAcquired Entities on an “at-will” basis, excepting only (i) those employees on Schedule7.5 whose employment will continue pursuant to the terms and conditions oftheir existing employment agreements, and (ii) Samuel S. Lee and David Topperwho will have employment agreements with Holdings, or an Affiliate of Holdings,in accordance with the Shareholder Employment Agreements (which ShareholderEmployment Agreements will supersede and restate their current employmentagreements with the Acquired Entities.

(b)                                 Notwithstanding the covenant in Section7.5(a) and excepting only contracts with those employees listed on Schedule7.5 and the Shareholder Employment Agreements, no provision of thisAgreement shall be deemed to create any contract with any employee, or to giveany employee the right to be retained in the employment of Holdings, Sub, anAcquired Entity, or any related employer, or to interfere with Holdings’, Sub’sor an Acquired Entity’s right to terminate employment of any employee at anytime.  Nothing in this Agreement shalldiminish Holdings’ or Sub’s rights to change or terminate its policiesregarding salaries, benefits and other employment matters at any time or fromtime to time.  The representations,warranties, covenants and agreements contained herein are for the sole benefitof the parties hereto, and employees are not intended to be and shall not beconstrued as beneficiaries hereof.

(c)                                  The Company shall provide reasonableaccess and information to Holdings and Sub regarding the Company Plans that aresponsored and maintained by the Acquired Entities.  The Company will reasonably cooperate withHoldings and Sub in evaluating such Company Plans and assisting Holdings andSub in determining the termination or continuation of all such Company Plans inconnection with the transactions contemplated by this Agreement, prior to theClosing.   Notwithstanding the above, noprovision of this Agreement shall require Holdings or Sub to assume any CompanyPlan or any portion thereof, or continue same after the Closing.

7.6                                 Employees.  The partiesagree that Holdings or one of Holdings’ Affiliates will offer an employmentcontract to Samuel S. Lee and David Topper, commencing at the Effective Timepursuant to the terms and conditions of those agreements attached as ExhibitK (the “Lee Employment Agreement”) and Exhibit L (the “TopperEmployment Agreement”).  The LeeEmployment Agreement and Topper Employment Agreement are collectively, the “ShareholderEmployment Agreements”.  TheShareholder Employment Agreements shall be for a term of 5 years.

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7.7                                 Closing Conditions. Holdings and Sub will use their commercially reasonable efforts to causethe conditions set forth in Article X hereof to be satisfied as soon asreasonably practicable, but in all circumstances prior to Closing Date.

7.8                                 Indemnification of Officers and Directors.  Fromand after the Effective Time, Holdings shall cause to be maintained for aperiod of six years after the Effective Time tail insurance policies for theAcquired Entities with respect to claims arising from facts or events thatoccurred on or before the Effective Time of at least the same coverage andamounts and containing terms and conditions that are not less advantageous inthe aggregate than the Company’s current policies of directors’ and officers’liability insurance and fiduciary liability insurance, unless otherwiseconsented to by the Shareholders.  In addition,following the Closing, Persons who are currently or were officers and directorsof the Company shall be entitled to claim indemnification from Sub under theterms of indemnification agreements between any such Person and the Company asin effect on the date hereof for acts taken prior to Closing; provided,however, that no such indemnification claim may be made under any suchagreement for the recovery of Holdings Indemnifiable Damages for which suchPerson (or an Affiliate of such Person) is liable under Article XI of thisAgreement.  Neither Holdings nor Subshall cause or permit the Surviving Entity to merge or consolidate with ortransfer or assign all or substantially all of its assets to any other Personunless the Surviving Entity ensures that the acquiring or surviving entitycovenants to assume the obligations imposed by this Section 7.8.

7.9                                 Financing.  Holdingsshall use its best efforts to take, or cause to be taken, all actions and todo, or cause to be done, all things necessary, proper or advisable to arrangefinancing on the terms and conditions described in the Debt FinancingCommitments to fund the cash portion of the Merger Consideration.

7.10                           Conduct of Business of Holdings Prior tothe Closing.    On or after the date hereof and prior to theClosing, except as set forth in Schedule 7.10, as otherwise consented toor approved in writing by an authorized officer of the Company (not to be unreasonablywithheld or delayed) or as contemplated by this Agreement:

(a)                                  Holdings shall not act or omit to act,and shall cause Sub not to act or omit to act, otherwise than in accordancewith the following:

(i)                                     Neither Holdings nor Sub shall amend itsrespective Constituent Documents;

(ii)                                  No change shall be made in the number oramount of authorized or issued capital stock of Holdings or Sub; nor shall anyother equity security of any kind be granted or issued by Holdings or Sub; norshall Holdings enter into or permit Sub to enter into any other agreement withrespect to any equity security of Holdings or Sub;

(iii)                               Neither Holdings nor Sub shall declare orpay dividends or make any other distributions in respect of the equitysecurities of Holdings or Sub;

(iv)                              Neither Holdings nor Sub will make orenter into any commitment to make any capital expenditure in an aggregateamount greater than $25,000;

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(v)                                 Holdings will not change or permit anychange to be made in any accounting policy, practice or method of Holdings orSub except any such changes as are required to conform to modifications ingenerally accepted accounting principles;

(vi)                              Neither Holdings nor Sub will(A) incur any indebtedness for borrowed money (other than in connectionwith the Debt Financing Commitment); (B) assume, guaranty, endorse orotherwise become liable or responsible for the obligations of any Person otherthan Holdings, Sub or an Affiliate; (C) make any loans, advances orcapital contributions to, or investments in, any Person other than Holdings,Sub or an Affiliate; or (D) make any commitments to do any of theforegoing;

(vii)                           Holdings and Sub shall maintain theircurrent or comparable insurance in full force and effect;

(viii)                        Neither Holdings nor Sub shall terminateor amend any material Contract, Lease or other agreement to which Holdings orSub is a party, other than in the ordinary course of business; and

(ix)                                Neither Holdings nor Sub shall agree,whether in writing or otherwise, to take any of the actions set forth above andnot otherwise permitted by this Agreement; and

(x)                                   Neither Holdings nor Sub shall take anyaction that would, or is reasonably likely to, prevent or impede the Mergerfrom qualifying as a “reorganization” within the meaning of Section 368(a) ofthe Code.

(b)                                 Holdings shall use commerciallyreasonable efforts not to act or omit to act, and shall cause each of itssubsidiaries to use commercially reasonable efforts not to act or omit to act,otherwise than in accordance with the following:

(i)                                     The operations, activities and practicesof the business of Holdings and its subsidiaries shall be conducted consistentwith the ordinary course of business and in conformity with past practice inall material respects;

(ii)                                  The respective business organizations of Holdingsand its subsidiaries will be preserved intact (except with respect to thoseemployees or relationships terminated for cause or other termination in theordinary course of business) in all material respects; and

(iii)                               The relationships with, and the goodwillof, the customers of the business of Holdings and its subsidiaries and othershaving business relations with Holdings and its subsidiaries will be preservedin all material respects.

(c)                                  Holdings shall not, and shall cause eachof its subsidiaries not to, directly or indirectly, take, or agree to or committo take, any action that would or is reasonably likely to result in any of theconditions to the Closing set forth in Article X not being satisfied.

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(d)                                 Neither Holdings nor any of its subsidiariesshall (a) make any general increase in the rate of compensation payable toany employees, other than normal and customary increases consistent with pastpractice or increases that otherwise may be required by obligations pursuant toContracts or applicable Law, or (b) increase severance or terminationobligations to any employees (except increases that are the result of increasesto an employee’s underlying compensation that are permitted under this Section 6.3).

(e)                                  Neither Holdings nor any of its subsidiariesshall sell or dispose of any material amount of their assets or properties,except for dispositions or sales of inventory or obsolete or immaterialproperty in the ordinary course of business

(f)                                    Neither Holdings nor any of itssubsidiaries shall enter into or assume any mortgage, pledge, conditional saleor other agreement affecting title to or a security interest in any of itsassets or permit any Encumbrance to attach upon any of its assets, whether nowowned or hereafter acquired, except for (i) Permitted Encumbrances, or(ii) Encumbrances incurred in the ordinary course of business and inconformity with past practice.

(g)                                 Holding shall, and shall cause itssubsidiaries to, use commercially reasonable efforts to maintain, subject toordinary wear and tear, all real property improvements, inventory, machinery,equipment and other tangible personal property owned or leased by Holdings andits subsidiaries and used in connection with the operation of their respectivebusinesses.

7.11                           Exclusivity.  From the date hereof until the earlier of theClosing or the termination of this Agreement, Holdings agrees that neither itnor any Affiliate nor any of their respective officers, directors orrepresentatives will (a) negotiate with any other Persons with respect toa sale, merger, consolidation, reorganization or other business combinationpursuant to which the stock, assets or business of Holdings would be combinedwith that of, or sold to, any acquirer or any other business or entity,including any direct or indirect acquisition or purchase of 10% or more of anyclass of equity securities or voting power or 10% or more of the consolidatedgross assets of Holdings (a “Holdings Acquisition Proposal”); (b) solicitor respond to any offers, bids, negotiations or inquiries with respect to aHoldings Acquisition Proposal; (c) furnish any information with respect tothe business, activities, operations, assets or liabilities of Holdings, orother similar matters, to any Persons whatsoever (other than as described inthis Agreement) with respect to a Holdings Acquisition Proposal; or(d) proceed or continue with negotiations in respect of a HoldingsAcquisition Proposal which may be in progress as of the date of this Agreement.  Notwithstanding the foregoing, Holdings shallbe permitted to engage in any negotiations with, or furnish any information to,any Person from which it has received an unsolicited bona fide written HoldingsAcquisition Proposal if its Board of Directors in good faith concludes(following receipt of a written opinion from its outside legal counsel) thatthe failure to take such action would be inconsistent with its fiduciary dutiesunder applicable Law.  “Superior Proposal”means a bona fide written Holdings Acquisition Proposal obtained not in breachof this Section 7.11 on terms that the Board of Directors of Holdings in goodfaith concludes (following receipt of the advice of its financial advisors andoutside legal counsel) are more favorable from a financial point of view to thestockholders of Holdings then the Merger.

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**ARTICLE VIIICERTAIN ADDITIONAL COVENANTS OF THE PARTIES**

8.1           Audit of AcquiredEntities.  The cost of the Audit ofthe Year End Audited Financial Statements (the “Audit”) by theindependent accounting firm of Moss Adams LLP (“Company Auditors”) shallbe borne by the Company, except that Holdings shall pay any costs aboveordinary audit costs that are incurred solely as a result of the consummationof the transactions contemplated by this Agreement, such as any additional feesrequired in order that the Audit meet the requirements of Regulation S-X, andany fees incurred as a result of any participation by the Company Auditors inHoldings’ filings of its SEC documents, including responding to any SECcomments to Holdings’ Proxy Statement described in Section 8.2.

**8.2****          **StockholderMeeting; Holdings Proxy Statement. Shareholders acknowledge that they have been advised by Holdings thatthe rules of the American Stock Exchange provide that **stockholder** approval is required if Holdings issues **common stock**which exceedstwenty percent of Holdings’ **common stockoutstanding prior to the Effective Time. The shares of Holdings Stock being issued to Shareholders as a portionof the Merger Consideration shall, in the event of the conversion of theHoldings Preferred Stock into Holdings Common Stock, exceed twenty percent ofthe issued and outstanding shares of the Holdings Common Stock outstandingprior to the Effective Time. Accordingly, Holdings covenants and agrees that:**

(a)           Holdings shall take allaction in accordance with the United States federal securities laws, theDelaware General Corporation Law (the “DGCL”), Holdings’ Certificate ofIncorporation and Holdings’ By-Laws necessary to duly call, give notice of,convene and hold a special meeting of the holders of Holdings Common Stock (“Holdings’Stockholders Meeting”) to be held on the earliest practicable date determinedin consultation with the Shareholders to submit for approval by the requisitevote of such holders, in accordance with the rules of the American StockExchange, a proposal to authorize (i) the convertibility of Holdings PreferredStock into Holdings Common Stock as required, pursuant to the Certificate ofDesignation, as a condition to the convertibility of Holdings Preferred Stockand (ii) the change of control of Holdings and/or any other action required bythe American Stock Exchange to be approved by the stockholders of Holdings inconnection with this Agreement, the Merger or the transactions contemplatedhereby, to the extent applicable (such proposal, the “Conversion ApprovalProposal”).  Holdings shall take alllawful actions to solicit the approval of Conversion Approval Proposal, and theBoard of Directors of Holdings shall recommend approval of the ConversionApproval Proposal.  Holdings shall ensurethat the Holdings Stockholders Meeting is called, noticed, convened, held andconducted, and that all proxies solicited in connection therewith are solicitedin compliance with all applicable Laws.

(b)           Without limiting thegenerality of the foregoing, Holdings shall, as soon as reasonable practicable,prepare the proxy statement to be filed with the SEC in connection with theHoldings Stockholders Meeting (the “Proxy Statement”) and shall file thepreliminary Proxy Statement with the SEC as promptly as practical, but in noevent later than twenty five (25) business days after the Closing Date.  Holdings shall use its best efforts to getclearance for the Proxy Statement by the SEC as soon as is practicable.  Consistent with the timing for the HoldingsStockholders Meeting, as determined in consultation with Shareholders, Holdingsshall use its best efforts to mail at the earliest practicable date to theholders of Holdings Common

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Stock the ProxyStatement, which Proxy Statement shall include all information required underapplicable Laws to be furnished to the holders of Holdings Common Stock inconnection with the Agreement and the transactions contemplated hereby andshall not contain any untrue statement of a material fact or omit to state any materialfact required to be stated therein or necessary in order to make the statementstherein, in light of the circumstances under which they were made, notmisleading.  Prior to filing or mailingthe Proxy Statement (or any amendment or supplement thereto) or responding toany comments of the SEC with respect thereto, Holdings (i) shall provideShareholders reasonable opportunity to review and comment on such document orresponse and (ii) shall accept all reasonable comments proposed byShareholders.  Holdings shall as soon asreasonably practicable (i) notify Shareholders of the receipt of any commentsfrom the SEC with respect to the Proxy Statement and any request by the SEC forany amendment to the Proxy Statement or for additional information and (ii)provide Shareholders with copies of all correspondence between Holdings and itsrepresentatives, on the one hand, and the SEC, on the other hand, with respectto the Proxy Statement.

(c)           Unless and until theConversion Approval Proposal is approved and adopted by the requisite vote ofthe stockholders of Holdings, upon the prior written request of theShareholders (and only upon such request), Holdings shall resubmit suchproposal for stockholder approval and adoption at any future annual meetings ofits stockholders, and at one additional special meeting of its stockholders peryear convened at the request of any holder or holders of 15% of the outstandingHoldings Preferred Stock; it being agreed and understood by Holdings that,other than at the Holdings’ Stockholders Meeting, Holdings shall not seekstockholder approval of the Conversion Approval Proposal absent the writtenrequest of the Shareholders.  Withoutlimiting the generality of the foregoing, within twenty (20) business daysafter a request for a special meeting of stockholders made in accordance withthe foregoing, Holdings shall file with the SEC the preliminary Proxy Statementwith respect to such special meeting and shall use its best efforts to causesuch Proxy Statement to be cleared by the SEC and to hold such special meetingas promptly as practicable thereafter; and Holdings shall otherwise comply withall of the provisions of Section 8.2(b) with respect to the ProxyStatement.  In connection with eachmeeting of stockholders at which the Conversion Approval Proposal is submittedfor a vote of the stockholders of Holdings, the Board of Directors of Holdingsshall recommend to the stockholders that they vote in favor of such ConversionApproval Proposal, and Holdings shall use its best efforts to obtain therequisite stockholder approval necessary for the approval and adoption of theConversion Approval Proposal.

(d)           From the Closing Dateuntil such date, if ever, upon which Holdings issues the Conversion Stock,Holdings shall at all times maintain (and shall not issue shares of HoldingsCommon Stock if Holdings would not have) a reserve from its duly authorizedshares of Holdings Common Stock for issuance pursuant to the Certificate ofDesignation in such amount equal to 130% of the number of shares of HoldingsCommon Stock issuable upon conversion of the outstanding shares of HoldingsPreferred Stock.

8.3           Holdings AMEX Filing.  Shareholders acknowledge that they have beenadvised by Holdings that the rules of the American Stock Exchange require thatHoldings file a listing application to provide for the Holdings Common Stockbeing issued to Shareholders as a part of the Merger Consideration.  Accordingly, Holdings shall promptly take allaction in accordance with the rules of the American Stock Exchange (includingSection 341 of the Amex Company

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Guide) and applicable Lawto cause all of the shares of Holdings Common Stock to be issued toShareholders hereunder (as well as, following any approval of the ConversionApproval Proposal, the Conversion Stock) to be approved for listing on AMEX,upon official notice of issuance thereof.

8.4           Rightto Designate Two Directors At Effective Time.  At the Effective Time, the Shareholdersshall, as the holders of the Holdings Preferred Stock, collectively have theright to designate two directors to serve on Holdings’ Board of Directors untilthe next election of directors (subject to any restrictions under applicablelaw or the rules and requirements of any securities exchange upon which any ofHoldings’ securities may be traded and subject to satisfactory completion ofHoldings’ Directors & Officers Questionnaire).  One of the two designees must meet therequirements of “independent director” for all purposes under the rules andregulations of the American Stock Exchange and the SEC and obtain the approvalof a majority of the remaining members of Holdings’ Board of Directors.  This director designation right is personalto the holders of the Holdings Preferred Stock and cannot be assigned orotherwise transferred.  Shareholdersshall inform Holdings of their proposed designees at least 45 days prior to theClosing Date.  Upon receipt of the namesof the proposed designees, Holdings shall promptly provide such designees acopy of Holdings’ Directors & Officers Questionnaire for completion.  Shareholders shall cause such proposeddesignees to complete and return the Directors & Officers Questionnaire toHoldings within 10 days of their receipt of such Questionnaire.  Holdings shall be entitled to conduct reasonablediligence of the proposed designees as necessary to assist in its evaluation ofsuch designees and to determine compliance with the securities laws and therules and regulation of the American Stock Exchange.  Shareholders and Holdings acknowledge andagree that Samuel S. Lee is the “non-independent” director designee of theShareholders and shall, subject to the foregoing provisions of this Section8.4, be appointed a director of Holdings as of the Effective Time.

8.5           [INTENTIONALLYOMITTED].

8.6           [INTENTIONALLYOMITTED].

8.7           Post-Closing Access.  Holdings and Shareholders acknowledge that,subsequent to the Closing, Holdings and Shareholders may each need access toinformation, documents or computer data in the control or possession of theother (or their respective Affiliates), and Shareholders may need access to theHospitals or other assets of the Acquired Entities for purposes of concludingthe transactions contemplated herein and for audits, investigations, compliancewith governmental requirements, regulations and requests, and the prosecutionor defense of third party claims. Holdings agrees that, at the sole cost and expense of the Shareholders,it will make available to Shareholders, their Affiliates and their respectiverepresentatives, agents and independent auditors such documents and informationas may be in the possession of Holdings and its Affiliates relating to periodsprior to the Effective Time and will permit Shareholders, their Affiliates andtheir respective representatives, agents and independent auditors, to makecopies of such documents and information. Each Shareholder agrees that, at the sole cost and expense of Holdings,such Shareholder will make available to Holdings, its Affiliates and theirrespective representatives, agents and independent auditors, such documents andinformation as may be in the possession of such Shareholder and its Affiliatesrelating to periods prior to the Effective Time and will permit Holdings, itsAffiliates and their respective representatives, agents and independentauditors to make copies of such documents and information.

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8.8           Tax Matters.

(a)           Income Tax Returns.  The Shareholders will be responsible forcausing the preparation and filing of all income tax Returns of the AcquiredEntities for any taxable period during which the Company qualified as asubchapter S corporation within the meaning of Section 1361 et seq. of the Codeand any analogous state or local provision. Prior to the Closing Date, the Shareholders shall provide to Holdings astatement (the “Estimated Dividend Statement”) which shall set forth theestimated amounts of the Company’s “items of income” and “nonseparatelycomputed income” (as such terms are defined under Section 1366(a)(1) of theCode) attributable to the period from January 1, 2007 through the end of theClosing Date.  At or before the ClosingDate, the Company shall distribute pro rata among the  outstanding shares of the Company an amount(the “Tax Distribution Amount”) equal to the excess, if any, of (i) 45 percentof the sum of the Company’s items of income and nonseparately computed incomeas shown on the Estimated Dividend Statement over (ii) the aggregate amount ofany dividend distributions declared and paid to the Shareholders in 2007 (“2007Distributions”).  Within 90 days afterthe Closing Date, Shareholders shall provide Holdings with a Pro Forma IRS Form1120S (the “Final Pro Forma Return”), which shall set forth the amountsof the Company’s items of income and nonseparately computed income for theperiod from January 1, 2007 through the Closing Date.  Within 30 days of the receipt of the FinalPro Forma Return by Holdings, Holdings shall notify the Shareholders of anyreasonable objections Holdings may have to the Final Pro Forma Return andHoldings and the Shareholders shall use their respective best efforts toconsult and resolve in good faith any such objection.  If any such disagreement cannot be resolved,Holdings and the Shareholders will submit the dispute to the SelectedAccounting Firm, whose decision shall be binding and conclusive on theparties.  Any expenses relating to theengagement of the Selected Accounting Firm shall be shared equally byShareholders and Holdings.  If the sum ofthe amounts of items of income and nonseparately computed income shown on theEstimated Dividend Statement is less than the sum of such amounts shown on theFinal Pro Forma Return (after taking into account any adjustments to the FinalPro Forma Return as agreed to by the parties), Holdings shall promptly pay to theShareholders (allotted to such shareholders in accordance with theirshareholdings in the Company as of the Closing Date) an amount (if positive)equal to (i) 45% of the sum of such amounts shown on the Final Pro Forma Returnless (ii) the aggregate amount of the 2007 Distributions, if any, less (y) theTax Distribution Amount, if any.  If thesum of the amounts of items of income and nonseparately computed income shownon the Final Pro Forma Return (after taking into account any adjustments to theFinal Pro Forma Return as agreed to by the parties) is less than the sum ofsuch amounts shown on the Estimated Dividend Statement, each Shareholder shallpromptly pay to Holdings his allocable share of an amount equal to the lesserof (i) 45 percent of such excess or (ii) the amount of the Tax Distribution.

(b)           Assistance andCooperation.  After the ClosingDate, the Shareholders and Holdings will:

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(i)            timely sign anddeliver such certificates or forms as may be necessary or appropriate toestablish an exemption from (or otherwise reduce), or file Returns or otherreports with respect to sales, transfer and similar Taxes;

(ii)           assist the other partyin preparing any Return which such other party is responsible for preparing andfiling in accordance with this Section 8.8 (including providing theother party with reasonable access to financial records for such purposes andthe execution of any Returns or extensions thereto);

(iii)          cooperate fully inpreparing for any audits of, or disputes with taxing authorities regarding, anyReturns of the Acquired Entities (including the execution of any powers ofattorney to allow for the party responsible for defending the audit or disputeto represent the Acquired Entities); and

(iv)          make available to theother party and to any taxing authority as reasonably requested allinformation, records, and documents relating to Taxes of the AcquiredEntities.

(c)           Preservation ofTax-Free Treatment of the Merger. After the Closing Date, neither Shareholders nor Holdings or any ofits Affiliates shall take any action, or fail to take any action, that mayadversely affect the treatment of the Merger from qualifying as areorganization under section 368(a)(1)(A) of the Code.  Holdings shall, and shall cause each of itsAffiliates to, take the position for all purposes that the Merger qualifies asa reorganization under section 368(a)(1)(A) of the Code and shall use its bestefforts to defend any challenges by a Governmental Authority to thequalification of the Merger as a reorganization under section 368(a)(1)(A) ofthe Code.  Notwithstanding the foregoing,neither Holdings nor any of its Affiliates guarantees or warrants the tax-freetreatment of the Merger.

8.9           Non-Competition.

(a)           Except as permitted in Section 8.9(b)during the period commencing at the Effective Time and ending on the first tooccur of (i) four (4) years from the Closing Date or (ii) three and one-half (31/2) years following the termination of such Shareholder’s employment withHoldings or any Affiliate of Holdings, each Shareholder agree that he, she orit shall not, directly or indirectly, (i) engage in the operation of anyCompeting Business located within the Territory, or (ii) acquire, lease,construct, develop or own any Competing Business located within the Territory,or (iii) be a director, officer, trustee, associate, consultant,principal, agent, contractor, employee, shareholder, partner, member or equityholder of, exercise management control over, or acquire or maintain anownership interest in, any entity that is engaged in any Competing Businesswithin the Territory (items (i) through (iii) collectively, “RestrictedActivities”).

(b)           The RestrictedActivities shall not prohibit either Shareholder from owning up to five percent(5%) of any class of securities of any publicly traded company, whether or notit is a Competing Business.

(c)           Each Shareholderrecognizes that the covenants in this Section 8.9, and theterritorial, time and other limitations with respect thereto, are reasonableand properly required

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for the adequateprotection of the acquisition of the Company Shares by Holdings, and agreesthat such limitations are reasonable with respect to its activities, businessand public purpose.  Each Shareholderagrees and acknowledges that the violation of the covenants or agreements inthis Section 8.9 would cause irreparable injury to Holdings andthat the remedy at law for any violation or threatened violation thereof wouldbe inadequate and that, in addition to whatever other remedies may be availableat law or in equity, Holdings shall be entitled to temporary and permanentinjunctive or other equitable relief without the necessity of proving actualdamages or posting bond.  The partieshereto also waive any requirement of proving actual damages in connection withthe obtaining of any such injunctive or other equitable relief.

(d)           It is the intention ofeach party hereto that the provisions of this Section 8.9 shall beenforced to the fullest extent permissible under the laws and the publicpolicies of the state of California, but that the unenforceability (or themodification to conform with such laws or public policies) of any provisionshereof shall not render unenforceable or impair the remainder of thisAgreement.  Accordingly, if any term orprovision of this Section 8.9 shall be determined to be illegal,invalid or unenforceable, either in whole or in part, this Agreement shall bedeemed amended to delete or modify, as necessary, the offending provisions andto alter the balance of this Agreement in order to render the same valid andenforceable to the fullest extent permissible as aforesaid.

8.10         Title Report andSurvey; Defects and Cure; Title Policy.

(a)           Title Report.  Within seven (7) days following therequest of Holdings or Holdings’ lender, the Company shall cause to befurnished to Holdings and Holdings’ lender a preliminary title report (“TitleReport”) for the Real Property together with legible copies of allexceptions to title referenced therein, issued by First American TitleInsurance Company (the “Title Company”).

(b)           Survey.  The Company shall cooperate with Holdings andHoldings’ lender if Holdings’ lender, requests a survey of the Real Property,to enable Holdings or Holdings’ lender to obtain an ALTA title insurance policyinsuring title, or the lender’s lien, respectively, on the Real Property.

(c)           Defects and Cure.  The Title Report and the survey arecollectively referred to as “Title Evidence”.  Holdings shall notify the Company in writingwithin twenty (20) days after its receipt of the last of each component ofthe Title Evidence for each Hospital of any material liens, claims,encroachments, exceptions or defects disclosed in the Title Evidence to whichHoldings or Holdings’ lender objects, other than any Permitted Encumbrances (collectively,“Defects”).  The Company, at itssole cost and expense, shall cure any such Defects on or before Closing (“cure”shall include an endorsement to an owner’s or a leasehold policy of titleinsurance, as applicable, acceptable to Holdings, either eliminating theDefect, insuring over the Defect or insuring against the effect of the Defector an agreement by Shareholders that is acceptable to Holdings and Holdings’lender to indemnify Holdings and/or Holdings’ lender, as applicable, withrespect to the Defect) or the Company may elect to not cure the objections andshall give written notice to Holdings and Holdings’ lender within thirty(30) days of its receipt of Holdings’ notice of Defects of itsdecision.  Within 30 days ofHoldings’ receipt of notice from the Company of uncured Defects, Holdings maywaive such uncured Defects and close or may

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terminate this Agreementas if it were a termination pursuant to Section 12.1.  If the Company fails to timely give suchnotice, the Company shall be deemed to have elected not to cure the Defects,whereupon Holdings may waive such Defects and close, or may terminate thisAgreement.

(d)           At the Closing, theCompany shall cooperate with Holdings in obtaining, to the extent Holdingsrequests, an ALTA Form Owner’s Title Policy or Leasehold Policy, asapplicable, (the “Title Policy”) for any or all portions of the RealProperty; provided, however, that if Holding’s lender requests a form of TitlePolicy different than the foregoing, then Holdings shall accept Title Policiesin a form reasonably consistent with any policies issued for Holdings’lender.  Subject to the foregoing, theTitle Policies shall be issued as of the Closing Date in an amount equal to theportion of the Merger Consideration being allocated to such portion of the RealProperty and shall insure to the applicable Acquired Entity good and marketablefee simple or leasehold title, as the case may be, to such Real Property,subject only to the (i) Permitted Encumbrances and (ii) taxes for thecurrent and subsequent years “not yet due and payable.” The Title Policy shallhave all standard and general exceptions deleted so as to afford full “extendedform coverage” and shall contain such endorsements as Holdings shall reasonablyrequire in connection with its review of the Title Report and the Surveys.  The Company shall execute such certificatesand affidavits as may be reasonably necessary in connection with the issuanceof the Title Policies as described in this Section 8.10(d).  The Company shall pay all premiums, costs andexpenses of that portion of the Title Policies equal to the cost of a CLTAOwner’s Policy, with Holdings paying any costs exceeding such to acquire anALTA Owner’s Title Policy or any policy for Holdings’ lender.

(e)           The Company willcooperate with Holdings and Holdings’ lender should a request be made forestoppel certificates or subordination for some or all of the Leases.

8.11         Rule 16b-3.  Priorto the Effective Time, Holdings and the Company shall take all such action asmay be required to cause any acquisitions of shares of Holdings Common Stockand Holdings Preferred Stock resulting from the transactions contemplated bythis Agreement (including upon conversion of the Holdings Preferred Stock), ordispositions of Holdings Preferred Stock to Holdings, by the Shareholders to beexempt from the short-swing profit liability rules of Section 16(b) of theExchange Act pursuant to Rule 16b-3 promulgated thereunder.   Such action shall be consistent withall current applicable interpretation and guidance of the SEC, including theNo-Action letter dated January 12, 1999, issued by the SEC to Skadden, Arps,Slate, Meagher & Flom LLP.

8.12         SEC and AMEXCompliance.  Holdings shall comply inall material respects with all applicable federal and state securities Laws andthe applicable rules and regulations of AMEX (or any other applicable tradingmarket) in connection with the execution, delivery and performance of thisAgreement and the consummation of the transactions contemplated hereby, includingits issuance of the Holdings Stock.

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**ARTICLE IXCONDITIONS TO OBLIGATIONS OF HOLDINGS AND SUB**

Except as may be waivedin writing by Holdings, the obligations of Holdings and Sub to consummate thetransactions contemplated hereby on the Closing Date shall be subject to thesatisfaction on or prior to the Closing Date of the following conditions:

9.1           Representations andWarranties.  All representations andwarranties contained in Article III and Article IV of the Company andShareholders set forth in this Agreement shall be true and correct in allmaterial respects as of the Closing Date in each case as if made on and as ofthe Closing Date (except to the extent such representations and warrantiesspecifically speak as of an earlier date, in which case as of such date),unless the failure of any such representation and warranty to be so true andcorrect has not had or is not reasonably likely to have, individually or in theaggregate, a Business Material Adverse Effect.

9.2           Compliance withAgreement.  On and as of the ClosingDate, the Company and Shareholders shall have performed and complied in allmaterial respects with each covenant and agreement required by this Agreementto be performed and complied with by them on or before the Closing Date.

9.3           Closing Certificates.  Shareholders and the Company shall havedelivered to Holdings a certificate, dated as of the Closing Date and signed byShareholders, and the President or CEO of the Company on behalf of the Company,certifying the fulfillment of the conditions specified in Sections 9.1and 9.2.

9.4           Secretary’sCertificates.  At the Closing,Holdings shall have received copies of resolutions of the board of directors ofthe Company and the shareholders of the Company authorizing the execution,delivery and performance of this Agreement and the other agreements that theCompany is required to execute and deliver pursuant to the terms of thisAgreement, certified as of the Closing Date by a Secretary or an AssistantSecretary of the Company.

9.5           Articles ofIncorporation of Acquired Entities. At the Closing, the Company shall have delivered to Holdings, a copy ofthe Articles of Incorporation of each Acquired Entity, with all amendmentsthereto certified as of a date within twenty days prior to the Closing Date bythe Secretary of State of California.

9.6           Opinion of Counsel.  At the Closing, Holdings shall have receivedthe opinion, dated the Closing Date, of Strategic Law Partners, LLP, counselfor the Company and Shareholders, in a form substantially acceptable to theparties.  Such opinion may includequalifications and assumptions that are customary and appropriate with respectto the substance of such opinion.  Suchopinion shall provide that it may be relied upon by any lender which is a partyto the Debt Financing as well as the Administrative Agent for the DebtFinancing, and their respective successors and assigns.

9.7           Consents,Authorizations, etc.  Holdings shallhave obtained documentation or other evidence reasonably satisfactory toHoldings that:

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(a)           All Permits, approvals,consents, authorizations and filings listed on Schedule 4.4  and Schedule 5.3 have been obtained ormade unless the failure to obtain or make any such Permit, approval, consent,authorization or filing is not reasonably likely to have, individually or inthe aggregate, a Business Material Adverse Effect;

(b)           Allof the shares of Holdings Common Stock to be issued to Shareholders hereundershall have been approved for listing on AMEX, upon official notice of issuancethereof; and

(c)           All waiting periodsunder the HSR Act and any similar state Law shall have expired or beenterminated.

9.8           Compliance with Law.  Holdings shall have confirmed that theAcquired Entities are in compliance in all material respects with allapplicable governmental rules and regulations including, without limitation,those relating to healthcare, subject to such exceptions as would not,individually or in the aggregate, result in a Business Material Adverse Effect.

9.9           No Action orProceeding.  On the Closing Date,(a) no Law, valid judgment, order or decree of any court or otherGovernmental Authority restraining, enjoining or otherwise preventing theconsummation of this Agreement or the transactions contemplated hereby shall bein effect, and (b) no action, suit, investigation or proceeding brought byany Governmental Authority, including AMEX, shall be pending or threatened torestrain, enjoin or otherwise prevent the consummation of this Agreement or anyof the transactions contemplated hereby, and/or which action, suit,investigation or proceeding, in the reasonable opinion of Holdings, may resultin a decision, ruling or finding that has or would reasonably be expected tohave a Business Material Adverse Effect, or a material adverse effect on the validityor enforceability of this Agreement or on the ability of the Shareholders orthe Company to perform their obligations under this Agreement.

9.10         Good StandingCertificates.  At the Closing, theCompany shall have delivered to Holdings good standing certificates issued withrespect to each of the Acquired Entities issued by the Secretary of State ofCalifornia and the California Franchise Tax Board.  Each such good standing certificate shall bedated as of a date that is not more than 20 days prior to the ClosingDate.

9.11         Books.  The Company shall have delivered to Holdingsthe original corporate minute books of each Acquired Entity including true andcomplete copies of the Constituent Documents of each Acquired Entity and otherrecords included in the Business.

9.12         Resignations.  The Company will deliver to Holdings theoriginal resignations set forth in Section 6.11 above.

9.13         [INTENTIONALLYOMITTED].  .

9.14         EmploymentAgreements.  Holdings andShareholders shall have entered into the Shareholder Employment Agreements.

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9.15         Holdings Due Diligence.  Holdings shall have satisfactorily (in thesole discretion of Holdings) completed its due diligence investigation pursuantto Section 6.8 of the Acquired Entities.

9.16         Title Policies.  Any Title Policies requested by Holdings orHoldings’ lender in accordance with Section 8.10 shall be issued at theClosing.

9.17         Merger ConsiderationCertificate.  Shareholders and theCompany shall, not later than three (3) business days prior to the ClosingDate, have delivered to Holdings the Merger Consideration Certificate.

9.18         NoMaterial Adverse Effect. There shall have been no Business Material Adverse Effect subsequent tothe Interim Balance Sheet Date, and no events or facts which could reasonablybe expected to result in a Business Material Adverse Effect shall have occurredor arisen.

9.19         CurrentAssets of Acquired Entities at the Closing.  The current assets of the Acquired Entitiesshall be equal to or greater than the current liabilities of the Acquired Entitiesboth as of December 31, 2006 (as determined from the 2006 Year End AuditedFinancial Statements) and as of the Effective Time, each as certified by theChief Financial Officer and by the Shareholders of the Company.

9.20         HoldingsFinancing.  Holdings shallhave received the aggregate proceeds contemplated by the Debt FinancingCommitments.

9.21         Certificateof Merger.  The Company shallhave executed the Certificate of Merger.

9.22         NoDissenting Shareholders. Holdings shall have confirmed that none of the Shareholders shall havedissenters’ rights under the California Code.

9.23         Waiver of Conditions.  Holdings may waive any conditions in writingof this Article IX to the extent permitted by applicable law.

**ARTICLE XCONDITIONS TO OBLIGATIONS OF SHAREHOLDERS AND COMPANY**

Except as may be waivedin writing by Shareholders, the obligations of Shareholders and the Company toconsummate the transactions contemplated hereby on the Closing Date shall besubject to the satisfaction on or prior to the Closing Date of the followingconditions:

10.1         Representations andWarranties.  All representations andwarranties of Holdings and Sub set forth in this Agreement shall be true andcorrect in all material respects as of the Closing Date in each case as if madeon and as of the Closing Date (except to the extent such representations andwarranties specifically speak as of an earlier date, in which case as of suchdate), unless the failure of any such representation and warranty to be so trueand correct has not had or is not reasonably likely to have, individually or inthe aggregate, a material adverse effect on Holdings.

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10.2         Compliance withAgreement.  On and as of the ClosingDate, Holdings and Sub shall have performed and complied in all materialrespects with each covenant and agreement required by this Agreement to beperformed and complied with by them on or before the Closing Date

10.3         Closing Certificates.  Holdings shall have delivered to Shareholdersa certificate, dated as of the Closing Date and signed on behalf of Holdings bythe President or Chief Executive Officer thereof, certifying the fulfillment ofthe conditions specified in Sections 10.1 and 10.1.

10.4         Secretary’sCertificate.  At the Closing,Shareholders shall have received copies of (i) the resolutions of the board ofdirectors of Holdings and of Sub and evidence of the approval of Sub’s solemember authorizing the execution, delivery and performance of this Agreementand the other agreements that Holdings and Sub are required to execute and deliverpursuant to the terms of this Agreement; and (ii) the resolutions of the boardof directors of Holdings evidencing compliance with Section 8.11,certified as true and complete (and still in effect) by the Secretary ofHoldings.

10.5         Opinions of Counsel.  At the Closing, Shareholders shall havereceived the opinion, dated the Closing Date, of Theodora, Oringher, Miller& Richman P C, counsel for Holdings, in a form substantially acceptable tothe parties.  Such opinion may includequalifications and assumptions that are customary and appropriate with respectto the substance of such opinion.   Inaddition, on or before the Closing, the Company and Shareholders shall havereceived, at the Company’s expense, the opinion, dated on or near the ClosingDate, of Duane Morris LLP, in form and substance substantially acceptable tothe Company and Shareholders (which shall be based on such writtenrepresentations from Holdings, the Company and others as such counsel mayrequest), to the effect that the Merger will constitute a reorganization withinthe meaning of Section 368(a) of the Code and that the Holdings Preferred Stockreceived by the Shareholders pursuant to the Merger should not be treated as a “nonqualifiedpreferred stock” within the meaning of Sections 351(g)(2) and 354(a)(2)(C)(i)of the Code.  Such opinion may includequalifications and assumptions that are customary and appropriate with respectto the substance of such opinion and Holdings and the Company shall providecounsel with such written representations as counsel may reasonably request.

10.6         Consents,Authorizations, etc.  Shareholdersshall have obtained documentation or other evidence reasonably satisfactory toShareholders that:

(a)           All Permits, approvals,consents, authorizations and filings listed on Schedule 4.4 and Schedule5.3 have been obtained;

(b)           all waiting periodsunder the HSR Act and any similar state Law shall have expired or beenterminated; and

(c)           allof the shares of Holdings Common Stock to be issued to Shareholders hereundershall have been approved for listing on AMEX, upon official notice of issuancethereof.

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10.7         Compliance with Law.  The Company shall have confirmed thatHoldings and Sub are in compliance in all material respects with all applicablegovernmental rules and regulations including, without limitation, thoserelating to healthcare, subject to such exceptions as would not, individuallyor in the aggregate, result in a Holdings Material Adverse Effect.

10.8         No Action orProceeding.  On the Closing Date, (a) noLaw, valid judgment, order or decree of any court or other GovernmentalAuthority restraining, enjoining or otherwise preventing the consummation ofthis Agreement or the transactions contemplated hereby shall be in effect, and(b) no action, suit, investigation or proceeding brought by anyGovernmental Authority, including AMEX, shall be pending or threatened torestrain, enjoin or otherwise prevent the consummation of this Agreement or anyof the transactions contemplated hereby, and/or which action, suit,investigation or proceeding, in the reasonable opinion of Shareholders, mayresult in a decision, ruling or finding that has or would reasonably beexpected to have a Holdings Material Adverse Effect, or a material adverseeffect on the validity or enforceability of this Agreement or on the ability ofHoldings or Sub to perform their obligations under this Agreement.

10.9         Good StandingCertificates.  At the Closing,Holdings shall have delivered to Shareholders a good standing certificateissued with respect to Holdings and with respect to Sub by the Secretary ofState of the State of Delaware.  Suchgood standing certificates shall be dated as of a date that is not more than20 days prior to the Closing Date.

10.10       Shareholder TaxTreatment.  At or before the Closing,the Shareholders shall have received an opinion of a nationally recognizedappraisal firm, in a form substantially acceptable to the Shareholders, thatthe value of the Holdings Preferred Stock and Holdings Common Stock to beissued to the Shareholders pursuant to the Merger will constitute at least 40percent of the aggregate total value of the Merger Consideration as measured onthe Closing Date.

10.11       Holdings Common StockMeasurement Price and Closing Price. At the Closing, the average ofthe last reported sale price of Holdings Common Stock on the American StockExchange for the ten (10) trading days immediately preceding the Closing Dateshall be not less than $4.00 per share.

10.12       RegistrationRights Agreement.  Holdingsand Shareholders shall have entered into the Registration Rights Agreement.

10.13       EmploymentAgreements.  Holdings andShareholders shall have entered into the Shareholder Employment Agreements andthe Indemnity Agreements annexed thereto.

10.14       ShareholderDue Diligence.  EachShareholder shall have satisfactorily (in the sole discretion of suchShareholder) completed its due diligence investigation of Holdings pursuant to Section7.2.  Each Shareholder shall havereceived or been provided electronic access to all reasonable data andinformation of Holdings as requested by such Shareholder in the course of theShareholder Due Diligence Period.

10.15       HoldingsFinancing.  Holdings shallhave received the aggregate proceeds contemplated by the Debt FinancingCommitments and shall have repaid all of the Indebtedness.

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10.16       Certificateof Merger.  Sub shall haveexecuted the Certificate of Merger.

10.17       No Material AdverseEffect.  From the date of thisAgreement through the Closing Date, Holdings shall not have suffered a materialadverse effect, and no events or facts which would reasonably be expected tohave a material adverse effect on Holdings shall have occurred or arisen.

10.18       Certificate ofDesignation.  The Certificate ofDesignation shall have been duly filed with the Secretary of State of Delawareand shall have become effective and shall be in full force and effect.

10.19       Voting Agreements.  The holders of not less than 2,500,000 of theoutstanding shares of Holdings common stock shall have executed a votingagreement in substantially the form attached hereto as either Exhibit M-1(in the case of shareholders who are not also officers or directors ofHoldings) or Exhibit M-2 (in the case of shareholders who are alsoofficers or directors of Holdings).

10.20       Power of Attorney.  The Acquired Subsidiaries shall have executedand delivered Limited Powers of Attorney for use of DEA Registration Numbersand DEA Order Forms in substantially the forms attached hereto as Exhibit N-1(in the case of Norwalk Community Hospital), Exhibit N-2 (in the case ofLos Angeles Community Hospital), Exhibit N-3 (in the case of Van NuysCommunity Hospital), and Exhibit N-4 (in the case of Hollywood CommunityHospital).

10.21       Waiver of Conditions.  Shareholders may waive any conditions inwriting of this Article X to the extent permitted by applicable law.

**ARTICLE XIINDEMNIFICATION**

11.1         Indemnification Period.  Except as otherwise provided herein, the “Indemnification Period” shallbe that period of time commencing on the Closing Date and continuing untilJanuary 5, 2009.

11.2         Indemnification ofHoldings, Sub, the Surviving Entity and the Acquired Entities.  The Shareholders shall indemnify, defend andhold harmless Holdings, Sub, the Surviving Entity and the Acquired Entities andtheir directors, officers, employees, agents and affiliates (each, a “HoldingsIndemnitee”), on a pro-rata basis, from and against any and all damage,loss, liability and expense, net of any realizable Tax benefits (includingwithout limitation (A) reasonable expenses of investigation and reasonableattorneys’ fees and reasonable expenses in connection with any action, suit orproceeding, (B) any fees and expenses in connection with the retention ofcounsel to pursue insurance coverage, (C) any amounts paid to defend, litigate,settle, satisfy a judgment, or otherwise resolve disputes with the insurancecarrier, if any, or the claimant, and (D) all amounts not covered by insuranceincurred or suffered by Holdings, Sub, the Surviving Entity or any of theAcquired Entities) arising out of (i) any inaccuracy or breach of therepresentations, warranties, covenants or agreements of the Acquired Entitiesor either Shareholder set forth in this Agreement; and/or (ii) any failure byany of the Acquired Entities or either Shareholder to perform or comply withany covenant contained in this Agreement that is

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required to be performedor complied with by either the Acquired Entities or the Shareholders as setforth in this Agreement (collectively,the**“Holdings IndemnifiableDamages”).  Notwithstandingthe foregoing and except as otherwise specifically provided in this Article XI,the Shareholders shall not be obligated to indemnify any Holdings Indemniteefor any Holdings Indemnifiable Damages prior to the Holdings Indemnitees, inthe aggregate, satisfying a cumulative total deductible of Eight HundredThousand Dollars ($800,000) (“Indemnification Threshold”) after whichthe Shareholders shall be obligated to indemnify, defend and hold harmless theHoldings Indemnitees for all Holdings Indemnificable Damages above and beyond suchamount subject to *(x)* with respect to claimsasserted on or before January 2, 2008, a maximum aggregate liability amount ofTen percent (10%) of the Merger Consideration and *(y)*with respect to claims asserted after January 2, 2008, a maximum aggregateliability amount of Five percent (5%) of the Merger Consideration (the “Indemnification Cap”).  No Holdings Indemnitee may obtainindemnification for any Holdings Indemnifiable Damages to which this Section11.2 relates unless such Holdings Indemnitee has made a claim forindemnification within the Indemnification Period defined in Section 11.1,except as otherwise provided in Section 11.4. The Shareholders maysatisfy their indemnification obligation to the Holdings Indemnitees by paymentof Holdings Indemnifiable Damages half in cash and half by returning HoldingsCommon Stock and/or Holdings Preferred Stock for cancellation, except that,prior to the approval by the stockholders of Holdings of the ConversionApproval Proposal, the Shareholders may satisfy their indemnificationobligation to the Holdings Indemnitees by payment of Holdings IndemnifiableDamages by returning Holdings Preferred Stock for cancellation.  With respect to any Holdings Common Stockreturned for cancellation hereunder, such Common Stock shall be assigned avalue equivalent to the value used to calculate the number of shares ofHoldings Common Stock issued as part of the Merger Consideration under Section2.3.  With respect to any HoldingsPreferred Stock returned for cancellation hereunder, such Holdings PreferredStock shall be assigned a value equivalent to the face amount thereof, togetherwith any dividends which may have accrued and not been paid thereon.

11.3         Indemnification of theShareholders.  Holdings, Sub and theAcquired Entities jointly and severally, agree to hold harmless, defend andindemnify each Shareholder (each, a “Shareholder Indemnitee”) from andagainst any and all damage, loss, liability and expense, net of any realizableTax benefit (including without limitation (A) reasonable expenses ofinvestigation and reasonable attorneys’ fees and reasonable expenses inconnection with any action, suit or proceeding, (B) any fees and expenses inconnection with the retention of counsel to pursue insurance coverage, (C) anyamounts paid to defend, litigate, settle, satisfy a judgment, or otherwiseresolve disputes with the insurance carrier, if any, or the claimant, and (D)all amounts not covered by insurance incurred or suffered by any theShareholders) arising out of (i) any inaccuracy or breach of therepresentations, warranties, covenants or agreements of Holdings or Sub setforth in this Agreement or (ii) any failure by Holdings or Sub to perform orcomply with any covenant contained in this Agreement that is required to beperformed or complied with by Holdings or Sub as set forth in this Agreement(collectively, the “ShareholderIndemnifiable Damages”). Notwithstanding the foregoing, neither Holdings, Sub nor any of theAcquired Entities shall be obligated to indemnify any Shareholder Indemniteefor Shareholder Indemnifiable Damages *(x)* prior tothe Shareholders, in the aggregate, satisfying the Indemnification Threshold or*(y)* in an amount that exceeds in theaggregate the Indemnification Cap; provided, however, that neither theIndemnification Threshold nor the Indemnification Cap shall apply to anyShareholder Indemnifiable Damages resulting from or attributable to any

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breach of the covenantsmade by Holdings and its Affiliates under Section 8.8(c) of this Agreement,if such breach arises as a result of the intentional misconduct or grossnegligence of Holdings and/or its Affiliates. No Shareholder Indemnitee may obtain indemnification for any ShareholderIndemnifiable Damages to which this Section 10.3 relates unless suchShareholder Indemnitee makes a claim for indemnification within theIndemnification Period defined in Section 11.1.

11.4         Exclusion of HoldingsIndemnifiable Damages from Indemnification Period, Indemnification Thresholdand Indemnification Cap.  Notwithstandinganything in this Agreement to the contrary,

(a)           neitherthe Indemnification Threshold nor the Indemnification Cap shall apply to limitHoldings Indemnifiable Damages with respect to claims of any HoldingsIndemnitee (i) arising out of or related to any inaccuracy or breach of therepresentations, and warranties set forth in this Agreement under Sections3.1, 4.1(b), 4.1(c), 4.1(d), 4.2(c), 4.2(d) and 4.2(e),(collectively, “Title Claims”) or (ii) based upon any fraudulentmisrepresentation by the Shareholders of any representations and warranties inthis Agreement (collectively, “Fraud Claims”) or (iii) arising out ofthe indemnification obligations of Shareholders set forth in subparagraph (c)of this Section 11.4, subject to the limitations set forth therein (“SpecialLitigation Claims”); provided however, that in no event shall the aggregateamount of Holdings Indemnifiable Damages hereunder exceed the MergerConsideration:

(b)           EachShareholder shall remain liable and obligated under this Article XI toindemnify any and all Holdings Indemnitees:

(i)            forclaims arising out of or related to any inaccuracy or breach of therepresentations and warranties, set forth in this Agreement under Sections4.13 and 4.17 (collectively, “Licensure Claims”) for a period ofthree (3) years from the Closing Date; provided, however, that, with respect toany Licensure Claim asserted following the expiration of the IndemnificationPeriod, the phrase “to the Knowledge of Company” shall be deemed to be insertedprior to each of the representations and warranties in Sections 4.13 and4.17 (for example, the first sentence of Section 4.17(a) would read in itsentirety: “To the Knowledge of Company, the Acquired Entities possess allMaterial Permits required or necessary to operate the Business and all suchPermits are valid, and in good standing.”); and

(ii)           forTitle Claims, Fraud Claims, Special Litigation Claims and for claims arisingout of or related to any inaccuracy or breach of the representations, andwarranties, covenants or agreements set forth in this Agreement under Sections4.14 and 8.8, until the expiration of the applicable statute oflimitations, or if there is no applicable statute of limitations, then suchclaims shall have no expiration date.

(c)           Each Shareholder shallremain liable and obligated under this Article XI to indemnify any and allHoldings Indemnitees, on a pro-rata basis, with respect to the litigation casedescribed as lawsuit #3 on Schedule 4.19 of the Company Disclosure Schedules (the “SpecialLitigation”) for any Litigation Payments (as hereinafter defined), subjectto the following:

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(i)            Upon any Court Orderand/or settlement in the Special Litigation, which Court Order and/orsettlement requires payments to be made by the Shareholders (or an Affiliate ofa Shareholder) and/or a Holdings Indemnitee (whether in the form of cash orotherwise) (the “Litigation Payments”), the Litigation Payments (inwhatever form required, whether cash or otherwise) shall be made solely by theShareholders, who shall make such Litigation Payments on behalf of the HoldingsIndemnitees to the extent that the Holdings Indemnitees are otherwiseresponsible therefor under the terms of the applicable Court Order and/orsettlement.

(ii)           Concurrently with orpromptly following the delivery of any Litigation Payments by the Shareholderspursuant to subparagraph (i) of this Section 11.4(c), Holdings shall reimbursethe paying Shareholders for any such Litigation Payments on a pro-rata basis inan aggregate amount not to exceed a maximum of $1,500,000 via wire transfer ofimmediately available funds to an account (or accounts) designated by theShareholders (the “Holdings Reimbursement”).

(iii)          In the event of any payment,contribution or reimbursement from any insurance company with respect to anyLitigation Payments (collectively, “Insurance Recoveries”), Holdings and Subshall promptly cause the Insurance Recoveries to be paid to the Shareholders upto the aggregate amount of any Litigation Payments made by the Shareholders *less* the amount of the HoldingsReimbursement, and any excess amount thereof shall be distributed to Holdings;it being understood by the parties that, to the extent Insurance Recoveries areavailable under any insurance policy with respect to any Litigation Payments,Holdings and Sub shall undertake a good faith effort to make a claim under suchinsurance policy and use its reasonable best efforts to pursue such claim,subject to Section 11.4(c)(v).

(iv)          In the event that theShareholders make any Litigation Payments for which they are not reimbursedeither by Holdings pursuant to subsection (ii) of this Section 11.4(c) or bythe Insurance Recoveries pursuant to subsection (iii) of this Section 11.4(c)(collectively, “Gap Payments”), then the following provisions shallapply:

(1)           Holdings and Sub shallpromptly cause any Extraordinary Collections (as defined below) to bedistributed to the Shareholders in an amount not to exceed the aggregate amountof the Gap Payments.

(2)           Any ExtraordinaryCollections in excess of the aggregate amount of the Gap Payments shall beretained by the Acquired Entities.

(3)           The HoldingsIndemnitees shall have no obligation whatsoever to reimburse the Shareholdersfor Gap Payments other than from Extraordinary Collections.

(4)           For purposes of thisAgreement, the term “Extraordinary Collections” shall mean the aggregate amountof net proceeds received by any of the Acquired Entities (or Holdings or any ofits Affiliates) after the Closing Date, relating to the reimbursement projectscurrently being performed by Blumberg Ribner, Inc., relating to years 1992through 2005 (as listed on Exhibit O hereto), pursuant to the Agreementsfor Reimbursement Consulting Services, dated February 8, 2007 and June 1, 2007between Blumberg Ribner, Inc. and Alta Hollywood Hospitals, inc. and Alta LosAngeles Hospitals, Inc.

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(v)           For purposes ofdefending the Special Litigation Claims pursuant to Section 11.6 of thisAgreement, the Shareholders shall be deemed to be the Indemnitor and theHoldings Indemnitees shall be deemed to be the Indemnitee; provided, however,that solely for purposes of the payment of any litigation costs relative to theSpecial Litigation and/or Insurance Recoveries, the Surviving Entity shall bedeemed to be the Indemnitor and the responsible party.

(vi)          It is the intent of theparties that the rights of the Holdings Indemnitees to recover HoldingsIndemnifiable Damages from the Shareholders and/or their Affiliates withrespect to the Special Litigation shall be expressly subject to the provisionsof this Section 11.4.  Accordingly, in noevent shall the Shareholders be obligated to indemnify any Holdings Indemniteesfor any damage, loss, liability or expense relating to or arising out of anyinaccuracy or breach of any of the representations and warranties of theShareholders or the Acquired Entities set forth in this Agreement insofar asany such inaccuracy or breach arises as a result of the Special Litigation.

11.5         Claims Timely RaisedBut Not Resolved.  Any claim timely madewithin the Indemnification Period, or such longer periods applicable under Section11.4, but are still pending or unresolved at the end of the IndemnificationPeriod, or such longer period under Section 11.4, will continue to becovered by this Article XI until the claim has been resolved and any amountspayable under this Article XI are finally determined and paid.

11.6         IndemnificationProcedures.  A party seekingindemnification (the “Indemnitee”) shall use its best efforts tominimize any liabilities, damages, deficiencies, claims, judgments,assessments, costs and expenses in respect of which indemnity may be soughtunder this Agreement.  The Indemniteeshall give prompt written notice (a “Notice”) to the party from whomindemnification is sought (the “Indemnitor”) of any event that could give riseto an indemnification claim under this Agreement, including the assertion orcommencement of any claim, audit, examination or other proposed change oradjustment by any Governmental Authority with respect to Taxes (a “Claim”).  No such Notice of a Claim shall satisfy therequirements of this Section 11.6 unless it describes in reasonabledetail and in good faith the facts and circumstances of the Claim, to theextent known by Indemnitee, and Indemnitee provides copies of any notice orother document received in respect of any Claim.  The Indemnitee shall have twenty (20)calendar days from the receipt of the Notice to decide whether to defend suchClaim.  During such period, theIndemnitee shall take all necessary steps to protect the interests of itselfand the Indemnitor, including the filing of any necessary responsive pleadings,the seeking of provisional relief or other action necessary to maintain thestatus quo, subject to reimbursement from the Indemnitor of its expenses indoing so.  The Indemnitor shall (with, ifnecessary, reservation of rights) control the defense of such Claim, usingcounsel selected by the insurance company insuring against any such Claim andundertaking to defend such Claim, or by other counsel selected by it andapproved by the Indemnitee, which approval shall not be unreasonably withheld,delayed or conditioned.  The Indemnitorshall keep the Indemnitee fully apprised at all times of the status of thedefense and shall consult with the Indemnitee prior to the settlement of anyindemnified matter.  The Indemniteeagrees to use reasonable efforts to cooperate with the Indemnitor in connectionwith its defense of any Claims.

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In the event theIndemnitee has a claim or claims against any third party arising out of orconnected with an indemnified matter, then upon receipt of indemnification, theIndemnitee shall fully assign to the Indemnitor the entire claim or claims tothe extent of the indemnification actually paid by the Indemnitor, and theIndemnitor shall thereupon be subrogated with respect to such claim or claimsof the Indemnitee.

11.7         Exclusive Remedy.  From and after the Closing Date, the rightsand remedies of the parties under this Article XI shall be the sole and exclusiverights and remedies of the parties with respect to any matters arising out ofor relating to this Agreement and the transactions contemplated by thisAgreement, other than as a result of Fraud Claims.  EACH PARTY HEREBY WAIVES, RELEASES ANDDISCHARGES FOR ITSELF AND ON BEHALF OF AS, APPLICABLE, ALL INDEMNITEES, ALLRIGHTS TO ALL PUNITIVE, SPECIAL, EXEMPLARY, CONSEQUENTIAL, DIRECT OR INDIRECTOR OTHER DAMAGES, HOWEVER CHARACTERIZED, WHETHER IN CONTRACT OR IN TORT, AT LAWOR IN EQUITY, OTHER THAN THOSE EXPRESSLY SET FORTH UNDER THIS ARTICLE XI.

11.8         Adjustments to MergerConsideration.  Any payments madepursuant to this Article XI shall be consistently treated as adjustments toMerger Consideration for all Tax purposes by the parties.

**ARTICLE XIITERMINATION**

12.1         Termination Events.  This Agreement may be terminated at any timeprior to Closing upon prior written notice by the party electing to terminatethis Agreement to the other party:

(a)           by mutual agreement ofShareholders and Holdings (expressed in writing);

(b)           by either Shareholdersor Holdings if any permanent injunction, Court Order or other order, decree orruling of any court or other Governmental Authority of competent jurisdictionpermanently restraining, enjoining or otherwise preventing the consummation ofthe transactions contemplated hereby shall have been issued and become finaland non-appealable.

(c)           by either Shareholdersor Holdings if the Closing shall not have occurred by the sixtieth (60th) day following the date ofthis Agreement (the “Optional Termination Date”); provided, however,that the right to terminate this Agreement under this Section 12.1shall not be available to any party whose breach of its representations andwarranties in this Agreement or whose failure to perform any of its covenantsand agreements under this Agreement shall have caused, or resulted in, thefailure of the Closing to occur on or before the Optional Termination Date.

(d)           by Shareholders upon abreach in any material respect of any covenant or agreement on the part of theHoldings set forth in this Agreement, or if any representation or warranty ofthe Holdings shall have been breached or shall have become untrue, in any suchcase that the conditions set forth in Sections 10.1 and 10.2would be incapable of being satisfied by the Optional Termination Date (or anylater termination date as may have been determined by mutual agreement of theparties).

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(e)           by Holdings upon abreach in any material respect of any covenant or agreement on the part of anyShareholders set forth in this Agreement, or if any representation or warrantyof any Shareholders shall have been breached or shall have become untrue in anysuch case such that the conditions set forth in Sections 9.1 and 9.2would be incapable of being satisfied by the Optional Termination Date (or anylater termination date as may have been determined by mutual agreement of theparties).

(f)            by Shareholders if itshall become apparent in Shareholders’ judgment reasonably exercised that anycondition to Shareholders’ obligation to close as set forth in Article X hereofwill not be satisfied on or before the Optional Termination Date.

(g)           by Holdings if it shallbecome apparent in Holdings’ judgment reasonably exercised that any conditionto Holdings’ obligation to close as set forth in Article IX hereof will not besatisfied on or before the Optional Termination Date.

(h)           by Holdings if (i)Holdings is not in breach in any material respect of Section 7.11 or any otherterms of this Agreement; (ii) the Board of Directors of Holdings (followingreceipt of a written opinion from Holdings’ outside legal counsel that thetermination of this Agreement is necessary in order for such Board to complywith its fiduciary duties under applicable Law) authorizes Holdings, subject tocomplying with the terms of this Agreement, to enter into a binding writtenagreement providing for a transaction that constitutes a Superior Proposal andHoldings notifies the Shareholders in writing that it intends to enter intosuch an agreement, attaching the most current version of such agreement to suchnotice, which agreement shall include all of the material terms and conditionsof such Superior Proposal; and (iii) Holdings shall have paid to theShareholders the Termination Fee in accordance with Section 12.5.

12.2         Effect of Termination.  Each party’s right of termination under Section12.1 is in addition to any other rights it may have under this Agreement orotherwise, and the exercise of a right of termination will not be an electionof remedies.  If this Agreement isterminated pursuant to Section 12.1, all further obligations of theparties under this Agreement will terminate, except that (i) Sections 8.1, thisArticle 12, Article 14 and the Confidentiality Agreement shall survive any suchtermination and (ii) each party will redeliver to the party furnishing the sameall documents, work papers and other material of any other party relating tothe transactions contemplated hereby, whether obtained before or after theexecution hereof; provided, however, that if this Purchase Agreement isterminated by a party because of the breach of this Agreement by the otherparty or because one or more of the conditions to the terminating party’sobligations under this Agreement is not satisfied as a result of the otherparty’s failure to comply with its obligations under this Agreement, theterminating party’s right to pursue all legal remedies will survive suchtermination unimpaired.

12.3         Expense Reimbursement- Holdings.  Holdings shall reimbursethe Company for its reasonable, documented out of pocket expenses incurred inconnection with the transactions contemplated by this Agreement (not to exceed$250,000) in the event this Agreement is terminated prior to Closing for anyreason other than:

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(a)           The material breach bythe Company or Shareholders of any binding obligation under this Agreement,provided that Holdings shall have notified the Company promptly of itsdetermination that any such material breach may have occurred;

(b)           Holdings reasonabledetermination that any Acquired Entity is not in compliance in all materialrespects with all applicable governmental rules and regulations including,without limitation, those relating to health care, provided that suchnon-compliance shall have a Business Material Adverse Effect and providedfurther that Holdings shall have notified the Company promptly of itsdetermination that any such non-compliance may exist;

(c)           There shall have been aBusiness Material Adverse Effect subsequent to the Interim Balance Sheet Date,provided that Holdings shall have notified the Company promptly of itsdetermination that any such Business Material Adverse Effect may exist; or

(d)           The failure ofshareholders to receive the opinion of Duane Morris LLP described in Section10.5 hereof, if the failure to receive such opinion is due to the existence ofany facts or law that was known or should reasonably have been known byShareholders or Duane Morris LLP at or prior to the date hereof.

12.4         Break-up Fee - Company.  The Company shall reimburse Holdings for itsreasonable, documented out of pocket expenses incurred in connection with thetransactions contemplated by this Agreement (not to exceed $250,000) in theevent this Agreement is terminated prior to Closing due to the reason set forthin Section 12.3(a) above.

12.5         Termination Fee.  In the event that this Agreement isterminated by Holdings pursuant to Section 12.1(h), then Holdings shall,prior to such termination, pay to the Shareholders an aggregate termination feeof $3,500,000 (the “Termination Fee”) by wire transfer of same day funds.

12.6         Payment of ExpenseReimbursement.  Any reimbursementobligations arising under Sections 12.3 and 12.4 shall be satisfied promptly byHoldings or the Company, as the case may be, by wire transfer of same day fundsfollowing the termination of this Agreement, subject to Holdings’ or theCompany’s submission of the required documentation set forth therein.

**ARTICLE XIIINOTICES**

13.1         Notices.  All notices and other communications hereundershall be in writing and shall be deemed to have been duly given when deliveredin person or received by telegraphic or other electronic means (includingfacsimile, telecopy and telex), when delivered by reputable overnight courier,or if mailed, five days after being deposited in the United States mail,certified or registered mail, first-class postage prepaid, return receiptrequested, to the parties at the following addresses or facsimile numbers:

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If to Shareholdersor the Company, to:

Alta HealthcareSystem, Inc.11500 West Olympic, Suite 502Los Angeles, CA 90064Attention:  Sam Lee & David Topper

With a copy to:

Alta HealthcareSystem, Inc.11500 West Olympic, Suite 502Los Angeles, CA 90064Attention:  John Van Hook, Esq.

and

Strategic Law Partners, LLP

500 South Grand,Suite 2050Los Angeles, CA 90071Attention:  Bradley Schwartz, Esq.

If to Holdings orto Sub, to:

ProspectMedical Holdings, Inc.400 Corporate Pointe, Suite 525Culver City, CA 90230Attention: Jacob Y.  Terner, M.D.

With a copy to:

TheodoraOringher Miller & Richman2029 Century Park East, 6th FloorLos Angeles, CA 90067Attention:  DaleS.  Miller, Esq.

Any party from time totime may change its address or facsimile number for the purpose of receipt ofnotices to that party by giving a similar notice specifying a new address orfacsimile number to the other notice parties listed above in accordance withthe provisions of this Section 13.1.

**ARTICLE XIVMISCELLANEOUS**

14.1         Fees and Expenses.  Except as otherwise provided in this Agreement,the Company shall pay its expenses (including those expenses of the AcquiredEntities in connection with this Agreement and the transactions contemplatedhereby incurred prior to the Effective

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Time), and Holdings andSub shall pay their respective expenses in connection with this Agreement andthe transactions contemplated hereby. Shareholders shall pay any documentary transfer taxes and sales taxesrelating to the sale and the transactions provided for herein.  Holdings shall pay for any lender’s TitlePolicy or the cost of an ALTA Title Policy above the cost of a CLTA TitlePolicy.  Holdings shall pay all fees andexpenses in connection with the filing of any applicable applications oramendments to provider numbers and licenses for the Hospitals.    Notwithstanding anything in this Agreementto the contrary, any real estate transfer Taxes with respect to interests inreal property owned directly or indirectly by the Company or any of itssubsidiaries due with respect to the transactions contemplated hereby shall bepaid by Holdings.

14.2         Entire Agreement.  Subject to Section 7.1, this Agreementsupersedes all prior oral discussions and written agreements between theparties with respect to the subject matter of this Agreement (including anyterm sheet or similar agreement or document relating to the transactionscontemplated hereby).  This Agreement,including the exhibits and schedules hereto and other documents delivered inconnection herewith, contains the sole and entire agreement between the partieshereto with respect to the subject matter hereof.

14.3         Waiver.  Any term or condition of this Agreement maybe waived at any time by the party which is entitled to the benefitthereof.  Any such waiver must be inwriting and must be duly executed by such party.  A waiver on one occasion shall not be deemedto be a waiver of the same or any other breach, provision or requirement on anyother occasion.

14.4         Amendment.  This Agreement may be modified or amendedonly by a written instrument duly executed by each of the parties hereto.

14.5         Counterparts;Facsimile Signatures.  This Agreementmay be executed simultaneously in any number of counterparts, each of whichshall be deemed an original, but all of which shall constitute one and the sameinstrument.  Facsimile signatures on thisAgreement shall be deemed to be original signatures for all purposes.

14.6         No Third PartyBeneficiary.  The terms andprovisions of this Agreement are intended solely for the benefit ofShareholders, Holdings and their respective successors or assigns, and it isnot the intention of the parties to confer third party beneficiary rights uponany other Person, except as set forth in Section 7.8.

14.7         GOVERNING LAW,CONSTRUCTION.  THIS AGREEMENT SHALLBE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OFCALIFORNIA APPLICABLE TO A CONTRACT EXECUTED AND PERFORMED IN SUCH STATE.  The parties hereto agree that no provisionsof this Agreement or any related document shall be construed for or against orinterpreted to the advantage or disadvantage of any party hereto by any courtor other Governmental Authority by reason of any party’s having or being deemedto have structured or drafted such provision, each party having participatedequally in the structuring and drafting hereof.

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14.8         Binding Effect.  This Agreement shall be binding upon andinure to the benefit of the parties and their respective successors andpermitted assigns, including successors by merger or otherwise.

14.9         No Assignment.  Neither this Agreement nor any righthereunder or part hereof may be assigned by any party hereto without the priorwritten consent of the other parties hereto; provided, however, that Holdingsmay assign some or all of its rights and obligations under this Agreement toother Persons who are wholly-owned (directly or indirectly) by Holdings.  Notwithstanding the assignment of thisAgreement or any rights or obligations hereunder by Holdings, Holdings shall bejointly and severally liable with its assignee for its obligations hereunder.

14.10       Headings, Gender, Etc.  The headings used in this Agreement have beeninserted for convenience and do not constitute provisions to be construed orinterpreted in connection with this Agreement. Unless the context of this Agreement otherwise requires, (a) wordsof any gender will be deemed to include each other gender, (b) words usingthe singular or plural number also will include the plural or singular number,respectively, (c) the terms “hereof”, “herein”, “hereby” and derivative orsimilar words will refer to this entire Agreement, and (d) the terms“Article,” “Section,” “Schedule” and “Exhibit” will refer to the specifiedArticle or Section of this Agreement or the specified Schedule or Exhibit tothis Agreement.  As used herein, the term“parties” means the parties to this Agreement.

14.11       Public Announcement.  Immediately after the execution of thisAgreement, the parties hereto will each consult with one another prior tomaking or issuing public statements or announcements with respect to thisAgreement or the transactions contemplated hereby and will use good faithefforts to agree on the text of a joint public statement or announcement and/orwill use good faith efforts to obtain the other parties’ approval of the textof any public statement or announcement to be made solely on behalf of a party;provided that the foregoing shall not preclude any party from making suchdisclosure as may be required by applicable Law or the rules of any securitiesexchange or market on which securities of such party are listed or quoted.

14.12       Severability; InvalidProvisions.  If any provision of thisAgreement is held to be illegal, invalid or unenforceable under any present orfuture Law, (a) such provisions will be fully severable; (b) thisAgreement will be construed and enforced as if such illegal, invalid orunenforceable provision had never comprised a part hereof; (c) the remainingprovisions of this Agreement will remain in full force and effect and will notbe affected by the illegal, invalid or unenforceable provision or by itsseverance herefrom; and (d) in lieu of such illegal, invalid orunenforceable provision, there will be added automatically as a part of thisAgreement a legal, valid and enforceable provision as similar in terms and effectto such illegal, invalid or unenforceable provision as may be possible.

14.13       Arbitration.  In the event of a dispute under thisAgreement which is not resolved  aftergood faith negotiation, any party may demand arbitration of the matter and thematter shall be settled by arbitration conducted by a single neutralarbitrator.  Any such arbitration shallbe held in Los Angeles County, California under the rules then in effect of theJudicial Arbitration and Mediation Association (JAMS).  The decision shall be written and shall besupported by, as agreed by the parties, either a reasoned award or findings offact and conclusions which shall set

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forth the award,judgment, decree or order awarded by the arbitrator.  The prevailing party to an arbitration shall beentitled to recovery from the non-prevailing party of its expenses, the fees ofthe arbitrator, the administrative costs of the arbitration, and the expenses,including, without limitation, reasonable attorneys’ fees and costs, reasonablyincurred by it in connection with the arbitration.  Judgment upon any award rendered by thearbitrator may be entered in any court having jurisdiction.  Notwithstanding the foregoing, the partiesshall have the rights to discovery in accordance with California Code of CivilProcedure Section 1283.05.

14.14       No Inferences.  Inasmuch as this Agreement is the result ofnegotiations between sophisticated parties of equal bargaining powerrepresented by counsel, no inference in favor of, or against, either partyshall be drawn from the fact that any portion of this Agreement has beendrafted by or on behalf of such party.

14.15       Reasonable Access.  In each instance where a party is grantedaccess pursuant to this Agreement, such access shall be reasonable and shall begranted during normal business hours and shall be coordinated through personsas may be designated in writing by the granting party for such purpose.  The right of access and inspection shall bemade in such a manner as not to interfere unreasonably with the operation ofthe granting party.

14.16       Further Assurance Clause.  On and after the Closing Date, Shareholders,the Acquired Entities, Holdings and Sub will take all appropriate action andexecute all documents, instruments or conveyances of any kind which may be reasonablynecessary or advisable to carry out any of the provisions hereof, including,without limitation, putting Holdings and/or its Affiliates in possession andoperational control of the Business and the Hospitals.

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IN WITNESS WHEREOF, theparties have caused this Agreement to be executed as of the date first abovewritten.
|            | ** ** | **“COMPANY”**                                              |
|------------|------------|----------------------------------------------------------------------|
| ** ** | ** ** | ** **                                                           |
| ** ** | ** ** | **ALTA HEALTHCARE SYSTEM, INC.**                                     |
| ** ** | ** ** | ** **                                                           |
| ** ** | ** ** | ** **                                                           |
| ** ** |       | By:                                                                  |   |   |
| ** ** |       |                                                                 | Samuel S. Lee |
| ** ** |       |                                                                 | President |
| ** ** |       |                                                                 |
| ** ** |       | By:                                                                  |   |   |
| ** ** |       |                                                                 | David Topper |
| ** ** |       |                                                                 | Chief Executive Officer |
| ** ** | ** ** |                                                                 |
| ** ** | ** ** |                                                                 |
|       | ** ** | **“SHAREHOLDERS”**                                         |
|       | ** ** | ** **                                                           |
|       | ** ** | ** **                                                           |
|       | ** ** | ** **                                                           | ** ** |
| ** ** |       |                                                                 | Samuel S. Lee |
|       |       |                                                                 |
|       |       |                                                                 |
|       |       | **David & Alexa Topper Family Trust, U/D/T  September 29, 1997** |
|       |       |                                                                 |
|       |       |                                                                 |   |
| ** ** |       |                                                                 | Trustee |
|       |       |                                                                 |
| ** ** | ** ** | **“HOLDINGS”**                                             |
| ** ** | ** ** | ** **                                                           |
| ** ** | ** ** | **PROSPECT MEDICAL HOLDINGS, INC.**                                  |
| ** ** | ** ** | ** **                                                           |
| ** ** |       | By:                                                                  |   |   |
| ** ** |       |                                                                 | Jacob Y. Terner, M.D. |
| ** ** |       |                                                                 | Chief Executive Officer |
|       |       |                                                                 |
|       | ** ** | **“SUB”**                                                  |
|       | ** ** | ** **                                                           |
|       | ** ** | **PROSPECT HOSPITALS SYSTEM, LLC**                                   |
|       | ** ** | ** **                                                           |
| ** ** |       | By:                                                                  |   |   |
| ** ** |       |                                                                 | Jacob Y. Terner, M.D., Manager |
|            |            |                                                                      |  |  |  |

 

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