Exhibit 10.28

    AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT


                                    between


                          PHC, INC. AND SUBSIDIANRIES


                                      and


                           CAPITALSOURCE FINANCE LLC





                                  Dated as of
                                 June 13, 2007


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     AMENDED AND RESTATED REVOLVING CREDIT, TERM LOAN AND SECURITY AGREEMENT

     THIS REVOLVING CREDIT,  TERM LOAN AND SECURITY  AGREEMENT (the "Agreement")
dated as of June 13, 2007,  is entered into  between PHC,  INC, a  Massachusetts
corporation,  PHC OF MICHIGAN, INC., a Massachusetts corporation, PHC OF NEVADA,
INC.,  a  Massachusetts   corporation,   PHC  OF  UTAH,  INC.,  a  Massachusetts
corporation,  PHC OF VIRGINIA,  INC., a  Massachusetts  corporation,  WELLPLACE,
INC.,  a  Massachusetts  corporation,  DETROIT  BEHAVIORAL  INSTITUTE,  INC.,  a
Massachusetts  corporation,   NORTH  POINT  -  PIONEER,  INC.,  a  Massachusetts
corporation   and  SEVEN   HILLS   HOSPITAL,   INC.,   a  Delaware   corporation
(individually,  collectively  and jointly and  severally,  the  "Borrower")  and
CAPITALSOURCE FINANCE LLC, a Delaware limited liability company (the "Lender").

     WHEREAS,  pursuant to a certain  Revolving  Credit,  Term Loan and Security
Agreement  by and between  Borrower and Lender dated as of October 19, 2004 (the
"Existing  Credit  Agreement"),  Lender made  available  to Borrower a revolving
credit facility (the "Revolving  Facility") in a maximum principal amount at any
time outstanding of up to Three Million Five Hundred Thousand and No/100 Dollars
($3,500,000)  (the "Facility Cap") and a term loan in a maximum principal amount
of One Million  Four  Hundred  Thousand  and No/100  Dollars  ($1,400,000)  (the
"Existing Term Loan"); and

     WHEREAS,  Borrower has requested that Lender amend and restate the Existing
Credit  Agreement  to  continue  the  Revolving  Facility  and  the  outstanding
principal  amount of the  Existing  Term  Loan as  provided  herein  and to make
available  to Borrower a  multi-draw  term loan (the "Term  Loan") in an initial
principal amount of Three Million and No/100 Dollars  ($3,000,000) (the "Initial
Term  Loan  Amount")  to  consist  of (a) the  Existing  Term  Loan  outstanding
immediately  prior to the  effectiveness  of this Agreement (in other words, the
Existing  Term  Loan  shall  be  continued  as part of the  Term  Loan)  and (b)
additional  term loan draws which Lender agrees to make to Borrower from time to
time following the Restatement Date; and

     WHEREAS, Lender is willing to amend and restate the terms and conditions of
the Existing  Credit  Agreement to continue the Revolving  Facility and make the
Term Loan available to Borrower upon the terms and subject to the conditions set
forth herein.

     NOW,  THEREFORE,  in  consideration of the foregoing and for other good and
valuable   consideration,   the  receipt  and   adequacy  of  which  hereby  are
acknowledged,  Borrower  and  Lender  hereby  agree  that  the  Existing  Credit
Agreement shall be amended and restated as follows:

I.   DEFINITIONS

     1.1  General Terms

     For purposes of this Agreement,  in addition to the  definitions  above and
elsewhere  in this  Agreement,  the terms listed in Appendix A hereto shall have
the meanings  given such terms in Appendix A, which is  incorporated  herein and
made a part  hereof.  All  capitalized  terms  used  which are not  specifically
defined  shall have  meanings  provided in Article 9 of the UCC in effect on the
date hereof to the extent the same are used or defined therein. Unless otherwise
specified herein or in Appendix A, any agreement or contract  referred to herein
or in Appendix A shall mean such agreement as modified,  amended or supplemented
from time to time. Unless otherwise specified,  as used in the Loan Documents or
in any  certificate,  report,  instrument  or other  document  made or delivered


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pursuant  to any of the Loan  Documents,  all  accounting  terms not  defined in
Appendix A elsewhere in this  Agreement  shall have the  meanings  given to such
terms in and shall be interpreted in accordance with GAAP.

II.  ADVANCES, PAYMENT AND INTEREST

     2.1 The Revolving Facility

     (a) Subject to the provisions of this Agreement,  Lender shall continue the
Existing  Advances and make Advances to Borrower  under the  Revolving  Facility
from time to time  during the Term,  provided  that,  notwithstanding  any other
provision of this  Agreement,  the  aggregate  amount of all Advances at any one
time outstanding under the Revolving Facility shall not exceed either of (a) the
Facility Cap and (b) the  Availability.  The  Revolving  Facility is a revolving
credit facility,  which may be drawn,  repaid and redrawn,  from time to time as
permitted  under  this  Agreement.  Any  determination  as to  whether  there is
availability  within the Borrowing  Base for Advances shall be made by Lender in
its sole  discretion  and is final and binding upon Borrower.  Unless  otherwise
permitted  by Lender,  each  Advance  shall be in an amount of at least  $1,000.
Subject to the provisions of this Agreement, Borrower may request Advances under
the Revolving  Facility up to and including the value,  in U.S.  Dollars,  in an
amount equal to the Applicable  Advance Rate of the Borrowing  Base,  minus,  if
applicable,  amounts reserved pursuant to this Agreement (such calculated amount
being  referred to herein as the  "Availability").  Advances under the Revolving
Facility  automatically  shall  be  made  for the  payment  of  interest  on the
Revolving  Facility and the Term Loan and other Obligations on the date when due
to the extent available and as provided for herein.

     (b)  Lender  has   established  the   above-referenced   advance  rate  for
Availability  and,  in  its  sole  credit  judgment,   may  further  adjust  the
Availability and such advance rate by applying  percentages (known as "liquidity
factors") to Eligible  Receivables by payor class based upon  Borrower's  actual
recent collection history for each such payor class (i.e.,  Medicare,  Medicaid,
commercial  insurance,  etc.) in a manner consistent with Lender's  underwriting
practices and  procedures,  including  without  limitation  Lender's  review and
analysis  of,  among  other  things,  Borrower's  historical  returns,  rebates,
discounts,  credits and allowances  (collectively,  the "Dilution Items").  Such
liquidity  factors  and the  advance  rate for  Availability  may be adjusted by
Lender throughout the Term as warranted by Lender's  underwriting  practices and
procedures  in its sole credit  judgment.  Also,  Lender shall have the right to
establish from time to time, in its sole credit  judgment,  reserves against the
Borrowing  Base,  which  reserves  shall have the effect of reducing the amounts
otherwise  eligible to be disbursed  to Borrower  under the  Revolving  Facility
pursuant to this Agreement.

2.2  Revolving Facility Maturity Date

     All amounts  outstanding  under the Revolving  Facility and other Revolving
Facility  Obligations  shall be due and  payable  in  full,  if not  earlier  in
accordance with this Agreement, on the earlier of (i) the occurrence of an Event
of Default if  required  pursuant  hereto or  Lender's  demand  upon an Event of
Default,  and (ii)  October 19,  2011 (such  earlier  date being the  "Revolving
Facility Maturity Date"). The Revolving Facility shall be subject to two (2) one
(1) year extensions, exercisable by written notice to Lender no less than ninety
(90) days prior to the then current Revolving  Facility Maturity Date;  provided
that  no  Default  or  Event  of  Default  has  occurred  or is  continuing.  In
consideration for each extension of the Revolving  Facility Maturity Date and as
a condition  thereof  exercised by Borrower,  Borrower agrees to pay to Lender a
nonrefundable extension fee in the amount of $20,000.00.


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     2.3  Revolving  Facility  Disbursements;  Requirement to Deliver  Borrowing
          Certificate

     So long as no  Default  or Event of  Default  shall  have  occurred  and be
continuing, Borrower Agent may give Lender irrevocable written notice requesting
an Advance under the  Revolving  Facility by delivering to Lender not later than
11:00  a.m.  (New York City  time) at least one but not more than four  Business
Days  before  the  proposed  borrowing  date  of  such  requested  Advance  (the
"Borrowing  Date"), a completed  Borrowing  Certificate and relevant  supporting
documentation  satisfactory  to Lender,  which shall (i)  specify  the  proposed
Borrowing  Date of such Advance  which shall be a Business Day, (ii) specify the
principal amount of such requested Advance,  (iii) certify the matters contained
in  Section  4.2,  and (iv)  specify  the  amount of any  Medicare  or  Medicaid
recoupments and/or recoupments of any third-party payor being sought,  requested
or  claimed,  or,  to  Borrower's  knowledge,  threatened  against  Borrower  or
Borrower's  Affiliates.  Each time a request for an Advance is made, and, in any
event and  regardless  of whether an Advance is being  requested,  on Tuesday of
each week during the Term (and more frequently if Lender shall so request) until
the  Obligations  are  indefeasibly  paid in cash in full and this  Agreement is
terminated,  Borrower  Agent  shall  deliver to Lender a  Borrowing  Certificate
accompanied by (A) a separate  detailed aging and categorizing of Borrower's (i)
accounts  receivable and (ii) if requested by Lender,  accounts  payable and (B)
such other supporting  documentation with respect to the figures and information
in the Borrowing Certificate as Lender shall reasonably request from a credit or
security perspective or otherwise.  On each Borrowing Date, Borrower irrevocably
authorizes  Lender to  disburse  the  proceeds of the  requested  Advance to the
appropriate Borrower's account(s) as set forth on Schedule 2.3, in all cases for
credit to the  appropriate  Borrower  (or to such other  account as to which the
Borrower Agent shall  instruct  Lender) via Federal funds wire transfer no later
than 4:00 p.m. (New York City time).


     2.4  Revolving Facility Collections;  Repayment; Borrowing Availability and
          Lockbox

     Each of  PHC-Michigan  and PHC-Utah (and each other Borrower whose Accounts
may be included at any time in the future  within the  Borrowing  Base,  and all
Borrowers at the  direction of Lender  following  the  occurrence of an Event of
Default)  shall  maintain  one  or  more  lockbox  accounts   (individually  and
collectively, the "Lockbox Account") with one or more banks acceptable to Lender
(each, a "Lockbox  Bank"),  and shall execute with each Lockbox Bank one or more
agreements  acceptable to Lender  (individually and  collectively,  the "Lockbox
Agreement"),  and such other  agreements  related thereto as Lender may require.
Each  such  Borrower  shall  ensure  that all  collections  of their  respective
Accounts  (other than accounts due from Private Payors and any amounts  received
under  contracts  held by  PHC-Michigan  or PHC-Utah  but for which the services
relating  thereto are  performed by Wellplace)  are paid and delivered  directly
from Account Debtors and other Persons into the appropriate Lockbox Account. The
Lockbox  Agreements  shall  provide  that the  Lockbox  Banks  immediately  will
transfer all funds paid into the Lockbox  Accounts into a depository  account or
accounts  maintained  by Lender or an Affiliate of Lender at such bank as Lender
may  communicate  to each such  Borrower  from time to time (the  "Concentration
Account"),  except,  with respect only to Accounts payable by  Medicaid/Medicare
Account Debtors,  as instructed by the applicable Borrower to whom such Accounts
are  payable as  permitted  pursuant to the  applicable  Lockbox  Agreement  and
provided  that the  Lockbox  Banks  shall not  transfer  the funds paid into the
Lockbox  Account of Seven Hills to the  Concentration  Account until the date on
which Lender  notifies the Lockbox Bank and Borrower  that a Default or Event of
Default has occurred.  Notwithstanding  and without limiting any other provision
of  any  Loan  Document,  Lender  shall  apply,  on a  daily  basis,  all  funds
transferred into the Concentration Account pursuant to the Lockbox Agreement and
this Section 2.4 in such order and manner as determined by Lender. To the extent


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that any Accounts  collections  of any such  Borrower or any other cash payments
received by any such Borrower are not sent directly to the  appropriate  Lockbox
Account as required in this Section 2.4 but are received by any such Borrower or
any of their  Affiliates,  such  collections and proceeds shall be held in trust
for the benefit of Lender and immediately  remitted (and in any event within two
(2) Business Days), in the form received, to the appropriate Lockbox Account for
immediate transfer to the Concentration  Account. Each Borrower acknowledges and
agrees that  compliance  with the terms of this Section 2.4 is an essential term
of this Agreement, and that, in addition to and notwithstanding any other rights
Lender may have hereunder,  under any other Loan Document,  under applicable law
or at  equity,  upon  each and every  failure  by any  Borrower  or any of their
Affiliates  to comply with any such terms  Lender  shall be entitled to assess a
non-compliance  fee which shall operate to increase the  Applicable  Rate by two
percent (2.0%) per annum during any period of  non-compliance,  whether or not a
Default or an Event of Default  occurs or is  declared,  provided  that  nothing
shall prevent  Lender from  considering  any failure to comply with the terms of
this Section 2.4 to be a Default or an Event of Default.  All funds  transferred
to the  Concentration  Account  for  application  to the  Obligations  under the
Revolving  Facility  shall be  applied  to  reduce  the  Obligations  under  the
Revolving Facility,  but, for purposes of calculating interest hereunder,  shall
be subject to a four (4)  Business  Day  clearance  period.  If as the result of
collections of Accounts and/or any other cash payments  received by any Borrower
pursuant  to this  Section  2.4 a credit  balance  exists  with  respect  to the
Concentration Account, such credit balance shall not accrue interest in favor of
any Borrower,  but shall be available to the appropriate  Borrower in accordance
with the  terms  of this  Agreement.  If  applicable,  at any time  prior to the
execution of all or any of the Lockbox Agreements and operation of all or any of
the Lockbox  Accounts,  each  Borrower  and their  Affiliates  shall  direct all
collections or proceeds it receives on Accounts or from other  Collateral to the
accounts(s) and in the manner specified by Lender in its sole discretion.

     2.5  The Term Loan

     Subject to the terms and  conditions  set forth in this  Agreement,  Lender
agrees to make the Term Loan  available  to Borrower in the  original  principal
amount of the Term Loan Amount by continuing the outstanding principal amount of
the Existing  Term Loan made by Lender under the Existing  Credit  Agreement and
advancing additional funds as provided in this Agreement,  so that as long as no
Default  or Event of  Default  has  occurred  or is  continuing,  Borrower  may,
commencing  as of the  Restatement  Date from time to time prior to the close of
business on the Term Loan Maturity Date, borrow, in one or more Term Loan Draws,
an amount which,  when aggregated with the outstanding  principal  amount of the
Existing  Term Loan  continued  hereunder,  does not exceed in the aggregate the
Term  Loan  Amount in effect  from  time to time.  The Term Loan is a  revolving
credit facility,  which may be drawn,  repaid and redrawn,  from time to time as
permitted under this Agreement.  So long as no Default or Event of Default shall
have  occurred and be  continuing,  Borrower  Agent may give Lender  irrevocable
written  notice  requesting a Term Loan Draw by  delivering  to Lender not later
than 11:00 a.m.  (Eastern Standard Time) at least one (1) but not more than four
(4) Business Days before the proposed borrowing date of such requested Term Loan
Draw (the "Term Loan Borrowing  Date"),  a completed  Borrowing  Certificate and
relevant  supporting  documentation  satisfactory  to  Lender,  which  shall (i)
specify the proposed  Term Loan  Borrowing  Date which shall be a Business  Day,
(ii)  specify  the  principal  amount of such  requested  Term Loan Draw,  (iii)
certify  the  matters  contained  in Section  4.2 and  Section  4.3.  Subject to
contrary written  instructions from Borrower Agent, each Term Loan Draw shall be
disbursed  on  the  applicable  Term  Loan  Borrowing  Date  to  the  Borrower's
account(s) as set forth on Schedule 2.3.

     2.6  Repayment of Term Loan; Maturity

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     Payment of the outstanding  principal balance of the Term Loan (in addition
to the  interest  payments  in Section  3.2) and all other  amounts  (other than
interest) outstanding under the Term Loan shall be made as follows:

          (a)  All Term Loan  Obligations  shall be due and payable in full,  if
               not earlier in accordance with this Agreement,  on the earlier of
               (i) the  occurrence  and  continuance  of an Event of  Default if
               required  pursuant  hereto or Lender's demand upon the occurrence
               and  continuance  of  an  Event  of  Default,   (ii)  a  Revolver
               Termination  and (iii) the last day of the Term,  the  earlier of
               the  foregoing  (i),  (ii) or (iii) being the "Term Loan Maturity
               Date".

          (b)  The principal balance of the Term Loan outstanding at any time in
               excess of the Term Loan  Amount in effect from time to time shall
               be immediately due and payable by Borrower  without the necessity
               of any demand, at the Payment Office, whether or not a Default or
               Event of Default has occurred or is continuing  and shall be paid
               in the  manner  specified  in  Section  2.7.  Advances  shall  be
               automatically  made under the Revolving  Facility to pay any such
               excess  amounts  to the  extent  available  and as  provided  for
               herein.

     2.7  Promise to Pay; Manner of Payment

     Borrower absolutely and unconditionally promises to pay principal, interest
and all other  amounts  payable  hereunder,  or under any other  Loan  Document,
without any right of rescission and without any deduction whatsoever,  including
any deduction for any setoff,  counterclaim or recoupment,  and  notwithstanding
any damage to,  defects in or  destruction of the Collateral or any other event,
including  obsolescence  of any property or  improvements.  All payments made by
Borrower  (other than payments  automatically  paid through  Advances  under the
Revolving  Facility as provided herein),  shall be made only by wire transfer on
the  date  when  due,  without  offset  or  counterclaim,  in U.S.  Dollars,  in
immediately  available  funds to such  account as may be indicated in writing by
Lender to Borrower from time to time. Any such payment  received after 2:00 p.m.
(New York  City  time) on the date  when due  shall be  deemed  received  on the
following Business Day. Whenever any payment hereunder shall be stated to be due
or shall become due and payable on a day other than a Business Day, the due date
thereof  shall be  extended  to,  and such  payment  shall be made on,  the next
succeeding  Business  Day,  and such  extension  of time in such  case  shall be
included in the  computation  of payment of any interest  (at the interest  rate
then in effect during such extension) and/or fees, as the case may be.

     2.8  Repayment of Excess Advances

     Any balance of Advances  under the Revolving  Facility  outstanding  at any
time in excess of the lesser of the  Facility Cap or the  Availability  shall be
immediately due and payable by Borrower without the necessity of any demand,  at
the Payment Office, whether or not a Default or Event of Default has occurred or
is continuing and shall be paid in the manner specified in Section 2.7.

     2.9  Other Mandatory Prepayments

     In addition to and without limiting any provision of any Loan Document:

     (a) if a Change of Control  occurs,  on or prior to the first  Business Day
following the date of such Change of Control,  Borrower  shall prepay the Loans,
including,   without  limitation,   all  outstanding   Advances  and  all  other
Obligations,  in full in cash together with accrued interest thereon to the date
of prepayment  and all other  amounts owing to Lender under the Loan  Documents;
and

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     (b) if any Borrower sells any of its assets or properties,  sells or issues
any securities (debt or equity)(other than private placements for equity of PHC,
Inc. the terms and conditions of which do not violate any terms or conditions of
this  Agreement or the other Loan  Documents,  employee  stock  purchase  plans,
warrants  issued for services and stock and stock options issued to employees in
the  ordinary  course of  business  (including  shares of stock  issued upon the
exercise of such stock options)), capital stock or ownership interests, receives
any capital contributions, receives any property damage insurance award which is
not used to repair  or  replace  the  property  covered  thereby  or incurs  any
Indebtedness except for Permitted Indebtedness,  then it shall apply 100% of the
proceeds  thereof to the prepayment of the Loans together with accrued  interest
thereon and all other Obligations owing to Lender under the Loan Documents, such
payment to be applied at such time and in such manner and order as Lender  shall
decide in its sole discretion.

     2.10 Payments by Lender

     Should any amount  required  to be paid under any Loan  Document be unpaid,
such amount may be paid by Lender,  which  payment shall be deemed a request for
an Advance under the Revolving  Facility as of the date such payment is due, and
Borrower irrevocably authorizes  disbursement of any such funds to Lender by way
of direct payment of the relevant amount, interest or Obligations. No payment or
prepayment  of any amount by Lender or any other Person shall entitle any Person
to be  subrogated  to the rights of Lender  under any Loan  Document  unless and
until the Obligations have been fully performed and paid irrevocably in cash and
this Agreement has been  terminated.  Any sums expended by Lender as a result of
any  Borrower's or any  Guarantor's  failure to pay,  perform or comply with any
Loan Document or any of the Obligations may be charged to Borrower's  account as
an Advance under the Revolving Facility and added to the Obligations.

     2.11 Evidence of Loans

     (a)  Lender  shall  maintain,   in  accordance  with  its  usual  practice,
electronic or written  records  evidencing the  Indebtedness  and Obligations to
Lender  resulting  from each Loan  made by Lender  from time to time,  including
without  limitation,  the amounts of principal and interest  payable and paid to
Lender from time to time under this Agreement.  Lender and Borrower  acknowledge
and agree that the Existing  Advances  under the  Revolving  Facility  have been
evidenced  by certain  Revolving  Note dated  October 19, 2004 in the  aggregate
principal  amount of Three Million Five Hundred  Thousand  Dollars  ($3,500,000)
(the  "Existing  Revolving  Note")  and that  the  Existing  Term  Loan has been
evidenced  by a certain  Term Note dated  October 19, 2004 (the  "Existing  Term
Note").  Lender  and  Borrower  acknowledge  and  agree  that  (i) the  Existing
Revolving  Note and the  Existing  Term Note  shall be  cancelled  by Lender and
returned to Borrower as of the Restatement Date but that the cancellation of the
Existing  Revolving  Notes  shall not  constitute  a  novation  of the  Existing
Advances and the Existing Term Loan or any other amounts  evidenced  thereby and
(ii) all Advances  (including the Existing  Advances) and the Term Loan shall as
of the Restatement Date be evidenced as provided in this Section 2.11(a).

     (b) The  entries  made in the  electronic  or  written  records  maintained
pursuant to subsection (a) of this Section 2.11 (the "Register")  shall be prima
facie  evidence,  absent  manifest  error,  of the  existence and amounts of the
Obligations  and  Indebtedness  therein  recorded;  provided  however,  that the
failure of Lender to maintain such records or any error therein shall not in any
manner affect the joint and several  obligations  of Credit Parties to repay the
Loans or Obligations in accordance with their terms.


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     (c) Lender will  account to Borrower  monthly  with a statement of Advances
under the Revolving Facility, and any charges and payments made pursuant to this
Agreement,  and in the absence of manifest error,  such  accounting  rendered by
Lender shall be deemed final,  binding and conclusive  unless Lender is notified
by Borrower in writing to the contrary  within fifteen  calendar days of Receipt
of such  accounting,  which notice  shall be deemed an  objection  only to items
specifically objected to therein.

     (d) Borrower agrees that:

     (i) upon written notice by Lender to Borrower that a Note or other evidence
of  Indebtedness  is  requested  by  Lender  to  evidence  the  Loans  and other
Obligations  owing or  payable  to,  or to be made by,  Lender,  Borrower  shall
promptly  (and in any event within three (3) Business  Days of any such request)
execute and deliver to Lender an appropriate Note or Notes in form and substance
reasonably acceptable to Lender and Borrower;

     (ii) all  references to Notes in the Loan  Documents  shall mean Notes,  if
any, to the extent  issued  (and not  returned  to  Borrower  for  cancellation)
hereunder, as the same may be amended, modified, divided, supplemented, extended
or restated from time to time; and

     (iii) upon  Lender's  written  request,  and in any event  within three (3)
Business Days of any such request,  Borrower shall execute and deliver to Lender


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new Notes and  divide  the Notes in  exchange  for then  existing  Notes in such
smaller  amounts  or  denominations  as  Lender  shall  specify  in its sole and
absolute discretion;  provided,  that the aggregate principal amount of such new
Notes shall not exceed the aggregate  principal amount of the Notes  outstanding
at the time such request is made;  and provided,  further,  that such Notes that
are to be  replaced  shall then be deemed no longer  outstanding  hereunder  and
replaced by such new Notes and returned to Borrower  within a reasonable  period
of time after Lender's receipt of the replacement Notes.

     2.12 Grant of Security Interest; Collateral

     (a)  To  secure  the  payment  and  performance  of the  Obligations,  each
Borrower, each Guarantor, hereby grants to Lender a continuing security interest
in and Lien upon, and pledges to Lender, all of its right, title and interest in
and to the following  (collectively and each  individually,  the  "Collateral"),
which security interest is intended to be a first priority security interest:

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

     (ii) all of such Borrower's and Guarantor's  intangible  personal property,
including  without  limitation  all  present  and future  Accounts,  securities,
contract  rights,  Permits,  General  Intangibles,   Chattel  Paper,  Documents,
Instruments  and  Deposit  Accounts,   Letter-of-Credit  Rights  and  Supporting
Obligations,  rights to the payment of money or other forms of  consideration of
any kind, tax refunds,  insurance proceeds, now owned or hereafter acquired, and
all intangible and tangible  personal property relating to or arising out of any
of the foregoing;

     (iii) all of such Borrower's and Guarantor's  present and future Government
Contracts and rights thereunder and the related Government Accounts and proceeds
thereof,  now or hereafter  owned or acquired by such  Borrower  and  Guarantor;


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provided,  however, that Lender shall not have a security interest in any rights
under any  Government  Contract of such Borrower and Guarantor or in the related
Government  Account  where  the  taking  of such  security  interest  would be a
violation of an express  prohibition  contained in the Government  Contract (for
purposes of this limitation,  the fact that a Government Contract is subject to,
or  otherwise  refers to, Title 31,  Section 203 or Title 41,  Section 15 of the
United States Code shall not be deemed an express prohibition against assignment
thereof) or is prohibited by applicable law; and

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

     (b)  Notwithstanding  the foregoing  provisions of this Section 2.13,  such
grant of a security  interest  shall not  extend  to, and the term  "Collateral"
shall not include,  any General Intangibles of Borrower or such Guarantor to the
extent that (i) such General  Intangibles are not assignable or capable of being
encumbered  as a  matter  of law or under  the  terms  of any  license  or other
agreement applicable thereto (but solely to the extent that any such restriction
shall be enforceable  under  applicable law) without the consent of the licensor
thereof or other  applicable  party thereto,  and (ii) such consent has not been
obtained;  provided,  however,  that the foregoing grant of a security  interest
shall extend to, and the term "Collateral" shall include, each of the following:
(a) any  General  Intangible  which is in the nature of an Account or a right to
the payment of money or a proceed of, or otherwise related to the enforcement or
collection of, any Account or right to the payment of money,  or goods which are
the  subject of any  Account or right to the  payment of money,  (b) any and all
proceeds of any General Intangible that is otherwise excluded to the extent that
the assignment, pledge or encumbrance of such proceeds is not so restricted, and
(c) upon  obtaining the consent of any such licensor or other  applicable  party
with respect to any such otherwise  excluded  General  Intangible,  such General
Intangible as well as any and all proceeds  thereof that might  theretofore have
been  excluded  from  such  grant  of a  security  interest  and  from  the term
"Collateral."

     (c) The payment and  performance of the  Obligations  shall also secured by
the  provisions  of, and the  property  described  in, the  Security  Documents,
including,  but not being  limited  to, (i) a  mortgage  deed or a deed of trust
dated the Closing Date and amended and restated as of the Restatement  Date from
each of  PHC-Michigan  and  PHC-Virginia  with  respect  to the Real  Estate,  a
leasehold mortgage or leasehold deed of trust dated the Closing Date and amended
and restated as of the  Restatement  Date from PHC-Utah with respect to the Utah
Leasehold  and a  leasehold  mortgage  or  leasehold  deed of  trust  dated  the
Restatement  Date from Seven  Hills  Hospital  with  respect to the Seven  Hills
Leasehold (each, as such may be modified,  amended or supplemented  from time to
time, individually and collectively, a "Mortgage"), (ii) a collateral assignment
of leases,  rentals and  property  income dated the Closing Date and amended and
restated as of the Restatement  Date from each of PHC-Michigan  and PHC-Virginia
to Lender (each, as such may be modified,  amended or supplemented  from time to
time,  individually  and  collectively,  an  "Assignment of Rents") and (iii) an
assignment  of  permits  and  licenses  dated  the  Closing  Date  from  each of
PHC-Michigan  and  PHC-Virginia to Lender with respect to the Real Estate (each,
as such may be modified, amended or supplemented from time to time, individually
and collectively, a "Permit Assignment").

     (d)  The   payment   and   performance   of  the   Obligations   shall   be
cross-guaranteed  by each Borrower pursuant to a cross guaranty  agreement dated
the Closing  Date or, in the case of Seven  Hills  Hospital,  a joinder  thereto


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dated the  Restatement  Date  executed by each  Borrower  (each,  as such may be
modified,   amended  or  supplemented  from  time  to  time,   individually  and
collectively, a "Cross Guaranty").

     (e) Reserved.

     (f) In addition to the foregoing,  to secure the payment and performance of
the Obligations,  PHC shall pledge to Lender all of the securities which it owns
in its  Subsidiaries  pursuant,  in the  case  of all  Subsidiaries  other  than
Pivotal, to the Stock Pledge Agreement.

     (g) Upon the execution and delivery of this Agreement,  and upon the proper
filing of the necessary  financing  statements,  the  recordation of the Patent,
Trademark  and  Copyright  Assignment  in the United States Patent and Trademark
Office and/or the United States  Copyright  Office,  and proper  delivery of the
necessary  stock and  membership  interest  certificates,  without  any  further
action,  Lender will have a good,  valid and perfected  first  priority Lien and
security   interest  in  the  Collateral,   subject  to  no  transfer  or  other
restrictions  or  Liens of any kind in favor  of any  other  Person  except  for
Permitted Liens. No financing  statement relating to any of the Collateral is on
file in any public office  except those (i) on behalf of Lender,  and/or (ii) in
connection with Permitted Liens.

     2.13 Collateral Administration

     (a) All Collateral  (except Deposit  Accounts) will at all times be kept by
each Borrower at the locations set forth on Schedule 5.18B hereto and shall not,
without  thirty (30)  calendar  days prior  written  notice to Lender,  be moved
therefrom,  and in any case shall not be moved  outside the  continental  United
States.

     (b) Each Borrower shall keep accurate and complete  records of its Accounts
and all payments and collections thereon and shall submit such records to Lender
on such  periodic  bases as Lender may  request.  In  addition,  if  Accounts of
PHC-Michigan  or PHC-Utah (or any other  Borrower whose Accounts may be included
at any time in the future within the Borrowing Base) in an aggregate face amount
in excess of  $10,000  become  ineligible  because  they fall  within one of the
specified  categories of  ineligibility  set forth in the definition of Eligible
Receivables,  each such Borrower  shall notify Lender of such  occurrence on the
first Business Day following the discovery of such  occurrence and the Borrowing
Base shall  thereupon  be adjusted to reflect such  occurrence.  If requested by
Lender,  each  Borrower  shall  execute  and  deliver to Lender  formal  written
assignments  of all of its  Accounts  weekly  or daily as  Lender  may  request,
including all Accounts created since the date of the last  assignment,  together
with copies of claims, invoices and/or other information related thereto. To the
extent that  collections  from such assigned  accounts  exceed the amount of the
Obligations,  such excess amount shall not accrue interest in favor of Borrower,
but shall be available to the Borrower upon Borrower's written request.

     (c) Whether or not an Event of Default  has  occurred,  upon prior  written
notice to Borrower,  any of Lender's  officers,  employees,  representatives  or
agents shall have the right,  at any time during normal  business  hours, in the
name of Lender, any designee of Lender or any Borrower,  to verify the validity,
amount or any other matter  relating to any Accounts of any  Borrower;  provided
that such prior written notice to Borrower is not required if a Default or Event
of Default has occurred and be continuing.  Each Borrower shall  cooperate fully
with Lender in an effort to facilitate and promptly  conclude such  verification
process.

     (d) To  expedite  collection,  each  Borrower  shall  endeavor in the first
instance to make  collection  of its Accounts for Lender.  Lender shall have the

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right at all times after the occurrence  and during the  continuance of an Event
of Default to notify (i) Account  Debtors owing  Accounts to any Borrower  other
than Medicaid/Medicare Account Debtors that their Accounts have been assigned to
Lender  and to  collect  such  Accounts  directly  in its own name and to charge
collection  costs  and  expenses,   including  reasonable  attorney's  fees,  to
Borrower,  and (ii)  Medicaid/Medicare  Account  Debtors that such  Borrower has
waived any and all defenses and  counterclaims it may have or could interpose in
any such  action  or  procedure  brought  by  Lender  to  obtain  a court  order
recognizing the collateral assignment or security interest and lien of Lender in
and to any Account or other Collateral and that Lender is seeking or may seek to
obtain a court order recognizing the collateral  assignment or security interest
and lien of  Lender  in and to all  Accounts  and other  Collateral  payable  by
Medicaid/Medicare Account Debtors.

     (e) As and when  determined by Lender in its sole  discretion,  Lender will
perform  the  searches  described  in clauses  (i) and (ii) below  against  each
Borrower  and  Guarantor  (the  results  of  which  are  to be  consistent  with
Borrower's   representations  and  warranties  under  this  Agreement),  all  at
Borrower's  expense:  (i) UCC  searches  with the  Secretary  of State and local
filing  offices  of  each  jurisdiction  where  any  Borrower  and/or  Guarantor
maintains their respective executive offices, a place of business or assets; and
(ii) judgment, federal tax lien and corporate and partnership tax lien searches,
in each  jurisdiction  searched  under clause (i) above.  UCC searches  shall be
conducted at the expense of Borrower on a quarterly basis; provided, that Lender
shall have the right to conduct such  searches  more  frequently  at its expense
and,  if a Default or Event of Default  shall have  occurred,  at the expense of
Borrower.

     (f) Each of  PHC-Michigan  and  PHC-Utah  (and  any  other  Borrower  whose
Accounts may be included at any time in the future  within the  Borrowing  Base)
(i) shall  provide  prompt  written  notice to its current  bank to transfer all
items,  collections and  remittances to the  Concentration  Account,  (ii) shall
provide   prompt   written   notice  to  each   Account   Debtor   (other   than
Medicaid/Medicare  Account  Debtors)  that  Lender  has been  granted a lien and
security interest in, upon and to all Accounts applicable to such Account Debtor
and shall direct each Account Debtor to make payments to the appropriate Lockbox
Account,  and each such Borrower hereby authorizes  Lender,  upon any failure to
send such notices and directions within ten (10) calendar days after the date of
this  Agreement (or ten (10)  calendar days after the Person  becomes an Account
Debtor),  to send any and all similar  notices and  directions  to such  Account
Debtors,  and (iii) shall do anything  further that may be lawfully  required by
Lender to secure Lender and effectuate the intentions of the Loan Documents.  At
Lender's  request,  each such Borrower shall  immediately  deliver to Lender all
items for which Lender must receive  possession  to obtain a perfected  security
interest and all notes,  certificates,  and documents of title,  Chattel  Paper,
warehouse receipts,  Instruments, and any other similar instruments constituting
Collateral.  Notwithstanding  any  provision  of  this  subsection  (f)  to  the
contrary,  following the  occurrence of an Event of Default each Borrower  shall
comply with the provisions of this subsection (f) if directed by Lender.

     2.14 Power of Attorney

     Lender is hereby  irrevocably made,  constituted and appointed the true and
lawful attorney for each Borrower (without requiring any of them to act as such)
with full power of substitution to do the following: (i) endorse the name of any
such Person upon any and all checks, drafts, money orders, and other instruments
for the  payment  of money  that  are  payable  to such  Person  and  constitute
collections  on its or their  Accounts;  (ii) execute in the name of such Person
any financing statements,  schedules, assignments,  instruments,  documents, and
statements  that it is or they or are  obligated to give Lender under any of the
Loan  Documents to enable  Lender to preserve or exercise any rights or remedies
in any  Collateral;  and (iii) do such other and  further  acts and deeds in the
name of such Person that Lender may deem  necessary  or desirable to enforce any
Account or other Collateral or to perfect Lender's  security interest or lien in

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any  Collateral.  In  addition,  if any  such  Person  breaches  its  obligation
hereunder to direct payments of Accounts or the proceeds of any other Collateral
to the appropriate Lockbox Account, Lender, as the irrevocably made, constituted
and  appointed  true and  lawful  attorney  for  such  Person  pursuant  to this
paragraph,  may, by the  signature  or other act of any of Lender's  officers or
authorized  signatories  (without  requiring  any of them to do so),  direct any
federal,  state or  private  payor or fiscal  intermediary  to pay  proceeds  of
Accounts or any other Collateral to the appropriate Lockbox Account.

     2.15 Acknowledgement of Joint and Several Liability

     Each Borrower  acknowledges that it is jointly and severally liable for all
of  the  Obligations   under  the  Loan  Documents.   Each  Borrower   expressly
understands,  agrees  and  acknowledges  that  (i)  Borrowers  are all  entities
affiliated  by  common  ownership,  (ii)  each  Borrower  desires  to  have  the
availability  of  one  common  credit   facility   instead  of  separate  credit
facilities,  (iii) each Borrower has requested  that Lender extend such a common
credit  facility  on the terms  herein  provided,  (iv)  Lender  will be lending
against,  and relying on a lien upon,  all of Borrowers'  assets even though the
proceeds of any particular loan made hereunder may not be advanced directly to a
particular Borrower, (v) each Borrower will nonetheless benefit by the making of
all such loans by Lender and the  availability  of a single credit facility of a
size  greater  than  each  could  independently  warrant,  and  (vi)  all of the
representations,  warranties, covenants, obligations, conditions, agreements and
other terms  contained in the Loan Documents shall be applicable to and shall be
binding upon each Borrower. Each Borrower hereby appoints PHC (in such capacity,
"Borrower  Agent") to act as agent on behalf of each Borrower and to deliver any
statement,   notice,  authorization  or  other  writing  required  or  permitted
hereunder or under any of the Loan  Documents.  Lender shall be entitled to rely
upon any  statement,  notice,  authorization  or  other  writing  received  from
Borrower  Agent without  investigation  and each  Borrower  agrees that any such
statement, notice, authorization or other writing shall be binding on it.

III. INTEREST, FEES AND OTHER CHARGES; ALLOCATION OF PURCHASE PRICE

     3.1 Interest on the Revolving Facility

     Commencing  July 1, 2007, and continuing  until the later of the expiration
of the  Term  and  the  Payment  in  Full  and  full  performance  of all of the
Obligations and termination of this Agreement  interest on outstanding  Advances
under the Revolving  Facility  shall be payable  monthly in arrears on the first
day of each calendar  month at an annual rate of Prime Rate plus  one-quarter of
one percentage  point (.25%) in accordance  with the procedures  provided for in
Section  2.7 and  Section  2.4,  provided  however,  that,  notwithstanding  any
provision of any Loan Document,  for the purpose of calculating  interest at any
time  hereunder,  the  Prime  Rate  shall be not less  than  4.5%,  in each case
calculated  on the basis of a 360-day year and for the actual number of calendar
days elapsed in each  interest  calculation  period.  The payment due under this
Section 3.1 on July 1, 2007 shall  include  any  accrued and unpaid  interest on
outstanding  Advances under the Revolving  Facility  existing under the Existing
Credit Agreement.

     3.2 Interest on the Term Loan

     Commencing  July 1, 2007, and continuing  until the later of the expiration
of the  Term  and  the  Payment  in  Full  and  full  performance  of all of the
Obligations  and  termination  of this  Agreement  interest  on the  outstanding
principal  balance of the Term Loan  shall be payable  monthly in arrears on the
first  day of  each  calendar  month  at an  annual  rate  of  Prime  Rate  plus

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three-quarters  of one percentage point (.75%) in accordance with the procedures
provided  for  in  Section  2.7  and  Section  2.4.,  provided  however,   that,
notwithstanding  any  provision  of  any  Loan  Document,  for  the  purpose  of
calculating  interest  at any time  hereunder,  the Prime Rate shall be not less
than 5.5%,  in each case  calculated  on the basis of a 360-day year and for the
actual  number of calendar  days elapsed in each  interest  calculation  period.
Advances  under  the  Revolving  Facility  shall be made  automatically  for the
payment  of  Obligations  under the Term Loan on the date when due to the extent
available and as provided for herein.  The payment due under this Section 3.2 on
July 1, 2007 shall  include  any  accrued  and unpaid  interest  on  outstanding
principal amount of the Existing Term Loan under the Existing Credit Agreement.

     3.3  Commitment Fee

     On or before  the  Restatement  Date,  Borrower  shall  pay to  Lender  the
following as a nonrefundable commitment fees:

          (a)  .5% of the Facility Cap in respect of the Revolving Facility;

          (b)  .5% of the Initial Term Loan Amount; and

     3.4  Collateral Management Fee and Unused Line Fee

     Borrower  shall pay  Lender as  additional  interest  a monthly  collateral
management  fee (the  "Collateral  Management  Fee")  equal to 0.042%  per month
calculated  on the basis of the daily average  amount of the balances  under the
Revolving  Facility  outstanding  during the  preceding  month.  The  Collateral
Management  Fee shall be  payable  monthly  in  arrears on the first day of each
successive calendar month (starting with the month in which the Restatement Date
occurs).  The payment due under this  Section 3.4 on July 1, 2007 shall  include
any  accrued and unpaid  Collateral  Management  Fee due and  payable  under the
Existing Credit  Agreement as well as any accrued and unpaid Unused Line Fee (as
such term is defined in the Existing Credit Agreement) due and payable under the
Existing Credit Agreement (which Unused Line Fee shall not be charged under this
Agreement commencing as of the Restatement Date).

     3.5  Finance Fee

     If  Borrower  makes  any final  prepayment  or any  payment  in full of the
principal  amount  of the Term  Loan or other  satisfaction  of the  outstanding
balance of the Term Loan and/or the Term Loan is otherwise  terminated,  in each
case for any reason,  then, on such date, Borrower shall pay Lender (in addition
to any other Obligations relating to the Term Loan pursuant to the terms of this
Agreement and any other Loan Document), an amount equal to the Term Loan Finance
Fee Amount;  provided,  however, that no fee shall be due and payable under this
subsection (a) if the Term Loan Termination  results from the refinancing of the
Term Loan with the proceeds  from a financing  under a program  sponsored by the
United  States  Department  of  Housing  and Urban  Development.  Lender  hereby
acknowledges that the Finance Fee (as such term is defined in Section 3.4 of the
Existing Credit  Agreement) due and payable under the Existing Credit  Agreement
in respect of the Existing Term Loan is hereby waived (the "Waived Finance Fee")
and Borrower shall have no further obligation to pay the Waived Finance Fee.

     3.6  Computation of Fees; Lawful Limits

     All fees hereunder shall be computed on the basis of a year of 360 days and
for the actual number of days elapsed in each calculation period, as applicable.
In no  contingency or event  whatsoever,  whether by reason of  acceleration  or

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otherwise,  shall the  interest  and other  charges paid or agreed to be paid to
Lender for the use,  forbearance  or  detention  of money  hereunder  exceed the
maximum  rate  permissible  under  applicable  law  which a court  of  competent
jurisdiction shall, in a final determination, deem applicable hereto. If, due to
any circumstance  whatsoever,  fulfillment of any provision  hereof, at the time
performance of such provision  shall be due, shall exceed any such limit,  then,
the obligation to be so fulfilled shall be reduced to such lawful limit, and, if
Lender shall have received interest or any other charges of any kind which might
be deemed to be interest  under  applicable  law in excess of the maximum lawful
rate,  then such  excess  shall be applied  first to any unpaid fees and charges
hereunder,  then to unpaid principal balance owed by Borrower hereunder,  and if
the then  remaining  excess  interest  is  greater  than the  previously  unpaid
principal  balance,  Lender shall promptly refund such excess amount to Borrower
and  the  provisions  hereof  shall  be  deemed  amended  to  provide  for  such
permissible  rate. The terms and provisions of this Section 3.6 shall control to
the extent any other provision of any Loan Document is inconsistent herewith.

     3.7  Default Rate of Interest

     Upon the occurrence and during the continuation of an Event of Default, the
Applicable  Rate  of  interest  in  effect  at such  time  with  respect  to the
Obligations shall be increased by 5.0% per annum (the "Default Rate").

     3.8  Reserved

     3.9  Debt Service Reserve

     Borrower and Lender  acknowledge that Borrower deposited with Lender on the
Closing  Date the amount of $30,000  in order to fund the Debt  Service  Reserve
Amount  to  be  held  by  Lender  in  escrow.  Upon  the  full  performance  and
satisfaction and indefeasible payment in full in cash of all the Obligations and
the termination of this Agreement,  Lender shall return to Borrower that portion
of the Debt Service  Reserve  Amount not already used by Lender to make payments
of principal or interest pursuant to this Agreement. Notwithstanding and without
limiting or being  limited by any other  provision of this  Agreement,  upon the
occurrence and continuation of an Event of Default, Lender shall have the right,
in its sole  discretion,  to use all or any portion of the Debt Service  Reserve
Amount to pay any amount or Obligation  hereunder and/or under the Loans,  Notes
and other Loan  Documents,  to be  applied  at such time and in such  manner and
order as Lender shall decide in its sole discretion. After any cure of any Event
of Default,  if amounts from the Debt Service  Reserve  Amount have been used by
Lender pursuant to the immediately  preceding  sentence,  Borrower shall deposit
such  additional  cash  with  Lender  to  be  held  by  Lender  in  escrow  in a
non-interest  bearing  account to restore  the full  amount of the Debt  Service
Reserve Amount in such account.

     3.10 Minimum Balance

     Notwithstanding  any provision of this  Agreement to the  contrary,  if the
consolidated  average daily amount of the balances under the Revolving  Facility
and the Term Loan for any  calendar  month is less than One Million Five Hundred
Thousand Dollars ($1,500,000) Borrower acknowledges and agrees that Lender shall
be entitled to calculate  interest and fees under  Sections 2.4, 3.1 and 3.4 for
such calendar month as if the average daily outstanding balance of the Revolving
Facility for such calendar month was One Million Five Hundred  Thousand  Dollars
($1,500,000).  Notwithstanding the foregoing,  if for any calendar month the sum
of the average daily  Availability for such month (as calculated by reference to

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the Borrowing  Certificates submitted to Lender and effective during such month)
plus the Term Loan Amount in effect for such month  (such sum being  referred to
as the "Average Availability Amount") is less than $1,500,000, then Lender shall
calculate  interest  and fees under this  Section  3.10 for such month as if the
average  daily  outstanding  balance of the  Revolving  Facility was the Average
Availability Amount.

     IV. CONDITIONS PRECEDENT

     4.1  Conditions to Amendment  and  Restatement,  Continuation  of Loans and
Closing

     The  obligations  of Lender to  consummate  the  transactions  contemplated
herein and to amend and restate the Existing  Credit  Agreement and continue the
Existing  Advances and the Existing  Term Loan and make  available the Term Loan
are  subject  to the  satisfaction,  in the  sole  judgment  of  Lender,  of the
following:

     (a) (i) Each  Borrower or Borrower  Agent on behalf of Borrower  shall have
delivered  to Lender (A) the Loan  Documents  to which it is a party,  each duly
executed by an authorized officer of Borrower and the other parties thereto, and
(B) a Borrowing Certificate for any Advance under the Revolving Facility or Term
Loan Draw to be  requested on the  Restatement  Date  executed by an  authorized
officer of Borrower  Agent,  and (ii) each  Guarantor  shall have  delivered  to
Lender the Loan Documents to which such Guarantor is a party, each duly executed
and delivered by such Guarantor or an authorized  officer of such Guarantor,  as
applicable, and the other parties thereto;

     (b)  all  in  form  and  substance  satisfactory  to  Lender  in  its  sole
discretion,  Lender shall have received (i) a report of Uniform  Commercial Code
financing  statement,  tax and judgment lien searches  performed with respect to
each  Borrower and  Guarantor in each  jurisdiction  determined by Lender in its
sole  discretion,  and such report shall show no Liens on the Collateral  (other
than Permitted Liens), (ii) each document  (including,  without limitation,  any
Uniform  Commercial Code financing  statement)  required by any Loan Document or
under law or requested by Lender to be filed,  registered  or recorded to create
in favor of Lender,  a  perfected  first  priority  security  interest  upon the
Collateral  and first  priority  Lien  (second  priority in the case of the Real
Estate owned by PHC-Virginia)  on the Real Estate and the Utah Leasehold,  (iii)
evidence of each such filing,  registration or recordation and of the payment by
Borrower of any necessary fee, tax or expense relating  thereto,  (iv) objective
evidence  that no part of the Real Estate or the Utah  Leasehold is located in a
flood hazard zone,  (v) such surveys,  environmental  reports,  engineering  and
inspection  reports and appraisals as Lender may require in its sole  discretion
with respect to the Real Estate or the Leasehold,  (vi) evidence satisfactory to
Lender  that the Real Estate and the Utah  Leasehold  complies  with  applicable
codes and ordinances, is zoned for its current use, is served by adequate public
utilities,  is free of mechanics and materialsman's  liens and is not subject to
condemnation,  and (vii) an  endorsement  to each ALTA  title  insurance  policy
insuring each Mortgage in form and substance  satisfactory to Lender in its sole
discretion;

     (c) Lender shall have received (i) the Charter and Good Standing Documents,
all in form and  substance  acceptable  to  Lender,  (ii) a  certificate  of the
corporate  secretary or assistant secretary of each Borrower and Guarantor dated
the  Restatement  Date,  as to the  incumbency  and  signature  of  the  Persons
executing the Loan Documents,  in form and substance  acceptable to Lender,  and
(iii) the written legal opinion of counsel for each Borrower and  Guarantor,  in
form and substance satisfactory to Lender and its counsel;

     (d) Lender shall have received a certificate of the chief financial officer
(or, in the absence of a chief financial  officer,  the chief executive officer)
for each of  PHC-Michigan  and  PHC-Utah and for PHC and its  Subsidiaries  on a

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consolidated  basis,  in form and  substance  satisfactory  to Lender  (each,  a
"Solvency Certificate"), certifying (i) the solvency of such Person after giving
effect  to the  transactions  and  the  Indebtedness  contemplated  by the  Loan
Documents as of the  Restatement  Date,  and (ii) as to such Person's  financial
resources and ability to meet its  obligations  and  liabilities  as they become
due, to the effect that as of the  Restatement  Date and after giving  effect to
any funding under this Agreement on the Restatement Date: (A) the assets of such
Person, at a Fair Valuation, exceed the total liabilities (including contingent,
subordinated, unmatured and unliquidated liabilities) of such Person, and (B) no
unreasonably small capital base with which to engage in its anticipated business
exists with respect to such Person;

     (e) Lender shall have completed examinations, the results of which shall be
satisfactory in form and substance to Lender,  of the Collateral,  the financial
statements and the books, records,  business,  obligations,  financial condition
and operational state of each Borrower and Guarantor, and each such Person shall
have demonstrated to Lender's  satisfaction  that (i) its operations  comply, in
all  respects  deemed  material  by  Lender,  in its  sole  judgment,  with  all
applicable  federal,  state,  foreign and local laws,  statutes and regulations,
(ii) its  operations  are not the  subject  of any  governmental  investigation,
evaluation  or any  remedial  action which could  result in any  expenditure  or
liability deemed material by Lender,  in its sole judgment,  and (iii) it has no
liability  (whether  contingent or otherwise) that is deemed material by Lender,
in its sole judgment;

     (f) Lender  shall  have  received  all fees,  charges,  expenses  and other
amounts  payable to Lender on or prior to the  Restatement  Date pursuant to the
Loan Documents;

     (g)  Lender  shall have  received  true and  correct  copies of any and all
leases  set  forth on  Schedule  5.4,  and such  consents,  approvals,  estoppel
certificates  and  agreements,  including,  without  limitation,  any applicable
Landlord  Waivers and  Consents  with respect to any and all leases set forth on
Schedule 5.4, from such third parties as Lender and its counsel shall  determine
are  necessary or desirable  with respect to (i) the Loan  Documents  and/or the
transactions  contemplated  thereby,  and/or (ii) claims against any Borrower or
Guarantor, the Collateral or the Real Estate;

     (h) each Borrower shall be in compliance  with Section  7.13(b) and Section
6.5, and Lender  shall have  received  original  certificates  of all  insurance
policies  of each  Borrower  confirming  that  they are in  effect  and that the
premiums  due and owing with  respect  thereto have been paid in full and naming
Lender as sole beneficiary or loss payee and additional insured, as appropriate;

     (i) all corporate and other proceedings,  documents,  instruments and other
legal  matters in  connection  with the  transactions  contemplated  by the Loan
Documents  (including,  but not limited to,  those  relating  to  corporate  and
capital structures of each Borrower) shall be satisfactory to Lender;

     (j) Lender  shall have  received,  in form and  substance  satisfactory  to
Lender,   (i)  evidence  of  the  repayment  in  full  and  termination  of  all
Indebtedness of Borrower to be repaid on the  Restatement  Date, if any, and all
related  documents,  agreements  and  instruments  and  of all  Liens,  security
interests and Uniform Commercial Code financing statements relating thereto, and
(ii) release and  termination  of any and all Liens,  security  interest  and/or
Uniform Commercial Code financing  statements in, on, against or with respect to
any of the  Collateral,  the Real Estate or the Leasehold  (other than Permitted
Liens and the  existing  first  priority  Lien  against the Real Estate owned by
PHC-Virginia);

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     (k) Each Borrower and each Guarantor shall have executed and filed IRS Form
8821 with the  appropriate  office of the  Internal  Revenue  Service to include
Lender as an appointee thereon for all tax matters;

     (l) PHC shall have  issued the Warrant to CSE Equity  Holdings  LLC in form
and substance satisfactory to Lender;

     (m) Lender shall have received true and correct copies of any amendments or
modifications to the Pivotal  Acquisition  Documents executed or delivered since
the Closing Date, certified by a duly authorized officer of PHC; and

     (n)  Lender  shall  have  received  such  other  documents,   certificates,
information or legal opinions as Lender may reasonably request,  all in form and
substance reasonably satisfactory to Lender.

     4.2 Conditions to Each Advance

     The  obligations  of  Lender  to  make  any  Advance  are  subject  to  the
satisfaction,  in the sole  judgment  of  Lender,  of the  following  additional
conditions precedent:

     (a) Borrower Agent shall have  delivered to Lender a Borrowing  Certificate
for the Advance executed by an authorized officer of Borrower Agent, which shall
constitute a representation and warranty by Borrower as of the Borrowing Date of
such  Advance  that the  conditions  contained  in this  Section  4.2 have  been
satisfied;  provided,  however,  that any  determination  as to  whether to fund
Advances or extensions of credit shall be made by Lender in its sole discretion;

     (b)  each of the  representation  and  warranties  made by  Borrower  in or
pursuant to this Agreement shall be accurate,  before and after giving effect to
such Advance;

     (c) no Default or Event of Default  shall have occurred or be continuing or
would exist after giving effect to the Advance  under the Revolving  Facility on
such date;

     (d)  immediately  after giving  effect to the  requested  Advance under the
Revolving  Facility , the  aggregate  outstanding  principal  amount of Advances
under the Revolving  Facility shall not exceed either the  Availability  and the
Facility Cap;

     (e) except as disclosed in the historical financial statements, there shall
be no  liabilities  or  obligations  with  respect  to  Borrower  of any  nature
whatsoever which, either  individually or in the aggregate,  would reasonably be
likely to have a Material Adverse Effect; and

     (f) Lender shall have  received all fees,  charges and expenses  payable to
Lender on or prior to such date pursuant to the Loan Documents.

     4.3 Conditions to Term Loan Draws

     In addition to the  satisfaction of the conditions set forth in Section 4.1
hereof,  the  obligation  of the Lender to make any Term Loan Draw is subject to
the satisfaction of the following conditions precedent:

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     (a) Borrower Agent shall have  delivered to Lender a Borrowing  Certificate
for the Term Loan Draw  executed by an  authorized  officer of  Borrower  Agent,
which shall constitute a representation  and warranty by Borrower as of the Term
Loan  Borrowing  Date for such Term Loan Draw that the  conditions  contained in
this Section 4.3 have been satisfied;  provided, however, that any determination
as to  whether  the  conditions  contained  in this  Section  4.3 and the  other
conditions set forth in this Agreement to Lender's  obligation to make Term Loan
Draw have been satisfied shall be made by Lender in its sole discretion;

     (b) each of the  representations  and  warranties  made by  Borrower  in or
pursuant to this Agreement shall be accurate,  before and after giving effect to
such Term Loan Draw;

     (c) no Default or Event of Default  shall have occurred or be continuing or
would exist after giving effect to the Term Loan Draw on such date;

     (d)  immediately  after giving effect to the requested  Term Loan Draw, the
aggregate  outstanding  principal  amount of the Term Loan  shall not exceed the
Term Loan Amount in effect from time to time;

     (e) except as disclosed in the historical financial statements, there shall
be no  liabilities  or  obligations  with  respect  to  Borrower  of any  nature
whatsoever which, either  individually or in the aggregate,  would reasonably be
likely to have a Material Adverse Effect; and

     (f) Lender shall have  received all fees,  charges and expenses  payable to
Lender on or prior to such date pursuant to the Loan Documents.

V. REPRESENTATIONS AND WARRANTIES

     Each Borrower and Guarantor, jointly and severally, represents and warrants
as of the date  hereof,  the  Restatement  Date,  each  Borrowing  Date and,  if
applicable, the date of any funding of the Loans as follows:

     5.1  Organization and Authority

     Each Borrower and Guarantor is a corporation or limited  liability  company
duly  organized,  validly  existing and in good  standing  under the laws of its
state of formation.  Each Borrower and Guarantor (i) has all requisite corporate
power  and  authority  to own its  properties  and  assets  and to  carry on its
business as now being conducted and as contemplated in the Loan Documents,  (ii)
is duly  qualified to do business in every  jurisdiction  in which failure so to
qualify could  reasonably  be expected to have a Material  Adverse  Effect,  and
(iii) has all requisite power and authority (A) to execute,  deliver and perform
the Loan  Documents  to which it is a party,  (B) to  borrow  hereunder,  (C) to
consummate the transactions  contemplated  under the Loan Documents,  and (D) to
grant the Liens with regard to the Collateral pursuant to the Security Documents
to which it is a party.  No Borrower or  Guarantor  is an  "investment  company"
registered  or required to be  registered  under the  Investment  Company Act of
1940, as amended, or is controlled by such an "investment company."

     5.2  Loan Documents

     The execution,  delivery and  performance by each Borrower and Guarantor of
the  Loan  Documents  to  which  it is a  party,  and  the  consummation  of the

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transactions  contemplated  thereby,  (i)  have  been  duly  authorized  by  all
requisite  action of each such Person and have been duly  executed and delivered
by or on behalf of each such Person;  (ii) do not violate any  provisions of (A)
applicable law, statute, rule, regulation, ordinance or tariff, (B) any order of
any Governmental Authority binding on any such Person or any of their respective
properties,  or (C) the  certificate  of  incorporation  or bylaws (or any other
equivalent governing agreement or document) of any such Person, or any agreement
between any such Person and its respective  stockholders,  members,  partners or
equity  owners  or among  any such  stockholders,  members,  partners  or equity
owners; (iii) are not in conflict with, and do not result in a breach or default
of  or  constitute  an  event  of  default,  or an  event,  fact,  condition  or
circumstance which, with notice or passage of time, or both, would constitute or
result in a conflict,  breach, default or event of default under, any indenture,
agreement or other  instrument to which any such Person is a party,  or by which
the  properties  or assets of such  Person are bound,  the effect of which could
reasonably  be expected to have a Material  Adverse  Effect;  (iv) except as set
forth  herein,  will not result in the creation or imposition of any Lien of any
nature upon any of the  properties or assets of any such Person,  and (v) except
as set  forth  on  Schedule  5.2,  do  not  require  the  consent,  approval  or
authorization   of,  or  filing,   registration  or   qualification   with,  any
Governmental Authority or any other Person. When executed and delivered, each of
the  Loan  Documents  to  which  each  Borrower  or  Guarantor  is a party  will
constitute  the legal,  valid and binding  obligation  of each such  Borrower or
Guarantor, enforceable against such Borrower or Guarantor in accordance with its
terms,  subject  to  the  effect  of  any  applicable  bankruptcy,   moratorium,
insolvency,  reorganization or other similar law affecting the enforceability of
creditors'  rights  generally and to the effect of general  principles of equity
which may limit the availability of equitable  remedies (whether in a proceeding
at law or in equity).

     5.3  Subsidiaries, Capitalization and Ownership Interests

     Schedule  5.3  states the  authorized  and  issued  capitalization  of each
Borrower  and  Guarantor,  the  number  and  class of equity  securities  and/or
ownership,  voting or partnership or membership interests issued and outstanding
of each Borrower and Guarantor  and, for each Borrower and Guarantor  other than
PHC, the record and beneficial owners thereof (including  options,  warrants and
other rights to acquire any of the foregoing) and, for PHC, the holders of 5% or
more  of  any  class  of  equity  securities  thereof.  The  outstanding  equity
securities and/or ownership, voting or membership interests of each Borrower and
Guarantor  have been duly  authorized  and validly issued and are fully paid and
nonassessable.  Each Person  listed on  Schedule  5.3 owns  beneficially  and of
record  all the  equity  securities  and/or  ownership,  voting  or  partnership
interests of each Borrower and Guarantor  (other than PHC) such Person is listed
as owning free and clear of any Liens other than Liens  created by the  Security
Documents.  Schedule  5.3 also lists the  directors,  members,  managers  and/or
partners of each  Borrower and  Guarantor.  Except as listed on Schedule 5.3, no
Borrower or Guarantor owns an interest or  participates  or engages in any joint
venture, partnership or similar arrangements with any Person.

     5.4  Properties

     Except as set forth on Schedule 5.4, each Borrower and Guarantor (i) is the
sole owner and has good,  valid and  marketable  title to, or a valid  leasehold
interest in, all of its properties and assets,  including the Collateral and the
Real Estate,  whether personal or real,  subject to no transfer  restrictions or
Liens of any kind except for Permitted  Liens,  and (ii) is in compliance in all

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material  respects  with each lease to which it is a party or  otherwise  bound.
Schedule 5.4 lists all real properties (and their  locations) owned or leased by
or to, and all other  assets or property  that are leased or  licensed  by, such
Borrower or Guarantor and all leases  (including leases of leased real property)
covering or with  respect to such  properties  and  assets.  Each  Borrower  and
Guarantor  enjoys peaceful and undisturbed  possession under all such leases and
such leases are all the leases  necessary for the  operation of such  properties
and assets, are valid and subsisting and are in full force and effect.

     5.5  Other Agreements

     Except as set forth on Schedule  5.5, no  Borrower  or  Guarantor  is (i) a
party to any judgment, order or decree or any agreement, document or instrument,
or subject to any restriction, which would have a Material Adverse Effect on its
ability to execute and deliver,  or perform  under,  any Loan Document or to pay
the Obligations,  (ii) in default in the performance,  observance or fulfillment
of any obligation, covenant or condition contained in any agreement, document or
instrument  to which it is a party or to which any of its  properties  or assets
are subject,  which default, if not remedied within any applicable grace or cure
period could  reasonably be expected to have a Material  Adverse Effect,  nor is
there any event, fact,  condition or circumstance  which, with notice or passage
of time or both,  would constitute or result in a conflict,  breach,  default or
event of default under,  any of the foregoing  which, if not remedied within any
applicable  grace or cure period could reasonably be expected to have a Material
Adverse  Effect;  or (iii) a party or  subject  to any  agreement,  document  or
instrument with respect to, or obligation to pay any,  service or management fee
with respect to, the ownership,  operation, leasing or performance of any of its
business  or any  facility,  nor is there any manager  with  respect to any such
facility.

     5.6  Litigation

     Except as set forth on Schedule 5.6, there is no action,  suit,  proceeding
or investigation pending or, to their knowledge, threatened against any Borrower
or any Guarantor  that (i) questions or could prevent the validity of any of the
Loan  Documents or the right of any Borrower or any  Guarantor to enter into any
Loan Document,  or to consummate the  transactions  contemplated  thereby,  (ii)
could reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect,  or (iii) could reasonably be expected to result in any
Change  of  Control  or  other  change  in the  current  ownership,  control  or
management  of any  Borrower or any  Guarantor.  Except as set forth on Schedule
5.6, no Borrower is aware that there is any basis for the foregoing. No Borrower
or Guarantor is a party or subject to any order, writ,  injunction,  judgment or
decree of any Governmental  Authority except as set forth on Schedule 5.6. There
is no action, suit, proceeding or investigation initiated by any Borrower or any
Guarantor  currently pending.  No Borrower or Guarantor has any existing accrued
and/or  unpaid   Indebtedness  to  any  Governmental   Authority  or  any  other
governmental payor.

     5.7  Hazardous Materials

     Each Borrower and Guarantor is in compliance in all material  respects with
all applicable Environmental Laws. No Borrower or Guarantor has been notified of
any  action,  suit,  proceeding  or  investigation  (i)  relating  in any way to
compliance  by  or  liability  of  any  Borrower  or  any  Guarantor  under  any
Environmental  Laws, (ii) which otherwise deals with any Hazardous  Substance or
any Environmental Law, or (iii) which seeks to suspend,  revoke or terminate any
license,  permit or approval  necessary for the generation,  handling,  storage,
treatment or disposal of any Hazardous Substance.

     5.8  Tax Returns; Governmental Reports

     Each Borrower and Guarantor (i) has filed all federal,  state,  foreign (if
applicable) and local tax returns and other reports which are required by law to
be  filed  by  such  Borrower  or  Guarantor,  and  (ii)  has  paid  all  taxes,
assessments, fees and other governmental charges, including, without limitation,
payroll  and  other  employment  related  taxes,  in each  case that are due and
payable,  except  only for items  that a  Borrower  or  Guarantor  is  currently
contesting in good faith and that are described on Schedule 5.8.

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     5.9  Financial Statements and Reports

     All  financial  statements  and  financial  information  relating  to  each
Borrower and Guarantor that have been or may hereafter be delivered to Lender by
any  Borrower or Guarantor  are accurate and complete and have been  prepared in
accordance  with GAAP  consistently  applied with prior periods.  No Borrower or
Guarantor has any material  obligations or liabilities of any kind not disclosed
in such  financial  information  or  statements,  and since the date of the most
recent  financial  statements  submitted  to Lender,  there has not occurred any
Material  Adverse Change,  Material Adverse Effect or Liability Event or, to any
Borrower's or  Guarantor's  knowledge,  any other event or condition  that could
reasonably be expected to have a Material Adverse Effect or Liability Event.

     5.10 Compliance with Law

     Each Borrower and Guarantor (i) is in compliance  with all laws,  statutes,
rules,  regulations,  ordinances  and  tariffs  of  any  Governmental  Authority
applicable to such Borrower or Guarantor  and/or such  Borrower's or Guarantor's
business,  assets  or  operations,  including,  without  limitation,  applicable
requirements  of the Standards for Privacy of Individually  Identifiable  Health
Information which were promulgated pursuant to the Health Insurance  Portability
and Accountability Act of 1996 ("HIPAA"), ERISA and Healthcare Laws, and (ii) is
not in  violation of any order of any  Governmental  Authority or other board or
tribunal,  except where  noncompliance  or  violation  could not  reasonably  be
expected to have a Material Adverse Effect.  There is no event, fact,  condition
or circumstance which, with notice or passage of time, or both, would constitute
or result in any noncompliance  with, or any violation of, any of the foregoing,
in each case except where  noncompliance  or violation  could not  reasonably be
expected  to have a Material  Adverse  Effect.  No  Borrower  or  Guarantor  has
received any notice that such  Borrower or Guarantor is not in compliance in any
respect with any of the  requirements  of any of the  foregoing.  No Borrower or
Guarantor has (a) engaged in any Prohibited  Transactions  as defined in Section
406 of ERISA and Section 4975 of the Internal  Revenue Code of 1986, as amended,
and the rules and  regulations  promulgated  thereunder,  (b) failed to meet any
applicable minimum funding requirements under Section 302 of ERISA in respect of
its plans and no  funding  requirements  have been  postponed  or  delayed,  (c)
knowledge  of any event or  occurrence  which would  cause the  Pension  Benefit
Guaranty  Corporation  to  institute  proceedings  under  Title  IV of  ERISA to
terminate any of the employee benefit plans, (d) fiduciary  responsibility under
ERISA for  investments  with  respect to any plan  existing  for the  benefit of
Persons  other  than  its  employees  or  former  employees,  or (e)  withdrawn,
completely or partially,  from any  multi-employer  pension plans so as to incur
liability under the MultiEmployer  Pension Plan Amendments of 1980. With respect
to each  Borrower,  there  exists no event  described  in Section 4043 of ERISA,
excluding  Subsections  4043(b)(2) and 4043(b)(3) thereof,  for which the thirty
(30) day  notice  period  contained  in 12 C.F.R.  Section  2615.3  has not been
waived.  Each Borrower and Guarantor has maintained in all material respects all
records  required to be maintained by the Joint  Commission on  Accreditation of
Healthcare  Organizations,  the Food and Drug  Administration,  Drug Enforcement
Agency and State  Boards of  Pharmacy  and the federal  and state  Medicare  and
Medicaid  programs as required by the Healthcare Laws and, to the best knowledge
of  each  such   Borrower  or  Guarantor,   there  are  no  presently   existing
circumstances which likely would result in material violations of the Healthcare
Laws. There is no Liability Event.

     5.11 Intellectual Property

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     Except as set forth on  Schedule  5.11,  no  Borrower  or  Guarantor  owns,
licenses  or  utilizes,  and is a party to, any  patents,  patent  applications,
trademarks,  trademark  applications,   service  marks,  registered  copyrights,
copyright  applications,  copyrights,  trade names,  trade secrets,  software or
licenses (collectively, the "Intellectual Property").

     5.12 Licenses and Permits; Labor

     Each Borrower and Guarantor is in compliance  with and owns, or is licensed
or otherwise authorized to use, all Permits and Intellectual  Property necessary
or required by applicable law or Governmental Authority for the operation of its
businesses.  All of the  foregoing are in full force and effect and not in known
conflict with the rights of others. No Borrower or Guarantor is (i) in breach of
or default under the provisions of any of the foregoing, nor is there any event,
fact,  condition or circumstance  which, with notice or passage of time or both,
would  constitute or result in a conflict,  breach,  default or event of default
under,  any of the foregoing  which, if not remedied within any applicable grace
or cure period could  reasonably be expected to have a Material  Adverse Effect,
(ii) a party to or subject to any agreement,  instrument or restriction  that is
so unusual or burdensome that it might have a Material  Adverse  Effect,  and/or
(ii) and has been  involved  in any  labor  dispute,  strike,  walkout  or union
organization  which could  reasonably  be  expected  to have a Material  Adverse
Effect

     5.13 No Default

     There does not exist any Default or Event of Default.

     5.14 Disclosure

     Neither any Loan Document nor any other agreement,  document,  certificate,
or statement furnished to Lender by or on behalf of any Borrower or Guarantor in
connection with the  transactions  contemplated  by the Loan Documents,  nor any
representation  or  warranty  made by any  Borrower  or  Guarantor  in any  Loan
Document,  contains any untrue  statement of material fact or omits to state any
fact necessary to make the statements therein not materially  misleading.  There
is no fact  known to any  Borrower  which  has not been  disclosed  to Lender in
writing which could reasonably be expected to have a Material Adverse Effect.

     5.15 Existing Indebtedness; Investments, Guarantees and Certain Contracts

     Except as  contemplated  by the Loan Documents or as otherwise set forth on
Schedule 5.15, no Borrower or Guarantor (i) has outstanding  Indebtedness,  (ii)
is subject or party to any mortgage, note, indenture, indemnity or guarantee of,
with respect to or evidencing  any  Indebtedness  of any other Person,  or (iii)
owns or holds any equity or long-term debt investments in, and does not have any
outstanding advances to or any outstanding guarantees for the obligations of, or
any  outstanding  borrowings  from, any Person.  Each Borrower and Guarantor has
performed  all  material  obligations  required to be  performed by Borrower and
Guarantor  pursuant to or connection  with any items listed on Schedule 5.15 and
there has  occurred no breach,  default or event of default  under any  document
evidencing any such items or any fact,  circumstance,  condition or event which,
with the giving of notice or passage of time or both, would constitute or result
in a breach, default or event of default thereunder.

     5.16 Other Agreements

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     Except as set forth on Schedule 5.16, (i) there are no existing or proposed
agreements, arrangements, understandings or transactions between any Borrower or
Guarantor and any of such Borrower's or Guarantor's officers, members, managers,
directors,   stockholders,   partners,  other  interest  holders,  employees  or
Affiliates or any members of their respective immediate families,  and (ii) none
of the  foregoing  Persons are directly or  indirectly,  indebted to or have any
direct or indirect  ownership,  partnership  or voting  interest in, to any such
Borrower's or Guarantor's knowledge, any Affiliate of any Borrower or any Person
that competes  with any Borrower or Guarantor  (except that any such Persons may
own stock in (but not  exceeding  two (2%)  percent of the  outstanding  capital
stock of) any  publicly  traded  company  that may compete  with any Borrower or
Guarantor.

     5.17 Insurance

     Each  Borrower and  Guarantor  has in full force and effect such  insurance
policies as are  customary in its  industry  and as may be required  pursuant to
Section 6.5 hereof.  All such  insurance  policies  are listed and  described on
Schedule 5.17.

     5.18 Names; Location of Offices, Records and Collateral

     During the  preceding  five years,  no Borrower or Guarantor  has conducted
business  under or used any name  (whether  corporate,  partnership  or assumed)
other than as shown on Schedule  5.18A.  Each Borrower and Guarantor is the sole
owner of all of its names  listed on Schedule  5.18A,  and any and all  business
done and invoices issued in such names are such Borrower's or Guarantor's sales,
business and  invoices.  Each trade name of a Borrower  represents a division or
trading  style of such  Borrower  or  Guarantor.  Each  Borrower  and  Guarantor
maintains  its  places of  business  and  chief  executive  offices  only at the
locations  set forth on Schedule  5.18B,  and all Accounts of each such Borrower
and Guarantor  arise,  originate and are located,  and all of the Collateral and
all books and records in connection  therewith or in any way relating thereto or
evidence the Collateral are located and shall be only, in and at such locations.
All of the Collateral is located only in the continental United States.

     5.19 Non-Subordination

     The Obligations are not subordinated in any way to any other obligations of
any Borrower or Guarantor or to the rights of any other Person.

     5.20 Accounts

     In determining which Accounts are Eligible Receivables,  Lender may rely on
all  statements  and  representations  made by a  Borrower  with  respect to any
Account.  Unless  otherwise  indicated  in writing to Lender,  each Account of a
Borrower  (i) is genuine and in all  respects  what is purports to be and is not
evidenced  by a  judgment,  (ii) arises out of a  completed,  bona fide sale and
delivery of goods or  rendering  of Services  by such  Borrower in the  ordinary
course of  business  and in  accordance  with the terms  and  conditions  of all
purchase orders, contracts, certifications, participations, certificates of need
and other documents  relating  thereto or forming a part of the contract between
such Borrower and the Account Debtor,  (iii) is for a liquidated amount maturing
as stated in a claim or  invoice  covering  such sale of goods or  rendering  of
Services,  a copy of which has been  furnished or is  available to Lender,  (iv)
together with Lender's security interest therein,  is not and will not be in the
future (by  voluntary  act or  omission  by any such  Borrower),  subject to any
offset,  lien,  deduction,  defense,  dispute,  counterclaim  or  other  adverse
condition,  is absolutely  owing to such  Borrower and is not  contingent in any
respect or for any reason  (except  Accounts owed or owing by  Medicaid/Medicare
Account  Debtors  that may be subject to offset or  deduction  under  applicable
law), (v) there are no facts,  events or occurrences which in any way impair the

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validity  or  enforceability  thereof  or  tend to  reduce  the  amount  payable
thereunder from the face amount of the claim or invoice and statements delivered
to  Lender  with  respect  thereto,  (vi) to the  best of each  such  Borrower's
knowledge, (A) the Account Debtor thereunder had the capacity to contract at the
time any  contract or other  document  giving rise  thereto was executed and (B)
such  Account  Debtor  is  solvent,  (vii) to the best of each  such  Borrower's
knowledge,  subject to subsection (x) below, there are no proceedings or actions
which are  threatened or pending  against any Account  Debtor  thereunder  which
might result in any Material Adverse Change in such Account  Debtor's  financial
condition or the collectability thereof, (viii) has been billed and forwarded to
the Account  Debtor for payment in  accordance  with  applicable  laws and is in
compliance  and  conformance  with any requisite  procedures,  requirements  and
regulations  governing  payment  by such  Account  Debtor  with  respect to such
Account,  and,  if due from a  Medicaid/Medicare  Account  Debtor,  is  properly
payable directly to Borrower, (ix) each such Borrower has obtained and currently
has all Permits necessary in the generation thereof,  and (x) each such Borrower
has disclosed to Lender on each Borrowing Certificate the amount of all Accounts
of such Borrower for which  Medicare is the Account Debtor and for which payment
has been denied and subsequently appealed pursuant to the procedure described in
the  definition  of Eligible  Receivables  hereof,  and such Borrower is, except
where the failure to do so would not have a Material  Adverse  Effect,  pursuing
all available appeals in respect of such Accounts.

     5.21 Healthcare

     Without  limiting  or being  limited  by any  other  provision  of any Loan
Document, each Borrower and Guarantor has timely filed or caused to be filed all
cost and other  reports of every kind  required by law,  agreement or otherwise.
Subject to  subsection  (x) of  Section  5.20,  there are no claims,  actions or
appeals  pending (and no Borrower or  Guarantor  has filed any claims or reports
which could reasonably result in any such claims, actions or appeals) before any
commission, board or agency or other Governmental Authority,  including, without
limitation, any intermediary or carrier, the Provider Reimbursement Review Board
or the  Administrator  of the Centers for Medicare and Medicaid  Services,  with
respect to any state or federal  Medicare  or  Medicaid  cost  reports or claims
filed by such Borrower,  or any disallowance by any commission,  board or agency
or other  Governmental  Authority  in  connection  with any  audit of such  cost
reports.  No  validation  review or  program  integrity  review  related  to any
Borrower or the consummation of the transactions  contemplated  herein or to the
Collateral  have  been  conducted  by any  commission,  board or agency or other
Governmental Authority in connection with the Medicare or Medicaid programs, and
to the knowledge of each Borrower and Guarantor,  no such reviews are scheduled,
pending or  threatened  against or affecting  any of the  providers,  any of the
Collateral or the consummation of the transactions contemplated hereby.

     5.22 Survival

     Each  Borrower  and  Guarantor  makes the  representations  and  warranties
contained  herein with the knowledge  and  intention  that Lender is relying and
will rely thereon.  All such  representations  and  warranties  will survive the
execution and delivery of this  Agreement,  the making of the Advances under the
Revolving Facility and the funding of the Term Loan.

VI. AFFIRMATIVE COVENANTS

     Each Borrower and Guarantor,  jointly and  severally,  covenants and agrees
that, until full performance and satisfaction,  and indefeasible payment in full
in cash, of all the Obligations and termination of this Agreement:

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     6.1  Financial  Statements,   Borrowing  Certificate,   Reports  and  Other
          Information

     (a) Financial Reports.  In addition to providing the Borrowing  Certificate
in  accordance  with  Section  2.3,  PHC shall  furnish to Lender (i) as soon as
available and in any event within the earlier of ninety (90) calendar days after
the end of each fiscal year of PHC and its  Subsidiaries  or the date upon which
PHC files its report on Form 10-K with the United States Securities and Exchange
Commission,  audited annual consolidated and consolidating  financial statements
of PHC and its  Subsidiaries,  including  the  notes  thereto,  consisting  of a
consolidated and consolidating balance sheet at the end of such completed fiscal
year and the  related  consolidated  and  consolidating  statements  of  income,
retained earnings, cash flows and owners' equity for such completed fiscal year,
which financial statements shall be prepared and certified without qualification
by an independent  certified public  accounting firm  satisfactory to Lender and
accompanied by related  management  letters,  if available,  and (ii) as soon as
available and in any event within  thirty-five  (35) calendar days after the end
of each  calendar  month or earlier or in the case of any  calendar  month which
coincides with the end of a fiscal quarter of PHC, the date upon which PHC files
its  report  on Form  10-Q  with  the  United  States  Securities  and  Exchange
Commission, unaudited consolidated and consolidating financial statements of PHC
and its  Subsidiaries  consisting of a balance  sheet and  statements of income,
retained  earnings,  cash  flows  and  owners'  equity  as of  the  end  of  the
immediately  preceding  calendar month.  All such financial  statements shall be
prepared in accordance with GAAP consistently  applied with prior periods.  With
each such financial statement, PHC shall also deliver a certificate of its chief
financial  officer  in the form of  Exhibit  B  attached  hereto  (the  "Monthly
Compliance  Certificate")  stating  (A)(i)  that such  person has  reviewed  the
relevant terms of the Loan Documents and the condition of Borrower, (ii) that no
Default or Event of Default  has  occurred or is  continuing,  or, if any of the
foregoing has occurred or is  continuing,  specifying  the nature and status and
period of  existence  thereof  and the steps  taken or proposed to be taken with
respect  thereto,  and (iii) that Borrower is in  compliance  with all financial
covenants  attached as Annex I hereto and (B) the Average  Census at Harbor Oaks
and  Highland  Ridge,  Borrower's  EBITDAM,  Cash  Velocity  of Harbor  Oaks and
Highland  Ridge,  and  Borrower's  Available  Cash.  Such  certificate  shall be
accompanied by the calculations  necessary to show compliance with the financial
covenants in a form satisfactory to Lender.

     (b) Other Materials. Each Borrower and Guarantor shall furnish to Lender as
soon as  available,  and in any event  within ten (10)  calendar  days after the
preparation  or issuance  thereof or at such other time as set forth below:  (i)
copies of such financial  statements  (other than those required to be delivered
pursuant to Section  6.1(a))  prepared by, for or on behalf of such  Borrower or
Guarantor  and any other notes,  reports and other  materials  related  thereto,
including,  without  limitation,  any pro forma financial  statements,  (ii) any
reports, returns, information,  notices and other materials that any Borrower or
Guarantor  shall send to its  stockholders,  members,  partners or other  equity
owners  at any time or file  with the  United  States  Securities  and  Exchange
Commission,  (iii) all Medicare and Medicaid cost reports and other document and
materials  filed  by  Borrower  and  any  other  reports,   materials  or  other
information regarding or otherwise relating to Medicaid or Medicare prepared by,
for or on behalf of Borrower,  (iv) all reports,  materials or other information
filed with or pertaining  to any Account  Debtor which could  reasonably  have a
Material  Adverse  Effect,  (v)  promptly  upon receipt  thereof,  copies of any
reports submitted to any Borrower or Guarantor by its independent accountants in
connection  with any  interim  audit of the  books of such  Person or any of its
Affiliates  and  copies  of each  management  control  letter  provided  by such
independent  accountants,  and  (vi)  such  additional  information,  documents,
statements,  reports and other materials as Lender may reasonably request from a
credit or security perspective or otherwise from time to time.

     (c) Notices.  Each Borrower and Guarantor shall promptly,  and in any event
within  two (2)  calendar  days  after any such  Borrower  or  Guarantor  or any
authorized  officer of such  Borrower or Guarantor  obtains  knowledge  thereof,

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notify  Lender in writing of (i) any  pending or  threatened  litigation,  suit,
investigation,  arbitration,  dispute  resolution  proceeding or  administrative
proceeding  brought or  initiated  by such  Borrower or  Guarantor  or otherwise
affecting  or involving or relating to Borrower or any of its property or assets
to the extent  (A) the  amount in  controversy  exceeds  $10,000,  or (B) to the
extent any of the foregoing seeks injunctive  relief,  (ii) any Default or Event
of Default, which notice shall specify the nature and status thereof, the period
of  existence  thereof  and what  action is  proposed  to be taken with  respect
thereto,  (iii) any other development,  event,  fact,  circumstance or condition
that could  reasonably be expected to have a Material  Adverse  Effect,  in each
case  describing  the nature and status  thereof  and the action  proposed to be
taken  with  respect  thereto,  (iv) any notice  received  by such  Borrower  or
Guarantor from any payor of a claim, suit or other action such payor has, claims
or has filed against such Borrower or Guarantor, (v) any matter(s) affecting the
value, enforceability or collectability of any of the Collateral or Real Estate,
including,  without  limitation,  claims or disputes in the amount of $25,000 or
more, singly or in the aggregate,  in existence at any one time, (vi) any notice
given by such  Borrower or  Guarantor  to any other  lender of such  Borrower or
Guarantor  and shall  furnish to Lender a copy of such notice,  (vii) receipt of
any notice or request  from any  Governmental  Authority or  governmental  payor
regarding any liability or claim of liability,  (viii)  receipt of any notice by
such Borrower or Guarantor regarding  termination of any manager of any facility
owed,  operated  or leased  by  Borrower,  and/or  (ix) if any  Account  becomes
evidenced or secured by an Instrument or Chattel Paper.

     (d) Consents.  Each  Borrower and  Guarantor  shall obtain and deliver from
time to time all required  consents,  approvals and  agreements  from such third
parties  as Lender  shall  determine  are  necessary  or  desirable  in its sole
discretion  and that are  satisfactory  to Lender  with  respect to (i) the Loan
Documents and the transactions  contemplated  thereby,  (ii) claims against such
Borrower or  Guarantor,  the  Collateral  or the Real  Estate,  and/or (iii) any
agreements,  consents,  documents  or  instruments  to which  such  Borrower  or
Guarantor is a party or by which any  properties  or assets of such  Borrower or
Guarantor  or any of the  Collateral  or Real Estate is or are bound or subject,
including,  without  limitation,  Landlord  Waivers and Consents with respect to
leases.

     (e)  Operating  Budget.  PHC  shall  furnish  to  Lender on or prior to the
Restatement Date and for each fiscal year of PHC and its Subsidiaries thereafter
not less than thirty (30) calendar days prior to the commencement of such fiscal
year, consolidated and consolidating month by month projected operating budgets,
annual  projections,  profit and loss  statements,  balance sheets and cash flow
reports  of and for PHC and its  Subsidiaries  for  such  upcoming  fiscal  year
(including an income  statement for each month and a balance sheet as at the end
of the last month in each fiscal  quarter),  in each case prepared in accordance
with GAAP consistently applied with prior periods.

     (f)  Non-Compliance  Fee. To the extent any of the foregoing  items in this
Section 6.1 are not  delivered to Lender on a timely  basis,  Borrower  shall be
obligated  to Lender for a daily fee equal to the  greater of (i) $500,  or (ii)
five  one-hundredths  of one  percent  (0.05%) of the then  current  outstanding
principal balance of the Obligations,  for each day until such item is delivered
to Lender,  whether or not a Default or Event of Default  occurs or is declared,
provided  that nothing  shall  prevent  Lender from  considering  any failure to
comply  with  the  terms  of this  Section  6.1 to be a  Default  or an Event of
Default.

     6.2  Payment of Obligations

     Borrower  shall  make full and timely  indefeasible  payment in cash of the
principal  of and  interest on the Loans,  Advances  and all other  Obligations.
Simultaneously  upon any prepayment of the Revolving Loan and termination of the

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Revolving Facility, Borrower shall make full indefeasible payment in cash of the
principal of and interest on the Term Loan and all other Obligations relating to
the Term Loan.

     6.3  Conduct of Business and Maintenance of Existence and Assets

     Each  Borrower and  Guarantor  shall (i) conduct its business in accordance
with good business practices customary to the industry,  (ii) engage principally
in the same or similar lines of business  substantially as heretofore conducted,
(iii) collect its Accounts in the ordinary course of business, (iv) maintain all
of its material properties,  assets and equipment used or useful in its business
in good repair,  working order and condition  (normal wear and tear excepted and
except  as  may be  disposed  of in  the  ordinary  course  of  business  and in
accordance  with the terms of the Loan  Documents and otherwise as determined by
each  such  Borrower  and  Guarantor  using  commercially   reasonable  business
judgment),  (v) from time to time to make all  necessary or  desirable  repairs,
renewals and  replacements  thereof,  as  determined  by each such  Borrower and
Guarantor using commercially  reasonable  business  judgment,  (vi) maintain and
keep in full  force and  effect  its  existence  and all  material  Permits  and
qualifications  to do business and good standing in each  jurisdiction  in which
the  ownership  or lease of  property or the nature of its  business  makes such
Permits or qualification necessary and in which failure to maintain such Permits
or  qualification  could reasonably be likely to have a Material Adverse Effect;
and (vii) remain in good standing and maintain  operations in all  jurisdictions
in which currently located.

     6.4  Compliance with Legal and Other Obligations

     Each  Borrower  and  Guarantor  shall (i) comply  with all  material  laws,
statutes,  rules,  regulations,  ordinances  and  tariffs  of  all  Governmental
Authorities  applicable to it or its business,  assets or operations,  including
applicable   requirements   of  the  Standards   for  Privacy  of   Individually
Identifiable  Health Information which were promulgated  pursuant to HIPAA; (ii)
pay all  taxes,  assessments,  fees,  governmental  charges,  claims  for labor,
supplies,  rent and all other  obligations or  liabilities  of any kind,  except
liabilities  being  contested in good faith and against which adequate  reserves
have been  established in accordance with GAAP, (iii) perform in accordance with
its terms each contract,  agreement or other  arrangement to which it is a party
or by which it or any of the  Collateral or the Real  Property is bound,  except
where the failure to comply,  pay or perform could not reasonably be expected to
have a Material  Adverse  Effect,  (iv)  maintain  and comply  with all  Permits
necessary  to  conduct  its  business  and  comply  with  any new or  additional
requirements  that may be imposed on it or its  business,  and (v) properly file
all Medicaid/Medicare cost reports.

     6.5  Insurance

     Each Borrower and Guarantor shall keep all of its insurable  properties and
assets adequately  insured in all material respects against losses,  damages and
hazards as are  customarily  insured  against by businesses  engaging in similar
activities  or owning  similar  assets or  properties  and at least the  minimum
amount  required by  applicable  law,  including,  without  limitation,  medical
malpractice and professional  liability insurance,  as applicable;  and maintain
general public liability  insurance at all times against liability on account of
damage to persons and property having such limits,  deductibles,  exclusions and
co-insurance  and other  provisions as are  customary for a business  engaged in
activities  similar to those of such Borrower or Guarantor;  and (iii)  maintain
insurance under all applicable workers'  compensation laws; all of the foregoing
insurance  policies to (A) be satisfactory in form and substance to Lender,  (B)
name Lender as loss payee and additional insured  thereunder,  and (C) expressly

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provide  that they cannot be  altered,  amended,  modified  or canceled  without
thirty (30) Business Days prior written  notice to Lender and that they inure to
the benefit of Lender notwithstanding any action or omission or negligence of or
by any such Borrower or Guarantor or any insured thereunder.

     6.6  True Books

     Each  Borrower  and  Guarantor  shall (i) keep true,  complete and accurate
books of record and account in accordance with commercially  reasonable business
practices  in which true and  correct  entries  are made of all of its and their
dealings and transactions in all material respects; and (ii) set up and maintain
on its books such  reserves as may be required by GAAP with  respect to doubtful
accounts and all taxes, assessments, charges, levies and claims and with respect
to its business,  and include such reserves in its quarterly as well as year end
financial statements.

     6.7  Inspection; Periodic Audits

     Each Borrower and Guarantor shall permit the  representatives of Lender, at
the expense of such  Borrower  or  Guarantor,  from time to time  during  normal
business  hours upon  reasonable  notice,  to (i) visit and  inspect  any of its
offices or properties or any other place where  Collateral is located to inspect
the Collateral and/or to examine or audit all of its books of account,  records,
reports and other  papers,  (ii) make copies and extracts  therefrom,  and (iii)
discuss its business,  operations,  prospects,  properties, assets, liabilities,
condition and/or Accounts with its officers and independent  public  accountants
(and by this provision such officers and  accountants  are authorized to discuss
the  foregoing);  provided,  however,  that as long as no  Default  or  Event of
Default has occurred and is  continuing,  Lender (i) shall not conduct more than
three (3) audits and  inspections  during any twelve (12) month  period and (ii)
shall limit the cost of each such audit and  inspection to not more than $15,000
plus out-of-pocket expenses.

     6.8  Further Assurances; Post Closing

     At  Borrower's  cost and expense,  each  Borrower and  Guarantor  shall (i)
within five (5) Business Days after Lender's demand,  take such further actions,
obtain such  consents  and  approvals  and duly execute and deliver such further
agreements,  assignments,  instructions  or documents as Lender may request with
respect to the  purposes,  terms and  conditions  of the Loan  Documents and the
consummation of the transactions  contemplated  thereby,  whether before,  at or
after the  performance  and/or  consummation  of the  transactions  contemplated
hereby or the occurrence of a Default or Event of Default, (ii) without limiting
and  notwithstanding  any other  provision  of any Loan  Document,  execute  and
deliver,  or cause to be executed and delivered,  such agreements and documents,
and take or cause to be taken such actions,  and otherwise perform,  observe and
comply with such  obligations,  as are set forth on Schedule 6.8, and (iii) upon
the exercise by Lender or any of its Affiliates of any power,  right,  privilege
or remedy  pursuant to any Loan  Document or under  applicable  law or at equity
which   requires  any  consent,   approval,   registration,   qualification   or
authorization of any Governmental  Authority,  execute and deliver, or cause the
execution and delivery of, all applications, certificates, instruments and other
documents  that may be so required  for such  consent,  approval,  registration,
qualification  or  authorization.  Without  limiting  the  foregoing,  upon  the
exercise  by Lender or any of its  Affiliates  of any right or remedy  under any
Loan  Document  which  requires  any  consent,  approval or  registration  with,
consent,  qualification  or  authorization  by, any Person,  each  Borrower  and
Guarantor shall execute and deliver, or cause the execution and delivery of, all
applications,  certificates,  instruments and other documents that Lender or its
Affiliate  may be required to obtain for such consent,  approval,  registration,
qualification or authorization.

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     6.9  Payment of Indebtedness

     Except as otherwise  prescribed  in the Loan  Documents,  each  Borrower or
Guarantor  shall pay,  discharge  or  otherwise  satisfy  at or before  maturity
(subject to  applicable  grace  periods and, in the case of trade  payables,  to
ordinary  course  payment  practices)  all  of  its  material   obligations  and
liabilities,  except when the amount or validity  thereof is being  contested in
good  faith by  appropriate  proceedings  and such  reserves  as Lender may deem
proper and necessary in its sole discretion shall have been made.

     6.10 Lien Searches

     If Liens other than  Permitted  Liens exist,  each  Borrower and  Guarantor
immediately  shall  take,  execute  and  deliver  all  actions,   documents  and
instruments necessary to release and terminate such Liens.

     6.11 Use of Proceeds

     Borrower  shall use the proceeds from the  Revolving  Facility and the Term
Loan  only for the  purposes  set forth in the  first  "WHEREAS"  clause of this
Agreement.  No part of such  proceeds  shall be used to finance the business and
operations of Pivotal or to pay any obligations of PHC or its subsidiaries under
the Pivotal Acquisition  Documents or the Pivotal Seller Notes; although PHC may
use monies of Borrower (other than  PHC-Michigan and PHC-Utah)  collected in the
normal course of business for such purposes.

     6.12 Collateral Documents; Security Interest in Collateral

     Each  Borrower and  Guarantor  shall (i) execute,  obtain,  deliver,  file,
register   and/or  record  any  and  all  financing   statements,   continuation
statements,  stock  powers,  instruments  and  other  documents,  or  cause  the
execution,  filing,  registration,  recording  or delivery of any and all of the
foregoing,  that are necessary or required  under law or otherwise or reasonably
requested by Lender to be executed,  filed, registered,  obtained,  delivered or
recorded to create, maintain,  perfect, preserve,  validate or otherwise protect
the pledge of the  Collateral to Lender and Lender's  perfected  first  priority
Lien on the Collateral,  the Real Estate and the Utah Leasehold (second priority
Lien in the case of the Real Estate owned by  PHC-Virginia)  (and each  Borrower
and Guarantor  irrevocably  grants Lender the right, at Lender's option, to file
any or all of the foregoing),  (ii) immediately upon learning thereof, report to
Lender any reclamation,  return or repossession of goods in excess of $10,000.00
(individually  or in the aggregate),  and (iii) defend the Collateral,  the Real
Estate and the Utah  Leasehold,  and Lender's  perfected first (or second in the
case of the Real Estate owned by  PHC-Virginia)  priority Lien thereon,  against
all claims  and  demands of all  Persons  at any time  claiming  the same or any
interest  therein adverse to Lender,  and pay all reasonable  costs and expenses
(including,  without limitation,  in-house  documentation and diligence fees and
legal expenses and reasonable  attorneys'  fees and expenses) in connection with
such defense, which may at Lender's discretion be added to the Obligations.

     6.13 Right of First Refusal

     (a) If at any time any Borrower or Guarantor or any of its  Subsidiaries or
Affiliates  (including Pivotal) receives from a third party an offer, term sheet
or  commitment  or makes a proposal  accepted by any Person  (each,  an "Offer")
which provides for any type of financing  (except for the financing of insurance

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policies in the  ordinary  course and in  accordance  with  historical  business
practices) to or for such Borrower or Guarantor or any of its  Affiliates,  each
such  Borrower,  Guarantor,  Subsidiary or Affiliate  shall notify Lender of the
Offer in writing  (including  all material  terms of the Offer) and Lender shall
have  thirty  (30)  calendar  days after  Receipt of such  notice  (the  "Option
Period") to agree to provide similar  financing in the place of such Person upon
substantially  the same terms and  conditions  (or terms more  favorable to such
Borrower or Affiliate) as set forth in the Offer.  Lender shall notify each such
Borrower,  Guarantor,  Subsidiary or Affiliate in writing of Lender's acceptance
of the Offer  pursuant  hereto  (the  "Acceptance  Notice"),  in which case such
Borrower,  Guarantor,  Subsidiary or Affiliate  shall obtain such financing from
Lender and shall not accept the Offer from such other  Person.  If no Acceptance
Notice has been received from Lender within the Option  Period,  such  Borrower,
Guarantor,  Subsidiary  or  Affiliate  may  consummate  the Offer with the other
Person on the terms and conditions  set forth in the Offer (the  "Transaction");
provided,  however,  that none of foregoing or any failure by Lender to issue an
Acceptance Notice shall be construed as a waiver of any of the terms,  covenants
or  conditions  of  any  of  the  Loan  Documents.  If  the  Transaction  is not
consummated on the terms set forth in the Offer or with the Person providing the
Offer or during the ninety (90) calendar day period  following the expiration of
the Option Period, such Borrower,  Guarantor,  Subsidiary or Affiliate shall not
be permitted to consummate  the  Transaction  without again  complying with this
Section 6.13.  The  provisions of this Section 6.13 shall survive the payment in
full of the  Obligations  and  termination of this Agreement for a period of six
(6)  months.  For  purposes  of  this  Section  6.13,   "Lender"  shall  include
CapitalSource Finance LLC and any of its parents, subsidiaries or Affiliates.

     (b) If at any time during the Term, any Borrower, Guarantor,  Subsidiary or
Affiliate  applies or otherwise  seeks financing from any Person under a program
sponsored  by the  United  States  Housing  and Urban  Development  (each a "HUD
Application"),  each such Borrower,  Guarantor,  Subsidiary or Affiliate  agrees
that Lender and/or its Affiliates  shall have the exclusive right to provide and
arrange the financing obtained in connection with such HUD Application.

     6.14 Taxes and Other Charges

     All  payments  and  reimbursements  to Lender made under any Loan  Document
shall be free and clear of and without deduction for all taxes, levies, imposts,
deductions,  assessments,  charges or  withholdings,  and all  liabilities  with
respect thereto of any nature whatsoever,  excluding taxes to the extent imposed
on Lender's net income.  If any Borrower  shall be required by law to deduct any
such  amounts from or in respect of any sum payable  under any Loan  Document to
Lender, then the sum payable to Lender shall be increased as may be necessary so
that, after making all required  deductions,  Lender receives an amount equal to
the sum it would have received had no such deductions been made. Notwithstanding
any other  provision of any Loan Document,  if at any time after the Closing (i)
any  change in any  existing  law,  regulation,  treaty or  directive  or in the
interpretation or application thereof,  (ii) any new law, regulation,  treaty or
directive  enacted  or any  interpretation  or  application  thereof,  or  (iii)
compliance  by Lender with any request or  directive  (whether or not having the
force of law) from any Governmental  Authority:  (A) subjects Lender to any tax,
levy,  impost,  deduction,   assessment,  charge  or  withholding  of  any  kind
whatsoever  with respect to any Loan Document,  or changes the basis of taxation
of payments to Lender of any amount  payable  thereunder  (except for net income
taxes, or franchise taxes imposed in lieu of net income taxes, imposed generally
by  federal,  state or local  taxing  authorities  with  respect to  interest or
commitment fees or other fees payable hereunder or changes in the rate of tax on
the overall net income of Lender),  or (B) imposes on Lender any other condition
or increased cost in connection with the  transactions  contemplated  thereby or

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participations  therein;  and the result of any of the  foregoing is to increase
the cost to Lender of making or continuing  any Loan  hereunder or to reduce any
amount receivable hereunder, then, in any such case, Borrower shall promptly pay
to Lender any additional amounts necessary to compensate Lender, on an after-tax
basis,  for such additional  cost or reduced amount as determined by Lender.  If
Lender becomes entitled to claim any additional amounts pursuant to this Section
6.14 it shall  promptly  notify  Borrower of the event by reason of which Lender
has become so  entitled,  and each such  notice of  additional  amounts  payable
pursuant to this Section  6.14  submitted  by Lender to Borrower  shall,  absent
manifest  error,  be final,  conclusive  and binding for all  purposes.  Without
limiting or being  limited by any other  provision  of any Loan  Document,  each
Borrower  at all times  shall  retain and use a Person  acceptable  to Lender to
process,  manage and pay its payroll  taxes and shall cause to be  delivered  to
Lender  within ten (10)  calendar  days after the end of each  calendar  month a
report of its payroll taxes for the  immediately  preceding  calendar  month and
evidence of payment thereof.

     (b) Borrower shall promptly, and in any event within five (5) Business Days
after Borrower or any authorized  officer of Borrower obtains knowledge thereof,
notify Lender in writing of any oral or written  communication from the Internal
Revenue  Service  or  otherwise  with  respect  to any (i)  tax  investigations,
relating to the Borrower  directly,  or relating to any  consolidated tax return
which was filed on  behalf  of  Borrower,  (ii)  notices  of tax  assessment  or
possible  tax  assessment,  (iii)  years that are  designated  open  pending tax
examination or audit,  and (iv)  information  that could give rise to an IRS tax
liability or assessment.

VII. NEGATIVE COVENANTS

     Each Borrower and Guarantor,  jointly and  severally,  covenants and agrees
that, until full performance and satisfaction,  and indefeasible payment in full
in cash, of all the Obligations and termination of this Agreement:

     7.1  Financial Covenants

     Borrower shall not violate the financial  covenants set forth on Annex I to
this Agreement, which is incorporated herein and made a part hereof.

     7.2  Permitted Indebtedness

     No Borrower or Guarantor shall create, incur, assume or suffer to exist (or
permit any of its Subsidiaries to create,  incur, assume or suffer to exist) any
Indebtedness, except the following (collectively, "Permitted Indebtedness"): (i)
Indebtedness  under the Loan  Documents  and under the Pivotal  Seller  Notes in
accordance with the is Agreement,  (ii) any  Indebtedness  set forth on Schedule
7.2, (iii)  Capitalized  Lease  Obligations  incurred after the Closing Date and
Indebtedness  incurred  pursuant to purchase  money Liens  permitted  by Section
7.3(v), provided that the aggregate amount thereof outstanding at any time shall
not exceed  $75,000,  (iv)  Indebtedness  in connection  with advances made by a
stockholder in order to cure any default of the financial covenants set forth on
Annex I;  provided,  however,  that such  Indebtedness  shall be on an unsecured
basis, subordinated in right of repayment and remedies to all of the Obligations
and to all of Lender's rights and in form and substance  satisfactory to Lender;
(v) accounts  payable to trade creditors and current  operating  expenses (other
than for borrowed money) which are not aged more than 120 calendar days from the
billing  date or more than  thirty  (30)  days  from the due date,  in each case
incurred in the  ordinary  course of business  and paid within such time period,
unless the same are being  contested in good faith and by appropriate and lawful
proceedings  and such reserves,  if any, with respect thereto as are required by
GAAP and deemed adequate by Borrower's  independent  accountants shall have been
reserved;  and (vi)  borrowings  incurred in the ordinary course of business and
not exceeding  $10,000  individually or in the aggregate  outstanding at any one
time; provided,  however, that such Indebtedness shall be on an unsecured basis,
subordinated in right of repayment and remedies to all of the Obligations and to

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all of Lender's  rights and in form and substance  satisfactory  to Lender;  and
(vii) the  Permitted  Subordinated  or Deferred  Debt.  No Borrower or Guarantor
shall make  prepayments  on any  existing or future  Indebtedness  to any Person
other than to Lender or to the extent  specifically  permitted by this Agreement
or any subsequent agreement between any such Borrower or Guarantor and Lender.

     7.3  Permitted Liens

     No Borrower or Guarantor shall create, incur, assume or suffer to exist (or
permit any of its Subsidiaries to create,  incur, assume or suffer to exist) any
Lien upon,  in or  against,  or pledge of, any of the  Collateral  or any of its
properties  or  assets  or any of its  shares,  securities  or other  equity  or
ownership or  partnership  interests,  whether now owned or hereafter  acquired,
except the following (collectively, "Permitted Liens"): (i) Liens under the Loan
Documents or otherwise arising in favor of Lender, (ii) Liens imposed by law for
taxes (other than payroll  taxes),  assessments  or charges of any  Governmental
Authority  for claims not yet due or which are being  contested in good faith by
appropriate  proceedings  and with respect to which  adequate  reserves or other
appropriate  provisions are being  maintained by such Person in accordance  with
GAAP to the satisfaction of Lender in its sole  discretion,  (iii) (A) statutory
Liens of  landlords  (provided  that any such  landlord  has executed a Landlord
Waiver  and  Consent  in form  and  substance  satisfactory  to  Lender)  and of
carriers, warehousemen,  mechanics,  materialmen, and (B) other Liens imposed by
law or that arise by operation of law in the  ordinary  course of business  from
the date of creation thereof, in each case only for amounts not yet due or which
are being contested in good faith by appropriate proceedings and with respect to
which adequate reserves or other appropriate  provisions are being maintained by
such Person in accordance  with GAAP to the  satisfaction  of Lender in its sole
discretion,  (iv) Liens (A) incurred or deposits made in the ordinary  course of
business  (including,  without  limitation,  surety  bonds and appeal  bonds) in
connection with workers' compensation, unemployment insurance and other types of
social security benefits or to secure the performance of tenders,  bids, leases,
contracts (other than for the repayment of Indebtedness),  statutory obligations
and other similar  obligations,  or (B) arising as a result of progress payments
under government  contracts,  (v) purchase money Liens (A) securing Indebtedness
permitted under Section 7.2(iii), or (B) in connection with the purchase by such
Person of  equipment  in the  normal  course  of  business,  provided  that such
payables  shall not exceed any limits on  Indebtedness  provided  for herein and
shall otherwise be Permitted  Indebtedness  hereunder,  (vi) Liens necessary and
desirable  for the  operation of such  Person's  business,  provided  Lender has
consented to such Liens in writing  before their  creation and existence and the
priority  of such  Liens  and the debt  secured  thereby  are both  subject  and
subordinate  in all  respects to the Liens  securing the  Collateral  and to the
Obligations  and all of the  rights  and  remedies  of  Lender,  all in form and
substance satisfactory to Lender in its sole discretion; (vii) Liens pursuant to
Permitted  Subordinated  Debt; (viii) Liens securing the Pivotal Seller Notes as
in existence on the Closing Date; and (ix) Liens disclosed on Schedule 7.3.

     7.4  Investments; New Facilities or Collateral; Subsidiaries

     No  Borrower  or  Guarantor  nor any of  their  Subsidiaries,  directly  or
indirectly,  shall (i)  purchase,  own,  hold,  invest in or  otherwise  acquire
obligations  or stock or  securities  of,  or any other  interest  in, or all or
substantially  all of the assets of,  any Person or any joint  venture,  or (ii)
make or permit to exist any loans,  advances or guarantees to or for the benefit
of any Person or assume, guarantee,  endorse,  contingently agree to purchase or
otherwise become liable for or upon or incur any obligation of any Person (other
than those created by the Loan  Documents and Permitted  Indebtedness  and other
than (A) trade credit extended in the ordinary course of business,  (B) advances
for business travel and similar  temporary  advances made in the ordinary course

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of business to officers,  directors and  employees,  and (C) the  endorsement of
negotiable  instruments for deposit or collection or similar transactions in the
ordinary  course  of  business.  No  Borrower  or  Guarantor  nor  any of  their
Subsidiaries, directly or indirectly, shall purchase, own, operate, hold, invest
in or otherwise acquire any facility,  property or assets or any Collateral that
is not located at the locations set forth on Schedule 5.18B unless such Borrower
or Guarantor  shall  provide to Lender at least thirty (30)  Business Days prior
written notice. No Borrower or Guarantor shall have any Subsidiaries  other than
such   Subsidiaries   existing  at  Closing  and  as  result  from  the  Pivotal
Acquisition.

     7.5  Dividends; Redemptions

     No Borrower or  Guarantor  shall (i)  declare,  pay or make any dividend or
distribution  on any shares of capital  stock or other  securities  or interests
(other than  dividends or  distributions  payable in its stock,  or split-ups or
reclassifications  of its stock or  dividends  and  distributions  to PHC by its
Subsidiaries),  (ii)  apply  any  of  its  funds,  property  or  assets  to  the
acquisition,  redemption  or  other  retirement  of any  capital  stock or other
securities  or  interests  or of any  options to  purchase or acquire any of the
foregoing  (provided,  however,  that a  Borrower  or  Guarantor  may redeem its
capital  stock from  terminated  employees  pursuant  to, but only to the extent
required  under,  the terms of the related  employment  agreements as long as no
Default or Event of Default has occurred and is continuing or would be caused by
or result therefrom),  (iii) otherwise make any payments or Distributions to any
stockholder,  member, partner or other equity owner in such Person's capacity as
such,  or (iv) make any payment of any  management or service fee or similar fee
to any Person or with respect to any facility  owned,  operated or leased by any
Borrower or Guarantor  provided further that no Borrower or Guarantor shall make
or suffer to exist any  Distribution or payment  hereunder if a Default of Event
of Default has occurred and is continuing or would result therefrom.

     7.6  Transactions with Affiliates

     Neither  any  Borrower,  any  Guarantor  nor  Pivotal  shall  enter into or
consummate  any  transaction  of any  kind  with  any of its  Affiliates  or any
Guarantor or any of their respective  Affiliates other than: (i) salary,  bonus,
employee stock option and other  compensation and employment  arrangements  with
directors or officers in the  ordinary  course of  business,  provided,  that no
payment of any bonus  shall be  permitted  if a Default or Event of Default  has
occurred  and  remains  in effect  or would be  caused  by or  result  from such
payment,  (ii)  distributions and dividends  permitted  pursuant to Section 7.5,
(iii)  transactions  with Lender or any  Affiliate of Lender,  and (iv) payments
permitted under and pursuant to written agreements entered into by and between a
Borrower or a Guarantor and one or more of its Affiliates  that both (A) reflect
and  constitute  transactions  on overall  terms at least as  favorable  to such
Borrower  or  Guarantor  or  Pivotal  as would  be the  case in an  arm's-length
transaction  between  unrelated  parties of equal bargaining  power, and (B) are
subject  to such  terms  and  conditions  as  determined  by  Lender in its sole
discretion;  provided,  that notwithstanding the foregoing neither any Borrower,
any Guarantor nor Pivotal shall (Y) enter into or consummate any  transaction or
agreement pursuant to which it becomes a party to any mortgage,  note, indenture
or guarantee  evidencing any  Indebtedness of any of its Affiliates or otherwise
to become responsible or liable, as a guarantor,  surety or otherwise,  pursuant
to agreement for any Indebtedness of any such Affiliate, or (Z) make any payment
to any of its Affiliates in excess of $10,000  without the prior written consent
of Lender.  Borrower shall not use the proceeds from the Revolving  Facility and
the Term Loan to finance the  business and  operations  of Pivotal or to pay any
obligations of PHC or its subsidiaries under the Pivotal  Acquisition  Documents
or the Pivotal Seller Notes; although PHC may use monies of Borrower (other than
(i) any proceeds  from the  Revolving  Facility or the Term Loan or (ii) amounts
which are  required to be  collected by  PHC-Michigan  and PHC-Utah  through the
Lockbox Account under this Agreement) collected in the normal course of business
for such purposes.

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     7.7  Charter Documents; Fiscal Year; Dissolution; Use of Proceeds

     No Borrower or  Guarantor  shall (i) amend,  modify,  restate or change its
certificate of incorporation or formation or bylaws or similar charter documents
in a manner that would be adverse to Lender,  (ii) change its fiscal year unless
such Borrower or Guarantor demonstrates to Lender's satisfaction compliance with
the covenants  contained  herein for both the fiscal year in effect prior to any
change and the new  fiscal  year  period by  delivery  to Lender of  appropriate
interim and annual pro forma, historical and current compliance certificates for
such periods and such other information as Lender may reasonably request,  (iii)
amend,  alter or suspend or terminate or make  provisional  in any material way,
any Permit without the prior written consent of Lender,  which consent shall not
be unreasonably  withheld,  (iv) wind up, liquidate or dissolve  (voluntarily or
involuntarily)  or  commence  or suffer  any  proceedings  seeking or that would
result in any of the  foregoing,  or (v) use any  proceeds  of any  Advance  for
"purchasing" or "carrying" "margin stock" as defined in Regulations U, T or X of
the Board of Governors of the Federal Reserve System.

     7.8  Truth of Statements

     No  Borrower,   Guarantor  or  Subsidiary   shall  furnish  to  Lender  any
certificate or other  document that contains any untrue  statement of a material
fact or that omits to state a material fact  necessary to make it not misleading
in light of the circumstances under which it was furnished.

     7.9  IRS Form 8821

     No Borrower or Guarantor shall alter, amend,  restate, or otherwise modify,
or  withdraw,  terminate  or  re-file  the IRS Form  8821  required  to be filed
pursuant to the  Conditions  Precedent in Section 4.1 hereof,  except to include
notice or access to our payroll service, which may change from time to time (but
which shall not have the effect of terminating or withdrawing Lender's status as
an appointee thereunder or to limit Lender's access for tax matters).

     7.10 Payment on Subordinated or Deferred Debt

     No Borrower,  Guarantor or Subsidiary  shall (i) make any prepayment of any
part or all of any Permitted  Subordinated,  Deferred Debt or the Pivotal Seller
Notes,  (ii)  repurchase,  redeem or retire any  instrument  evidencing any such
Permitted  Subordinated,  Deferred  Debt or the  Pivotal  Seller  Notes prior to
maturity, or (iii) enter into any agreement (oral or written) which could in any
way be  construed  to  amend,  modify,  alter  or  terminate  any  one  or  more
instruments or agreements evidencing or relating to any Permitted  Subordinated,
Deferred  Debt or the Pivotal  Seller  Notes in a manner  adverse to Lender,  as
determined by Lender in its Permitted Discretion.

     7.11 Reserved

     7.12 Transfer of Assets

     Notwithstanding  any other  provision  of this  Agreement or any other Loan
Document,  no Borrower,  Guarantor or Subsidiary  shall sell,  lease,  transfer,
assign or otherwise  dispose of any interest in any  properties or assets (other
than obsolete  equipment or excess  equipment no longer needed in the conduct of
the  business in the  ordinary  course of  business),  or agree to do any of the
foregoing at any future time, except that:

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     (a) any such  Person may lease (as  lessee)  real or  personal  property or
surrender  all or a portion of a lease of the same, in each case in the ordinary
course of  business  (so long as such  lease does not create or result in and is
not otherwise a Capitalized  Lease Obligation  prohibited under this Agreement),
provided  that a Landlord  Waiver and  Consent  and such other  consents  as are
required by Lender are signed and  delivered to Lender with respect to any lease
of real or other property, as applicable;

     (b) any such  Person may  license or  sublicense  Intellectual  Property or
customer lists from third parties in the ordinary course of business,  provided,
that such licenses or sublicenses shall not interfere with the business or other
operations of such Person and that such Person's  rights,  title and/or interest
in or to such Intellectual Property and customer lists and interests therein are
pledged to Lender as further  security for the  Obligations and included as part
of the Collateral; and

     (c) any such  Person may  consummate  such other sales or  dispositions  of
property or assets  (including any sale or transfer or disposition of all or any
part of its assets and  thereupon and within one year  thereafter  rent or lease
the assets so sold or  transferred)  only to the extent prior written notice has
been  given to Lender  and to the  extent  Lender  has  given its prior  written
consent thereto,  subject in each case to such conditions as may be set forth in
such consent.

     In addition, neither PHC-Michigan nor PHC-Utah shall sell, lease, transfer,
assign or otherwise dispose of any properties or assets to Pivotal.

VIII.    EVENTS OF DEFAULT

     The  occurrence  of any one or more of the  following  shall  constitute an
"Event of Default:"

     (a) Borrower  shall fail to pay any amount on the  Obligations  or provided
for in any Loan Document when due (whether on any payment date, at maturity,  by
reason of acceleration, by notice of intention to prepay, by required prepayment
or otherwise);

     (b) any  representation,  statement or warranty  made or deemed made by any
Borrower,  any Guarantor or any  Subsidiary in any Loan Document or in any other
certificate,  document, report or opinion delivered in conjunction with any Loan
Document to which it is a party,  shall not be true and correct in all  material
respects or shall have been false or misleading  in any material  respect on the
date  when  made or deemed to have  been  made  (except  to the  extent  already
qualified  by  materiality,  in which  case it shall be true and  correct in all
respects and shall not be false or misleading in any respect);

     (c) any  Borrower,  any  Guarantor,  any  Subsidiary or other party thereto
other than Lender shall be in violation,  breach or default of, or shall fail to
perform, observe or comply with any covenant,  obligation or agreement set forth
in, any Loan Document and such violation,  breach,  default or failure shall not
be cured within the applicable period set forth in the applicable Loan Document;
provided that, with respect to the affirmative covenants set forth in Article VI
(other than  Sections  6.2,  6.3,  6.8, 6.9 and 6.11 for which there shall be no
cure period),  there shall be a fifteen (15) calendar day cure period commencing
from the earlier of (i) Receipt by such Person of written notice of such breach,
default,  violation  or  failure,  and (ii) the time at which such Person or any
authorized  officer  thereof knew or became aware,  or should have known or been
aware, of such failure, violation, breach or default;

     (d) (i) any of the Loan  Documents  ceases to be in full force and  effect,
(ii) any Lien created  thereunder  ceases to constitute a valid  perfected first

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priority Lien on the Collateral in accordance with the terms thereof,  or Lender
ceases to have a valid perfected first priority  security interest in any of the
Collateral  or any  securities  pledged  to  Lender  pursuant  to  the  Security
Documents,  or (iii) any Lien created under any Mortgage  ceases to constitute a
valid perfected first priority (second priority in the case of the Real Property
owned by PHC-Virginia) Lien in the Real Estate or the Utah Leasehold;

     (e) one or more tax  assessments,  judgments or decrees is rendered against
any Borrower,  any Guarantor or any Subsidiary in an amount in excess of $10,000
individually  or $50,000 in the aggregate,  which is/are not satisfied,  stayed,
vacated or  discharged  of record  within  thirty  (30)  calendar  days of being
rendered;

     (f) (i) any  default  occurs,  which  is not  cured or  waived,  (x) in the
payment  of  any  amount  with  respect  to any  Indebtedness  (other  than  the
Obligations)  of any  Borrower,  any  Guarantor or any  Subsidiary  in excess of
$25,000,  (y) in the  performance,  observance or  fulfillment  of any provision
contained  in any  agreement,  contract,  document  or  instrument  to which any
Borrower,  any  Guarantor or any  Subsidiary is a party or to which any of their
properties  or  assets  are  subject  or bound  under or  pursuant  to which any
Indebtedness  was  issued,  created,  assumed,  guaranteed  or secured  and such
default  continues  for more than any  applicable  grace  period or permits  the
holder of any  Indebtedness  to accelerate the maturity  thereof,  or (z) in the
performance,  observance  or  fulfillment  of  any  provision  contained  in any
agreement,  contract, document or instrument between any Borrower, any Guarantor
or any  Subsidiary  and  Lender  or  Affiliate  of Lender  (other  than the Loan
Documents),  or (ii) any  Indebtedness of any Borrower,  or any Guarantor or any
Subsidiary is declared to be due and payable or is required to be prepaid (other
than by a regularly  scheduled payment) prior to the stated maturity thereof, or
any  obligation of such Person for the payment of  Indebtedness  (other than the
Obligations) is not paid when due or within any applicable grace period,  or any
such  obligation  becomes  or is  declared  to be due  and  payable  before  the
expressed  maturity thereof,  or there occurs an event which, with the giving of
notice or lapse of time, or both, would cause any such obligation to become,  or
allow any such obligation to be declared to be, due and payable;

     (g) any Borrower,  any Guarantor or any  Subsidiary  shall (i) be unable to
pay its debts  generally  as they  become  due,  (ii) file a petition  under any
insolvency  statute,  (iii)  make a general  assignment  for the  benefit of its
creditors,  (iv)  commence  a  proceeding  for the  appointment  of a  receiver,
trustee,  liquidator or conservator of itself or of the whole or any substantial
part  of  its  property,  or (v)  file  a  petition  seeking  reorganization  or
liquidation  or  similar  relief  under  any  Debtor  Relief  Law or  any  other
applicable law or statute;

     (h) (i) a court  of  competent  jurisdiction  shall  (A)  enter  an  order,
judgment or decree  appointing a custodian,  receiver,  trustee,  liquidator  or
conservator of any Borrower,  any Guarantor or any  Subsidiary,  or the whole or
any  substantial  part of any such  Person's  properties,  which shall  continue
unstayed  and in effect  for a period of sixty  (60)  calendar  days,  (B) shall
approve a petition  filed against any Borrower,  any Guarantor or any Subsidiary
seeking  reorganization,  liquidation  or  similar  relief  under the any Debtor
Relief Law or any other applicable law or statute, which is not dismissed within
sixty (60) calendar  days or, (C) under the  provisions of any Debtor Relief Law
or other  applicable law or statute,  assume custody or control of any Borrower,
any Guarantor or any Subsidiary,  or of the whole or any substantial part of any
such Person's  properties,  which is not irrevocably  relinquished  within sixty
(60)  calendar  days,  or (ii) there is  commenced  against  any  Borrower,  any
Guarantor or any Subsidiary any proceeding or petition  seeking  reorganization,
liquidation  or  similar  relief  under  any  Debtor  Relief  Law or  any  other
applicable law or statute,  which (A) is not  unconditionally  dismissed  within
sixty (60) calendar days after the date of commencement,  or (B) is with respect
to which such Borrower, Guarantor or Subsidiary takes any action to indicate its
approval of or consent to;

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     (i) (i) any Change of Control  occurs or any  agreement  or  commitment  to
cause or that may result in any such Change of Control is entered into, (ii) any
Material  Adverse  Effect,  Material  Adverse  Change  occurs  or is  reasonably
expected to occur, (iii) any Liability Event occurs or is reasonably expected to
occur,  or (iv) any  Borrower or  Guarantor  ceases any portion of its  business
operations as currently conducted;

     (j) Lender  receives any  indication  or evidence  that any  Borrower,  any
Guarantor or any Subsidiary may have directly or indirectly  been engaged in any
type of activity which, in Lender's judgment,  might result in forfeiture of any
property to any Governmental Authority which shall have continued unremedied for
a period of ten (10) calendar days after written notice from Lender;

     (k) an Event of Default occurs under any other Loan Document;

     (l) uninsured  damage to, or loss,  theft or destruction of, any portion of
the Collateral or the Real Estate occurs that exceeds $10,000 in the aggregate;

     (m) any Borrower or any Guarantor or any of their  respective  directors or
senior  officers is  criminally  indicted or convicted  under any law that could
lead to a forfeiture of any Collateral;

     (n) the  issuance of any process for levy,  attachment  or  garnishment  or
execution upon or prior to any judgment  against any Borrower,  any Guarantor or
any Subsidiary or any of their property or assets;

     (o) any Borrower,  any Guarantor or any Subsidiary  does, or enters into or
becomes a party to any agreement or  commitment to do, or cause to be done,  any
of the things described in this Article VIII or otherwise prohibited by any Loan
Document (subject to any cure periods set forth therein); or

     (p) any Borrower,  any Guarantor or Pivotal shall default under the Pivotal
Acquisition Documents;

then,  and in any such event,  notwithstanding  any other  provision of any Loan
Document,  Lender may, by notice to Borrower (i)  terminate its  obligations  to
make Loans  hereunder,  whereupon  the same shall  immediately  terminate,  (ii)
declare all or any of the Notes, all interest thereon and all other  Obligations
to be due and  payable  immediately  (except  in the case of an Event of Default
under  Section 8(d),  (g), (h) or (i)(iii),  in which event all of the foregoing
shall  automatically  and  without  further  act by Lender  be due and  payable,
provided  that,  with  respect  to  non-material  breaches  or  violations  that
constitute Events of Default under clause (ii) of Section 8(d), there shall be a
three (3) Business Day cure period commencing from the earlier of (A) Receipt by
the  applicable  Person of written  notice of such breach or violation or of any
event,  fact or circumstance  constituting or resulting in any of the foregoing,
and (B) the time at which such Person or any authorized  officer thereof knew or
became  aware,  or should have known or been aware,  of such breach or violation
and  resulting  Event  of  Default  or  of  any  event,   fact  or  circumstance
constituting  or  resulting  in any of the  foregoing)),  in each  case  without
presentment,  demand,  protest or further  notice of any kind,  all of which are
hereby expressly waived by Borrower,  and (iii) prohibit any action permitted to
be taken under Article VII hereof.

IX. RIGHTS AND REMEDIES AFTER DEFAULT

     9.1  Rights and Remedies

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     (a) In addition to the  acceleration  provisions  set forth in Article VIII
above, upon the occurrence and continuation of an Event of Default, Lender shall
have the right to exercise any and all rights, options and remedies provided for
in any Loan Document, under the UCC or at law or in equity,  including,  without
limitation,  the right to (i) apply any property of any Borrower  held by Lender
to reduce the  Obligations,  (ii) foreclose the Liens created under the Security
Documents,  (iii) realize upon, take possession of and/or sell any Collateral or
securities  pledged (other than Collateral  consisting of Accounts owed or owing
by  Medicaid/Medicare  Account  Debtors absent a court order or compliance  with
applicable law) with or without judicial  process,  (iv) exercise all rights and
powers with respect to the  Collateral as any  Borrower,  as  applicable,  might
exercise  (other than with respect to Collateral  consisting of Accounts owed or
owing by  Medicaid/Medicare  Account  Debtors absent a court order or compliance
with  applicable  law),  (v) collect and send notices  regarding the  Collateral
(other than with respect to  Collateral  consisting of Accounts owed or owing by
Medicaid/Medicare  Account  Debtors  absent  a court  order or  compliance  with
applicable law), with or without judicial process, (vi) by its own means or with
judicial  assistance,  enter any  premises at which  Collateral  and/or  pledged
securities  are located,  or render any of the foregoing  unusable or dispose of
the Collateral and/or pledged  securities on such premises without any liability
for rent,  storage,  utilities,  or other sums,  and no Borrower shall resist or
interfere with such action, (vii) at Borrower's expense, require that all or any
part of the  Collateral be assembled  and made  available to Lender at any place
designated by Lender,  (viii)  reduce or otherwise  change the Facility Cap, the
Term Loan Amount, and/or (ix) relinquish or abandon any Collateral or securities
pledged or any Lien thereon. Notwithstanding any provision of any Loan Document,
Lender, in its sole discretion,  shall have the right, at any time that Borrower
fails to do so,  and from time to time,  without  prior  notice,  to: (i) obtain
insurance covering any of the Collateral to the extent required hereunder;  (ii)
pay for the performance of any of Obligations; (iii) discharge taxes or Liens on
any of the Collateral that are in violation of any Loan document unless Borrower
is in good faith with due diligence by appropriate  proceedings contesting those
items; and (iv) pay for the maintenance and preservation of the Collateral. Such
expenses and advances  shall be added to the  Obligations  until  reimbursed  to
Lender and shall be secured by the Collateral, and such payments by Lender shall
not be  construed  as a waiver by Lender  of any Event of  Default  or any other
rights or remedies of Lender.

     (b)  Borrower  agrees that notice  received by Borrower  Agent at least ten
(10)  calendar  days before the time of any intended  public  sale,  or the time
after which any private sale or other  disposition  of Collateral is to be made,
shall be deemed to be reasonable  notice of such sale or other  disposition.  If
permitted  by  applicable  law, any  perishable  Collateral  which  threatens to
speedily  decline in value or which is sold on a  recognized  market may be sold
immediately  by  Lender  without  prior  notice  to  Borrower.  At any  sale  or
disposition  of  Collateral  or  securities  pledged,  Lender may (to the extent
permitted  by  applicable  law)  purchase  all or any part thereof free from any
right of redemption  by any Borrower  which right is hereby waived and released.
Borrower  covenants  and  agrees  not to,  and not to permit or cause any of its
Subsidiaries to,  interfere with or impose any obstacle to Lender's  exercise of
its rights and remedies with respect to the Collateral.  Lender, in dealing with
or disposing of the  Collateral  or any part  thereof,  shall not be required to
give  priority or  preference  to any item of Collateral or otherwise to marshal
assets or to take possession or sell any Collateral with judicial process.

     9.2  Application of Proceeds

     In addition to any other rights,  options and remedies Lender has under the
Loan Documents,  the UCC, at law or in equity, all dividends,  interest,  rents,
issues, profits, fees, revenues, income and other proceeds collected or received
from collecting,  holding, managing, renting, selling, or otherwise disposing of
all or any part of the  Collateral or any proceeds  thereof upon exercise of its
remedies  hereunder  shall be applied in the  following  order of priority:  (i)
first,  to the payment of all costs and  expenses of such  collection,  storage,

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lease,  holding,  operation,  management,  sale,  disposition or delivery and of
conducting  Borrower's  business  and  of  maintenance,  repairs,  replacements,
alterations,  additions and  improvements  of or to the  Collateral,  and to the
payment of all sums which  Lender may be  required  or may elect to pay, if any,
for taxes,  assessments,  insurance and other charges upon the Collateral or any
part thereof,  and all other  payments that Lender may be required or authorized
to make under any provision of this Agreement (including, without limitation, in
each such case,  in-house  documentation  and diligence fees and legal expenses,
search,  audit,  recording,  professional  and  filing  fees  and  expenses  and
reasonable  attorneys'  fees and all expenses,  liabilities and advances made or
incurred  in  connection  therewith);   (ii)  second,  to  the  payment  of  all
Obligations as provided herein; (iii) third, to the satisfaction of Indebtedness
secured by any  subordinate  security  interest of record in the  Collateral  if
written  notification of demand therefor is received before  distribution of the
proceeds is completed,  provided,  that, if requested by Lender, the holder of a
subordinate  security  interest shall furnish  reasonable proof of its interest,
and unless it does so, Lender need not address its claims;  and (iv) fourth,  to
the payment of any surplus then remaining to Borrower, unless otherwise provided
by law or directed by a court of competent jurisdiction,  provided that Borrower
shall be liable for any deficiency if such proceeds are  insufficient to satisfy
the Obligations or any of the other items referred to in this section.

     9.3  Rights of Lender to Appoint Receiver

     Without limiting and in addition to any other rights,  options and remedies
Lender has under the Loan  Documents,  the UCC,  at law or in  equity,  upon the
occurrence and continuation of an Event of Default,  Lender shall have the right
to apply for and have a receiver appointed by a court of competent  jurisdiction
in any action  taken by Lender to enforce  its rights and  remedies  in order to
manage,  protect and preserve the  Collateral  and continue the operation of the
business of Borrower and to collect all  revenues and profits  thereof and apply
the same to the payment of all expenses and other  charges of such  receivership
including  the  compensation  of the  receiver  and to the payments as aforesaid
until a sale or other  disposition of such Collateral  shall be finally made and
consummated.

     9.4  Rights and Remedies not Exclusive

     Lender  shall  have the right in its sole  discretion  to  determine  which
rights,  Liens  and/or  remedies  Lender  may at any  time  pursue,  relinquish,
subordinate  or  modify,  and such  determination  will not in any way modify or
affect  any of  Lender's  rights,  Liens or  remedies  under any Loan  Document,
applicable law or equity. The enumeration of any rights and remedies in any Loan
Document is not intended to be exhaustive, and all rights and remedies of Lender
described in any Loan  Document are  cumulative  and are not  alternative  to or
exclusive of any other rights or remedies  which Lender  otherwise may have. The
partial or complete exercise of any right or remedy shall not preclude any other
further exercise of such or any other right or remedy.

X. WAIVERS AND JUDICIAL PROCEEDINGS

     10.1 Waivers

     Except as expressly provided for herein, each Borrower and Guarantor hereby
waives setoff,  counterclaim,  demand,  presentment,  protest, all defenses with
respect  to  any  and  all  instruments  and  all  notices  and  demands  of any
description,  and the pleading of any statute of limitations as a defense to any
demand under any Loan  Document.  Each Borrower and Guarantor  hereby waives any
and all defenses and  counterclaims it may have or could interpose in any action
or  procedure  brought  by Lender to  obtain an order of court  recognizing  the
assignment  of, or Lien of  Lender in and to,  any  Collateral,  whether  or not
payable  by a  Medicaid/Medicare  Account  Debtor.  With  respect  to any action

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hereunder,  Lender  conclusively  may rely upon, and shall incur no liability to
any Borrower or Guarantor  in acting  upon,  any request or other  communication
that  Lender  reasonably  believes  to have  been  given  or  made  by a  person
authorized on any such  Borrower's or  Guarantor's  behalf,  whether or not such
person is listed on the incumbency certificate delivered pursuant to Section 4.1
hereof.  In each such case, each Borrower and Guarantor  hereby waives the right
to  dispute  Lender's  action  based upon such  request or other  communication,
absent manifest error.

     10.2 Delay; No Waiver of Defaults

     No course of  action or  dealing,  renewal,  release  or  extension  of any
provision  of any Loan  Document,  or single  or  partial  exercise  of any such
provision,  or delay, failure or omission on Lender's part in enforcing any such
provision  shall affect the liability of any Borrower or Guarantor or operate as
a waiver of such  provision or affect the liability of any Borrower or Guarantor
or preclude any other or further  exercise of such  provision.  No waiver by any
party to any Loan Document of any one or more defaults by any other party in the
performance  of any of the  provisions of any Loan Document  shall operate or be
construed  as a waiver of any future  default,  whether  of a like or  different
nature,  and each such waiver shall be limited  solely to the express  terms and
provisions  of such  waiver.  Notwithstanding  any other  provision  of any Loan
Document,  by  completing  the  Closing  under this  Agreement  and/or by making
Advances  or  funding  the Term  Loan,  Lender  does not waive any breach of any
representation  or  warranty  of under any Loan  Document,  and all of  Lender's
claims  and  rights  resulting  from any such  breach or  misrepresentation  are
specifically reserved.

     10.3 Jury Waiver

     EACH PARTY TO THIS AGREEMENT  HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM OR CAUSE OF ACTION  ARISING UNDER THE LOAN DOCUMENTS OR IN ANY
WAY CONNECTED  WITH OR INCIDENTAL TO THE DEALINGS OF THE PARTIES WITH RESPECT TO
THE  LOAN  DOCUMENTS  OR THE  TRANSACTIONS  CONTEMPLATED  THEREBY,  WHETHER  NOW
EXISTING OR  HEREAFTER  ARISING,  AND  WHETHER  SOUNDING  IN  CONTRACT,  TORT OR
OTHERWISE. EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM OR CAUSE OF
ACTION  SHALL BE DECIDED BY COURT  TRIAL  WITHOUT A JURY,  AND THAT ANY PARTY TO
THIS  AGREEMENT MAY FILE AN ORIGINAL  COUNTERPART OR A COPY OF THIS SECTION WITH
ANY COURT AS WRITTEN  EVIDENCE  OF THE  CONSENTS OF THE PARTIES TO THE WAIVER OF
THEIR RESPECTIVE RIGHTS TO TRIAL BY JURY.

     10.4 Cooperation in Discovery and Litigation

     In any  litigation,  arbitration  or other  dispute  resolution  proceeding
relating to any Loan  Document,  each Borrower and Guarantor  waives any and all
defenses,  objections  and  counterclaims  it may have or could  interpose  with
respect to (i) any of its directors,  officers, employees or agents being deemed
to be employees or managing agents of such Borrower or Guarantor for purposes of
all  applicable  law or court rules  regarding  the  production  of witnesses by
notice for testimony  (whether in a  deposition,  at trial or  otherwise),  (ii)
Lender's counsel  examining any such  individuals as if under  cross-examination
and  using any  discovery  deposition  of any of them as if it were an  evidence
deposition, and/or (iii) using all commercially reasonable efforts to produce in
any such dispute resolution proceeding,  at the time and in the manner requested
by Lender,  all Persons,  documents  (whether in tangible,  electronic  or other
form) and/or other things under its control and relating to the dispute.

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XI. EFFECTIVE DATE AND TERMINATION

     11.1 Effectiveness and Termination

     (a) Subject to Lender's  right to terminate  and cease making Loans upon or
after any Event of  Default,  this  Agreement  shall  continue in full force and
effect  until  the full  performance  and  indefeasible  payment  in cash of all
Obligations, unless terminated sooner as provided in this Section 11.1. Borrower
may terminate this Agreement at any time upon not less than thirty (30) calendar
days' prior written notice to Lender and upon full  performance and indefeasible
payment in full in cash of all Obligations on or prior to such 30th calendar day
after Receipt by Lender of such written notice.  All of the Obligations shall be
immediately due and payable upon any such  termination on the  termination  date
stated in any notice of termination  (the  "Termination  Date");  provided that,
notwithstanding  any other provision of any Loan Document,  the Termination Date
shall be effective no earlier than the first Business Day of the month following
the  expiration of the thirty (30) calendar  days' prior written  notice period.
Notwithstanding any other provision of any Loan Document, no termination of this
Agreement shall affect Lender's rights or any of the Obligations  existing as of
the effective date of such termination, and the provisions of the Loan Documents
shall  continue  to be fully  operative  until the  Obligations  have been fully
performed  and  indefeasibly  paid in cash in full.  The Liens granted to Lender
under the Security Documents and the financing statements filed pursuant thereto
and the  rights  and powers of Lender  shall  continue  in full force and effect
notwithstanding the fact that Borrower's  borrowings  hereunder may from time to
time be in a zero or  credit  position  until all of the  Obligations  have been
fully performed and indefeasibly paid in full in cash.

     (b) If (i) Borrower terminates the Revolving Facility under Section 11.1(a)
above, (ii) Lender demands or Borrower is otherwise  required to make payment in
full of the  Revolving  Facility  and/or  Obligations  relating to the Revolving
Facility upon the  occurrence of an Event of Default,  (iii) a Change of Control
or  payment  pursuant  to  Section  2.11  occurs,  (iv) any other  voluntary  or
involuntary  prepayment of the Revolving Facility and/or Obligations relating to
the  Revolving  Facility  by  Borrower or any other  Person  occurs  (other than
reductions  to  zero  of  the  outstanding  balance  of the  Revolving  Facility
resulting from the ordinary course  operation of the provisions of Section 2.5),
whether by virtue of Lender's exercising its right of set-off or otherwise,  (v)
Lender  accelerates the Revolving  Facility or makes any demand on the Revolving
Facility,  or (vi) any payment or  reduction of the  outstanding  balance of the
Revolving  Facility  is  made  during  a  bankruptcy,  reorganization  or  other
proceeding or is made pursuant to any plan of  reorganization  or liquidation or
any Debtor Relief Law, (each, a "Revolver Termination"),  then, at the effective
date of any such Revolver Termination, Borrower shall pay Lender (in addition to
the then outstanding principal,  accrued interest and other Obligations relating
to the Revolving  Facility pursuant to the terms of this Agreement and any other
Loan  Document),  as  yield  maintenance  for the loss of  bargain  and not as a
penalty,  an  amount  equal  to  the  greater  of  (1)  the  applicable  Minimum
Termination Fee, and (2) the Yield Maintenance Amount.

     11.2 Survival

     All  obligations,  covenants,  agreements,   representations,   warranties,
waivers and  indemnities  made by any Borrower or Guarantor in any Loan Document
shall survive the execution and delivery of the Loan Documents, the Closing, the
making of the Loans and any  termination of this Agreement until all Obligations
are fully performed and  indefeasibly  paid in full in cash. The obligations and
provisions of Sections 3.5, 3.7, 6.13,  10.1,  10.3,  11.1, 11.2, 12.4, 12.7 and
12.9 shall survive termination of the Loan Documents and any payment, in full or
in part, of the Obligations.

XII. MISCELLANEOUS

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     12.1 Governing Law; Jurisdiction; Service of Process; Venue

     The Loan  Documents  shall be governed by and construed in accordance  with
the internal laws of the State of Maryland  without  giving effect to its choice
of law  provisions.  Any judicial  proceeding  against any Borrower or Guarantor
with respect to the Obligations,  any Loan Document or any related agreement may
be brought in any federal or state court of  competent  jurisdiction  located in
the State of Maryland.  By execution and delivery of each Loan Document to which
it is a party,  each  Borrower  and  Guarantor  (i)  accepts  the  non-exclusive
jurisdiction of the aforesaid  courts and irrevocably  agrees to be bound by any
judgment rendered thereby, (ii) waives personal service of process, (iii) agrees
that service of process upon it may be made by  certified  or  registered  mail,
return  receipt  requested,  pursuant to Section  12.5  hereof,  (iv) waives any
objection  to  jurisdiction  and venue of any action  instituted  hereunder  and
agrees  not to  assert  any  defense  based  on lack of  jurisdiction,  venue or
convenience,  and (v) agrees that the Loans were made in  Maryland,  that Lender
has accepted in Maryland all of the Loan Documents executed by Borrower and each
Guarantor  and has  disbursed  Advances  under the Loan  Documents  in Maryland.
Nothing  shall  affect  the  right of  Lender  to serve  process  in any  manner
permitted by law or shall limit the right of Lender to bring proceedings against
any  Borrower  or  Guarantor  in the  courts  of any other  jurisdiction  having
jurisdiction.  Any judicial  proceedings  against Lender involving,  directly or
indirectly, the Obligations, any Loan Document or any related agreement shall be
brought only in a federal or state court  located in the State of Maryland.  All
parties  acknowledge  that they  participated in the negotiation and drafting of
this  Agreement and that,  accordingly,  no party shall move or petition a court
construing this Agreement to construe it more stringently against one party than
against any other.

     12.2 Successors and Assigns; Participations; New Lenders

     The Loan Documents  shall inure to the benefit of Lender,  Transferees  and
all future holders of any Note, the Obligations  and/or any of the Collateral or
Security Documents,  and each of their respective  successors and assigns.  Each
Loan  Document  shall be binding  upon the  Persons'  other than Lender that are
parties thereto and their respective  successors and assigns, and no such Person
may  assign,  delegate  or  transfer  any Loan  Document or any of its rights or
obligations  thereunder  without the prior written consent of Lender.  No rights
are intended to be created  under any Loan Document for the benefit of any third
party donee,  creditor or incidental  beneficiary  of any Borrower or Guarantor.
Nothing  contained in any Loan  Document  shall be construed as a delegation  to
Lender of any other  Person's duty of  performance.  EACH BORROWER AND GUARANTOR
ACKNOWLEDGES  AND AGREES  THAT  LENDER AT ANY TIME AND FROM TIME TO TIME MAY (I)
DIVIDE AND RESTATE ANY NOTE,  AND/OR  (II) SELL,  ASSIGN OR GRANT  PARTICIPATING
INTERESTS IN OR TRANSFER ALL OR ANY PART OF ITS RIGHTS OR OBLIGATIONS  UNDER ANY
LOAN  DOCUMENT,  NOTE,  THE  OBLIGATIONS  AND/OR THE COLLATERAL TO OTHER PERSONS
(EACH SUCH TRANSFEREE,  ASSIGNEE OR PURCHASER, A "TRANSFEREE").  Each Transferee
shall have all of the  rights  and  benefits  with  respect to the  Obligations,
Notes,  Collateral  and/or Loan Documents held by it as fully as if the original
holder  thereof,  and either Lender or any  Transferee  may be designated as the
sole agent to manage the  transactions  and  obligations  contemplated  therein;
provided  that,  notwithstanding  anything to the contrary in any Loan Document,
Borrower  shall not be obligated to pay under this  Agreement to any  Transferee
any sum in excess of the sum which  Borrower would have been obligated to pay to
Lender  had such  participation  not been  effected.  Notwithstanding  any other
provision  of any Loan  Document,  Lender may  disclose  to any  Transferee  all
information, reports, financial statements,  certificates and documents obtained
under any provision of any Loan Document.

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     12.3 Application of Payments

     To the  extent  that any  payment  made or  received  with  respect  to the
Obligations  is  subsequently  invalidated,   determined  to  be  fraudulent  or
preferential,  set  aside or  required  to be  repaid  to a  trustee,  debtor in
possession, receiver, custodian or any other Person under any Debtor Relief Law,
common law or equitable cause or any other law, then the Obligations intended to
be  satisfied  by such  payment  shall be revived and shall  continue as if such
payment  had not been  received  by Lender.  Any  payments  with  respect to the
Obligations  received  shall be credited and applied in such manner and order as
Lender shall decide in its sole discretion.

          12.4 Indemnity

     Each Borrower and Guarantor  jointly and severally shall indemnify  Lender,
its  Affiliates  and its  and  their  respective  managers,  members,  officers,
employees, Affiliates, agents, representatives, successors, assigns, accountants
and attorneys (collectively, the "Indemnified Persons") from and against any and
all liabilities,  obligations,  losses, damages, penalties,  actions, judgments,
suits,  costs,  expenses  and  disbursements  of any kind or  nature  whatsoever
(including, without limitation, reasonable fees and disbursements of counsel and
in-house  documentation  and  diligence  fees and legal  expenses)  which may be
imposed on, incurred by or asserted against any Indemnified  Person with respect
to or  arising  out  of,  or in  any  litigation,  proceeding  or  investigation
instituted  or  conducted  by any Person  with  respect to any aspect of, or any
transaction  contemplated  by or referred  to in, or any matter  related to, any
Loan Document or any agreement,  document or transaction  contemplated  thereby,
whether or not such Indemnified Person is a party thereto,  except to the extent
that  any of  the  foregoing  arises  out of the  gross  negligence  or  willful
misconduct of such Indemnified  Person. If any Indemnified  Person uses in-house
counsel  for any  purpose  for  which  any  Borrower  is  responsible  to pay or
indemnify, each Borrower and Guarantor expressly agrees that its indemnification
obligations  include reasonable charges for such work commensurate with the fees
that  would  otherwise  be charged by outside  legal  counsel  selected  by such
Indemnified Person in its sole discretion for the work performed.  Lender agrees
to give each  Borrower  and  Guarantor  reasonable  notice of any event of which
Lender  becomes  aware for which  indemnification  may be  required  under  this
Section 12.4,  and Lender may elect (but is not obligated) to direct the defense
thereof,  provided  that the selection of counsel shall be subject to Borrower's
and or Guarantor's consent,  which consent shall not be unreasonably withheld or
delayed.  Any Indemnified  Person may, in its reasonable  discretion,  take such
actions as it deems necessary and  appropriate to investigate,  defend or settle
any event or take other remedial or corrective  actions with respect  thereto as
may  be  necessary  for  the  protection  of  such  Indemnified  Person  or  the
Collateral.  Notwithstanding  the foregoing,  if any insurer agrees to undertake
the defense of an event (an "Insured Event"),  Lender agrees not to exercise its
right to select  counsel to defend the event if that would cause any  Borrower's
or Guarantor's insurer to deny coverage; provided, however, that Lender reserves
the right to retain counsel to represent any Indemnified  Person with respect to
an Insured Event at its sole cost and expense. To the extent that Lender obtains
recovery  from a third  party  other  than an  Indemnified  Person of any of the
amounts that any Borrower has paid to Lender pursuant to the indemnity set forth
in this  Section  12.4,  then  Lender  shall  promptly  pay to such  Borrower or
Guarantor the amount of such recovery.

         12.5     Notice

     Any notice or request under any Loan  Document  shall be given to any party
to this Agreement at such party's address set forth beneath its signature on the
signature  page to this  Agreement,  or at such other  address as such party may

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hereafter  specify in a notice given in the manner  required  under this Section
12.5; provided, that notices to Borrower shall be given to the Borrower Agent at
the  address set forth  beneath  its  signature  on the  signature  page to this
Agreement.  Any notice or request hereunder shall be given only by, and shall be
deemed to have been  received  upon  (each,  a  "Receipt"):  (i)  registered  or
certified mail, return receipt requested,  on the date on which such received as
indicated  in such return  receipt,  (ii)  delivery by a  nationally  recognized
overnight  courier,  one (1) Business Day after  deposit with such  courier,  or
(iii)  facsimile  or  electronic  transmission,  in each case upon  telephone or
further electronic communication from the recipient affirmatively  acknowledging
receipt (whether automatic or manual from recipient), as applicable.

     12.6 Severability; Captions; Counterparts; Facsimile Signatures

     If any  provision of any Loan Document is  adjudicated  to be invalid under
applicable  laws or  regulations,  such provision  shall be  inapplicable to the
extent of such invalidity  without  affecting the validity or  enforceability of
the  remainder  of the Loan  Documents  which  shall be given  effect  so far as
possible.  The captions in the Loan Documents are intended for  convenience  and
reference  only and shall not affect the meaning or  interpretation  of the Loan
Documents. The Loan Documents may be executed in one or more counterparts (which
taken together, as applicable, shall constitute one and the same instrument) and
by  facsimile  transmission,  which  facsimile  signatures  shall be  considered
original executed counterparts. Each party to this Agreement agrees that it will
be bound  by its own  facsimile  signature  and that it  accepts  the  facsimile
signature of each other party.

     12.7  Expenses

     Borrower  shall  pay,  whether  or not the  Closing  occurs,  all costs and
expenses   incurred  by  Lender  and/or  its  Affiliates,   including,   without
limitation,  documentation and diligence fees and expenses,  all search,  audit,
appraisal,  recording,  professional  and filing fees and expenses and all other
out-of-pocket  charges and  expenses  (including,  without  limitation,  UCC and
judgment and tax lien searches and UCC filings and fees for post-Closing UCC and
judgment and tax lien searches and wire transfer fees and audit  expenses),  and
reasonable attorneys' fees and expenses,  (i) in any effort to enforce,  protect
or collect  payment of any  Obligation  or to enforce  any Loan  Document or any
related  agreement,  document or  instrument,  (ii) in connection  with entering
into, negotiating,  preparing, reviewing and executing the Loan Documents and/or
any related agreements,  documents or instruments,  (iii) arising in any way out
of  administration  of the  Obligations,  (iv) in connection  with  instituting,
maintaining,  preserving,  enforcing and/or foreclosing on Lender's Liens in any
of the  Collateral,  the Real Estate or the  securities  pledged  under the Loan
Documents,  whether through judicial proceedings or otherwise,  (v) in defending
or prosecuting any actions,  claims or proceedings arising out of or relating to
Lender's transactions with any Borrower or Guarantor, (vi) in seeking, obtaining
or  receiving  any advice with respect to its rights and  obligations  under any
Loan Document and any related agreement, document or instrument, and/or (vii) in
connection with any modification,  restatement, supplement, amendment, waiver or
extension  of any Loan  Document  and/or  any  related  agreement,  document  or
instrument.  All of the  foregoing  shall be charged to  Borrower's  account and
shall  be part of the  Obligations.  If  Lender  or any of its  Affiliates  uses
in-house  counsel for any purpose under any Loan Document for which  Borrower or
any  Guarantor  is  responsible  to pay or  indemnify,  Borrower  and  any  such
Guarantor  expressly agree that its Obligations  include  reasonable charges for
such work  commensurate with the fees that would otherwise be charged by outside
legal counsel  selected by Lender or such  Affiliate in its sole  discretion for
the work performed. Without limiting the foregoing, Borrower shall pay all taxes
(other than taxes  based upon or measured by Lender's  income or revenues or any
personal  property tax), if any, in connection with the issuance of any Note and
the filing and/or recording of any documents and/or financing statements.

                                      160
<PAGE>
     12.8 Entire Agreement

     This  Agreement  and the other  Loan  Documents  to which any  Borrower  or
Guarantor is a party constitute the entire agreement between Borrower,  any such
Guarantor and Lender with respect to the subject matter hereof and thereof,  and
supersede  all prior  agreements  and  understandings,  if any,  relating to the
subject matter hereof or thereof. Any promises,  representations,  warranties or
guarantees  not herein  contained and  hereinafter  made shall have no force and
effect  unless  in  writing  signed  by  Borrower  or  any  such  Guarantor,  as
applicable, and Lender. No provision of this Agreement may be changed, modified,
amended,  restated,  waived,  supplemented,  discharged,  canceled or terminated
orally or by any  course of  dealing  or in any other  manner  other  than by an
agreement in writing signed by Lender and Borrower and any such Guarantor.  Each
party hereto acknowledges that it has been advised by counsel in connection with
the  negotiation  and  execution of this  Agreement and is not relying upon oral
representations or statements inconsistent with the terms and provisions hereof.

     12.9 Lender Approvals

     Unless expressly  provided herein to the contrary,  any approval,  consent,
waiver or  satisfaction  of Lender with respect to any matter that is subject of
any Loan  Document may be granted or withheld by Lender in its sole and absolute
discretion.

     12.10 Confidentiality and Publicity

     Each  Borrower  and  Guarantor  agrees,  and  agrees  to cause  each of its
Subsidiaries  and Affiliates,  (i) not to transmit or disclose  provision of any
Loan Document to any Person (other than to Borrower's and  Guarantor's  advisors
and officers on a need-to-know  basis) without  Lender's prior written  consent,
(ii) to inform all Persons of the confidential  nature of the Loan Documents and
to direct them not to disclose  the same to any other Person and to require each
of them to be bound by these provisions. Lender reserves the right to review and
approve  all  materials  that  any  Borrower  or  Guarantor  or  any  of  its or
Subsidiaries  or Affiliates  prepares that contain  Lender's name or describe or
refer to any Loan Document,  any of the terms thereof or any of the transactions
contemplated  thereby.  No Borrower or Guarantor shall, and shall not permit any
of its  Subsidiaries  or Affiliates to, use Lender's name (or the name of any of


                                      157
<PAGE>
Lender's Affiliates) in connection with any of its business operations.  Nothing
contained in any Loan  Document is intended to permit or authorize  any Borrower
or Guarantor or any of its  Subsidiaries  or Affiliates to contract on behalf of
Lender.  Further,  each Borrower and Guarantor  hereby agrees that Lender or any
Affiliate  of Lender may (i)  disclose  a general  description  of  transactions
arising  under the Loan  Documents for  advertising,  marketing or other similar
purposes and (ii) use any Borrower's,  any Guarantor's or any Subsidiary's name,
logo or other indicia germane to such party in connection with such advertising,
marketing or other similar purposes.

     12.11 Release of Lender

     Notwithstanding  any other  provision of any Loan Document,  each Borrower,
each Guarantor and each Subsidiary voluntarily,  knowingly,  unconditionally and
irrevocably,  with specific and express intent,  for and on behalf of itself, it
managers, members, directors,  officers,  employees,  stockholders,  Affiliates,
agents,  representatives,  accountants,  attorneys,  successors  and assigns and
their respective  Affiliates  (collectively,  the "Releasing  Parties"),  hereby
fully and completely releases and forever discharges the Indemnified Parties and
any other Person or insurer which may be  responsible  or liable for the acts or
omissions of any of the Indemnified Parties, or who may be liable for the injury
or damage resulting therefrom  (collectively,  with the Indemnified Parties, the

                                      161
<PAGE>
"Released Parties"), of and from any and all actions, causes of action, damages,
claims,  obligations,  liabilities,  costs,  expenses  and  demands  of any kind
whatsoever,  at law or in equity,  matured or unmatured,  vested or  contingent,
that any of the Releasing  Parties has against any of the Released Parties as of
the date of the Closing.  Each  Borrower,  each  Guarantor  and each  Subsidiary
acknowledges  that the  foregoing  release is a material  inducement to Lender's
decision to extend to Borrower the  financial  accommodations  hereunder and has
been relied upon by Lender in agreeing to make the Loans.

     12.12 Agent

     Lender and its  successors  and assigns  hereby (i)  designate  and appoint
CapitalSource  Finance  LLC,  a  Delaware  limited  liability  company,  and its
successors  and  assigns  ("CapitalSource"),  to act as agent for Lender and its
successors and assigns under this Agreement and all other Loan  Documents,  (ii)
irrevocably authorize  CapitalSource to take all actions on its behalf under the
provision  of this Loan  Agreement  and all other Loan  Documents,  and (iii) to
exercise  all such  powers  and  rights,  and to  perform  all such  duties  and
obligations hereunder and thereunder.  CapitalSource, on behalf of Lender, shall
hold all  Collateral,  payments of principal  and  interest,  fees,  charges and
collections  received  pursuant to this Agreement and all other Loan  Documents.
Each  Borrower and Guarantor  acknowledges  that Lender and its  successors  and
assigns transfer and assign to CapitalSource  the right to act as Lender's agent
to enforce all rights and perform all obligations of Lender contained herein and
in all of the other Loan Documents. Each Borrower and Guarantor shall within ten
(10) Business Days after Lender's reasonable request, take such further actions,
obtain such  consents  and  approvals  and duly execute and deliver such further
agreements,  amendments,  assignments,  instructions  or documents as Lender may
request to evidence the appointment and  designation of  CapitalSource  as agent
for Lender and other financial  institutions  from time to time party hereto and
to the other Loan Documents.

     12.13 Amendment and Restatement

     On the Restatement Date, the Existing Credit Agreement shall be amended and
restated  in its  entirety  by this  Agreement  and (i)  all  references  to the
Existing  Credit  Agreement  in any Loan  Document  other  than  this  Agreement
(including in any amendment,  waiver or consent) shall be deemed to refer to the
Existing Credit Agreement as amended and restated hereby, (ii) all references to
any  section  (or  subsection)  of the  Existing  Credit  Agreement  in any Loan
Document (but not herein) shall be amended to be, mutatis  mutandis,  references
to the  corresponding  provisions  of this  Agreement  and  (iii)  except as the
context otherwise  provides,  all references to this Agreement herein (including
for purposes of indemnification and reimbursement of fees) shall be deemed to be
reference to the Existing Credit Agreement as amended and restated hereby.  This
Agreement is not intended to constitute,  and does not constitute, a novation of
the obligations and liabilities  under the Existing Credit Agreement  (including
the Existing  Term Loans and the Existing  Revolving  Loans it being agreed that
the  outstanding  Existing  Term Loans and  Existing  Revolving  Loans are being
continued under this Agreement) or to evidence  payment of all or any portion of
such obligations and liabilities.

     On and after the Restatement  Date, (i) the Existing Credit Agreement shall
be of no further  force and effect  except as amended  and  restated  hereby and
except to evidence (1) the  incurrence by any Credit Party of the  "Obligations"
under and as defined therein (whether or not such  "Obligations"  are contingent
as of the Restatement Date), (2) the  representations and warranties made by any
Credit  Party  prior to the  Restatement  Date,  and (3) any action or  omission
performed or required to be performed pursuant to such Existing Credit Agreement
prior to the Restatement  Date (including any failure,  prior to the Restatement
Date, to comply with the covenants contained in such Existing Credit Agreement),
and (ii) the terms and conditions of this Agreement and the Lenders'  rights and
remedies under the Loan Documents, shall apply to all Obligations incurred under
the Existing Credit Agreement.

                                      162
<PAGE>
     Except as expressly  provided in any Loan  Documents,  this  Agreement  (x)
shall not cure any breach of the Existing  Credit  Agreement or any "Default" or
"Event of  Default"  thereunder  existing  prior to the date  hereof  and (y) is
limited as written and is not a consent to any other modification of any term or
condition  of any Loan  Document,  each of which shall  remain in full force and
effect.

     Each of the Credit Parties reaffirms the Liens granted pursuant to the Loan
Documents (as  applicable)  to Lender,  which Liens shall continue in full force
and effect  during the term of this  Agreement  and any  renewals or  extensions
hereof and shall continue to secure the Obligations.


                    [SIGNATURES APPEAR ON THE FOLLOWING PAGE]




                                      163


<Page>

     IN WITNESS WHEREOF,  each of the parties has duly executed this Amended and
Restated Revolving Credit, Term Loan and Security Agreement as of the date first
written above.


                                        PHC, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President

                                        PHC, Inc.
                                        200 Lake Street, Suite 102
                                        Peabody, Massachusetts 01960
                                        Attention:  Bruce Shear and Paula Wurts
                                        Telephone:  978-536-2777
                                        FAX:  978-536-2677
                                        E-Mail: bshear@phc-inc.com
                                        pwurts@phc-inc.com


                                        PHC OF MICHIGAN, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President


                                        PHC OF NEVADA, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President


                                        PHC OF UTAH, INC.


                                        By:   /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President

                                      165
<PAGE>
[signature page to Amended and Restated Revolving Credit, Term Loan and Security
Agreement]

                                        PHC OF VIRGINIA, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President

                                        WELLPLACE, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President


                                        DETROIT BEHAVIORAL INSTITUTE, INC.

                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President


                                        NORTH POINT - PIONEER, INC.


                                        By:    /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President

                                        SEVEN HILLS HOSPITAL, INC.


                                        By:   /s/ Bruce A. Shear
                                        Name:  Bruce Shear
                                        Its:   President





                                      166
<PAGE>
[signature page to Amended and Restated Revolving Credit, Term Loan and Security
Agreement]



                         CAPITALSOURCE FINANCE LLC


                         By:    /s/ Todd S. Gordon
                         Name:  Todd S. Gordon
                         Its:   Director - Healthcare & Speciality Finance

                         CapitalSource Finance LLC
                         4445 Willard Avenue, 12th Floor
                         Chevy Chase, MD  20815
                         Attention:  Healthcare Finance Group, Portfolio Manager
                         Telephone:  (301) 841-2700
                         FAX:  (301) 841-2340

                                      167
<PAGE>

                                     ANNEX I

                               FINANCIAL COVENANTS

     1)   Minimum EBITDA

     Borrower  shall not permit  EBITDA for any Test  Period to be less than the
following  at the end of each Test  Period  ending as of the last day of each of
the following months, calculated on a consolidated and consolidating basis:

         Test Period                           Minimum EBITDA

   January                    $705,000 ($795,000 following the occurrence of the
                              Seven Hills Phase-In Date)

   February                   $725,000 ($825,000 following the occurrence of the
                              Seven Hills Phase-In Date)

   March                      $745,000 ($855,000 following the occurrence the of
                              Seven Hills Phase-In Date)

   April through October      $765,000 ($885,000 following the occurrence of the
                              Seven Hills Phase-In Date)

   November                   $745,000 ($855,000 following the occurrence of the
                              Seven Hills Phase-In Date)

   December                   $725,000 ($825,000 following the occurrence of the
                              Seven Hills Phase-In Date)


For purposes of this Minimum  EBITDA  Covenant,  the term "Seven Hills  Phase-In
Date" means the first day of the  seventh  (7th)  month  following  the month in
which Seven Hills  Hospital has received all  necessary  permits and licenses to
become operational and admits its first patient.

     2) Fixed Charge Ratio (EBITDA/Fixed Charges)

     The Fixed Charge  Ratio shall not be less than the  following as at the end
of the following calendar months:

       Calendar Month Ending                                          Ratio

   April 30, 2007 through June 30, 2007                              1.0 to 1.0

   July 31, 2007 through October 31, 2007                           1.25 to 1.0

   November 30, 2007 through January 31, 2008                       1.05 to 1.0

                                   Annex I - i


                                      168
<PAGE>
   February 28, 2008 and March 31, 2008                              1.1 to 1.0

   April 30, 2008 and May 31, 2008                                  1.25 to 1.0

   June 30, 2008 through October 31, 2008                            1.5 to 1.0

   November 30, 2008 through January 31, 2009                       1.25 to 1.0

   Each February 28 through October 31 commencing February          1.50 to 1.0
    28, 2009 and thereafter

   Each November 30 through January 31 commencing November          1.25 to 1.0
    30, 2009 and thereafter

     For purposes of the  covenants  set forth in this Annex I, the terms listed
below shall have the following meanings:

     "Cash  Equivalents" shall mean (a) securities issued, or directly and fully
guaranteed  or insured,  by the United  States or any agency or  instrumentality
thereof (provided that the full faith and credit of the United States is pledged
in support thereof) having  maturities of not more than six months from the date
of  acquisition,  (b) U.S.  dollar  denominated  time deposits,  certificates of
deposit  and  bankers'  acceptances  of (i)  any  domestic  commercial  bank  of
recognized  standing  having capital and surplus in excess of  $500,000,000,  or
(ii) any bank (or the parent company of such bank) whose  short-term  commercial
paper rating from Standard & Poor's Ratings  Services ("S&P") is at least A-2 or
the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at
least P-2 or the  equivalent  thereof in each case with  maturities  of not more
than  six  months  from  the  date  of   acquisition   (any  bank   meeting  the
qualifications  specified in clauses  (b)(i) or (ii), an "Approved  Bank"),  (c)
repurchase  obligations  with a term of not more than seven days for  underlying
securities of the types  described in clause (a),  above,  entered into with any
Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent
company of any Approved Bank and  commercial  paper issued by, or guaranteed by,
any industrial or financial company with a short-term commercial paper rating of
at least A-2 or the equivalent  thereof by S&P or at least P-2 or the equivalent
thereof by Moody's,  or  guaranteed by any  industrial  company with a long term
unsecured  debt rating of at least A or A2, or the  equivalent  of each thereof,
from S&P or Moody's,  as the case may be, and in each case  maturing  within six
months after the date of acquisition  and (e)  investments in money market funds
substantially  all of whose  assets  are  comprised  of  securities  of the type
described in clauses (a) through (d) above.

     "EBITDA" shall mean, for any Test Period, the sum, without duplication,  of
the following: Net Income determined in accordance with GAAP, plus, (a) Interest
Expense, (b) taxes on income, whether paid, payable or accrued, (c) depreciation
expense, (d) amortization expense, (e) all other non-cash, non-recurring charges
and expenses,  excluding  accruals for cash expenses made in the ordinary course
of  business,  and (f) loss from any sale of  assets,  other  than  sales in the
ordinary course of business,  all of the foregoing determined in accordance with
GAAP, minus (a) gains from any sale of assets,  other than sales in the ordinary
course of business and (b) other extraordinary or non-recurring gains.

     "Fixed  Charge  Ratio"  shall  mean,  for  PHC and  its  Subsidiaries  on a
consolidated  and  consolidating  basis,  the ratio of (a)  EBITDA  for the Test
Period, to (b) Fixed Charges for the Test Period.

                                  Annex I - ii

                                      169
<PAGE>
     "Fixed Charges" shall mean, for PHC and its  Subsidiaries on a consolidated
and consolidating  basis, the sum of the following:  (a) Total Debt Service, (b)
Capital  Expenditures,  (c)  income  taxes  paid  in cash  or  accrued,  and (d)
dividends paid or accrued or declared.

     "Interest Expense" shall mean with respect to PHC and its Subsidiaries on a
consolidated  and  consolidating  basis,  for any Test  Period,  total  interest
expense  (including  attributable to Capital Leases in accordance with GAAP) and
fees with respect to all outstanding Indebtedness including capitalized interest
but excluding commissions, discounts and other fees owed with respect to letters
of credit and bankers'  acceptance  financing and net costs under  Interest Rate
Agreements.

     "Interest Rate Agreement"  shall mean any interest rate swap, cap or collar
agreement  or other  similar  agreement  or  arrangement  designed  to hedge the
position with respect to interest rates.

     "Net Income" shall mean,  for any Test Period,  with respect to PHC and its
Subsidiaries on a consolidated and consolidating basis, the net income (or loss)
determined  in conformity  with GAAP,  provided that there shall be excluded (i)
the  income (or loss) of any Person in which any other  Person  (other  than any
Borrower) has a joint interest,  except to the extent of the amount of dividends
or other  distributions  actually  paid to a Borrower by such  Person,  (ii) the
income (or loss) of any Person  accrued  prior to the date it becomes a Borrower
or is merged into or  consolidated  with a Borrower or that Person's  assets are
acquired by a Borrower,  (iii) the income of any  Subsidiary  of Borrower to the
extent that the declaration or payment of dividends or similar  distributions of
that income by that  Subsidiary is not at the time permitted by operation of the
terms of the charter or any  agreement,  instrument,  judgment,  decree,  order,
statute,  rule or governmental  regulation  applicable to that Subsidiary,  (iv)
compensation expense resulting from the issuance of capital stock, stock options
or stock appreciation  rights issued to former or current  employees,  including
officers, of a Borrower, or the exercise of such options or rights, in each case
to the extent the obligation (if any) associated therewith is not expected to be
settled by the payment of cash by a Borrower or any affiliate  thereof,  and (v)
compensation expense resulting from the repurchase of capital stock, options and
rights described in clause (iv) of this definition of Net Income.

     "Test Period" shall mean the three most recent  calendar  months then ended
(taken as one  accounting  period),  or such other  period as  specified  in the
Agreement or any Annex thereto.

     "Total  Debt" shall  mean,  at any date of  determination,  for PHC and its
Subsidiaries on a consolidated and consolidating  basis, the total  Indebtedness
for  borrowed  money  and under  Capital  Leases on such date less cash and Cash
Equivalents held on such date.

     "Total Debt  Service"  shall  mean,  for any Test  Period,  for PHC and its
Subsidiaries on a consolidated and consolidating  basis the sum of (i) scheduled
or other  required  payments of principal  on  Indebtedness,  and (ii)  Interest
Expense, in each case for such period.

                                  Annex I - iii


                                      170
<PAGE>
                                   APPENDIX A

                                   DEFINITIONS

     "Acceptance Notice" shall have the meaning given such term in Section 6.13.

     "Accounts"  shall mean all "accounts" (as defined in the UCC) of a Borrower
(or, if referring to another Person,  of such other Person),  including  without
limitation,  accounts,  accounts  receivables,  monies  due or to become due and
obligations in any form (whether arising in connection with contracts,  contract
rights, Instruments, General Intangibles or Chattel Paper), in each case whether
arising out of goods sold or services rendered or from any other transaction and
whether or not earned by  performance,  now or hereafter in  existence,  and all
documents of title or other documents representing any of the foregoing, and all
collateral  security and  guaranties of any kind, now or hereafter in existence,
given by any Person with respect to any of the foregoing.

     "Account Debtor" shall mean any Person who is obligated under an Account.

     "Advance" shall mean a borrowing under the Revolving Facility.  Any amounts
paid by  Lender  on  behalf  of any  Borrower  or any  Guarantor  under any Loan
Document shall be an Advance for purposes of the Agreement.

     "Affiliate"  shall  mean,  as to any  Person,  any other  Person  (a) that,
directly  or  indirectly  through  one  or  more  intermediaries,  controls,  is
controlled  by, or is under  common  control  with,  such  Person,  (b) who is a
director or officer (i) of such Person,  (ii) of any  Subsidiary of such Person,
or (iii) of any  Person  described  in clause  (a) above  with  respect  to such
Person, or (c) which, directly or indirectly through one or more intermediaries,
is the  beneficial  or record owner (as defined in Rule 13d-3 of the  Securities
Exchange Act of 1934,  as amended,  as the same is in effect on the date hereof)
of five  percent  (5%) or more of any  class of the  outstanding  voting  stock,
securities or other equity or ownership  interests of such Person.  For purposes
of this definition,  the term "control" (and the correlative terms,  "controlled
by" and "under  common  control  with") shall mean the  possession,  directly or
indirectly,  of the power to direct or cause the direction of the  management or
policies,  whether  through  ownership  of  securities  or other  interests,  by
contract or otherwise. "Affiliate" shall include any Subsidiary.

     "Applicable  Advance  Rate"  shall mean (i) 80% (or such  other  percentage
determined by Lender pursuant to Section 2.1(b) hereof) with respect to Eligible
Receivables  from third party payors  outstanding  less than 120  calendar  days
after  the  claim  or  invoice  date and  (ii)  60% (or  such  other  percentage
determined  by Lender  pursuant to Section  2.1(b)  hereof)  with respect to all
other Eligible Receivables of PHC.

     "Applicable  Rate" shall mean the interest  rates  applicable  from time to
time to Advances under the Agreement.

     "Assignment  of Rents"  shall  have the  meaning  ascribed  to such term in
Section 2.13(c).

     "Availability" shall have the meaning given such term in Section 2.1(a).

     "Available  Cash"  shall  mean,  for  and  on any  date,  the  sum  without
duplication of the following for PHC and its  Subsidiaries on a consolidated and
consolidating  basis:  (a)  unrestricted  cash on hand on such  date,  (b)  Cash
Equivalents held on such date, and (c) the unborrowed  Availability on and as of
such date.


                                 Appendix A - 1

                                      171
<PAGE>
     "Average  Census"  shall  mean,  for any period for each of Harbor Oaks and
Highland Ridge, the average aggregate census levels for the Test Period (as such
term is  defined  in Annex I) then  ending at each of Harbor  Oaks and  Highland
Ridge,  expressed,  in each case, as a percentage of the  applicable  facilities
licensed bed capacity.

     "Borrower Agent" shall have the meaning assigned to it in Section 2.15.

     "Borrowing  Base" shall mean, as of any date of  determination,  the sum of
the  net  collectible   U.S.  Dollar  value  of  the  Eligible   Receivables  of
PHC-Michigan arising from the operation of Harbor Oaks and PHC-Utah arising from
the operation of Highland Ridge, as determined with reference to the most recent
Borrowing Certificate and otherwise in accordance with the Agreement;  provided,
however,  that if as of such date the most recent Borrowing  Certificate is of a
date more than four (4) Business  Days before or after such date,  the Borrowing
Base shall be determined by Lender in its sole discretion.

     "Borrowing Date" shall have the meaning given such term in Section 2.3.

     "Borrowing Certificate" shall mean a Borrowing Certificate substantially in
the form of Exhibit A.

     "Business  Day" shall mean any day other than a  Saturday,  Sunday or other
day on which the Federal Reserve or Lender is closed.

     "Capital  Expenditures"  shall mean, for any Test Period,  the sum (without
duplication)  of  all   expenditures   (whether  paid  in  cash  or  accrued  as
liabilities)  during  the Test  Period  that are or should be treated as capital
expenditures under GAAP.

     "Capital  Lease" shall mean,  as to any Person,  a lease of any interest in
any kind of property  or asset by that  Person as lessee  that is,  should be or
should have been recorded as a "capital lease" in accordance with GAAP.

     "Capitalized  Lease  Obligations"  shall mean all obligations of any Person
under Capital Leases, in each case, taken at the amount thereof accounted for as
a liability in accordance with GAAP.

     "Cash  Equivalents" shall mean (a) securities issued, or directly and fully
guaranteed  or insured,  by the United  States or any agency or  instrumentality
thereof (provided that the full faith and credit of the United States is pledged
in support thereof) having  maturities of not more than six months from the date
of  acquisition,  (b) U.S.  dollar  denominated  time deposits,  certificates of
deposit  and  bankers'  acceptances  of (i)  any  domestic  commercial  bank  of
recognized  standing  having capital and surplus in excess of  $500,000,000,  or
(ii) any bank (or the parent company of such bank) whose  short-term  commercial
paper rating from Standard & Poor's Ratings  Services ("S&P") is at least A-2 or
the equivalent thereof or from Moody's Investors Service, Inc. ("Moody's") is at
least P-2 or the  equivalent  thereof in each case with  maturities  of not more
than  six  months  from  the  date  of   acquisition   (any  bank   meeting  the
qualifications  specified in clauses  (b)(i) or (ii), an "Approved  Bank"),  (c)
repurchase  obligations  with a term of not more than seven days for  underlying
securities of the types  described in clause (a),  above,  entered into with any
Approved Bank, (d) commercial paper issued by any Approved Bank or by the parent
company of any Approved Bank and  commercial  paper issued by, or guaranteed by,
any industrial or financial company with a short-term commercial paper rating of
at least A-2 or the equivalent  thereof by S&P or at least P-2 or the equivalent
thereof by Moody's,  or  guaranteed by any  industrial  company with a long term

                                 Appendix A - 2

                                      172
<PAGE>
unsecured  debt rating of at least A or A2, or the  equivalent  of each thereof,
from S&P or Moody's,  as the case may be, and in each case  maturing  within six
months after the date of acquisition  and (e)  investments in money market funds
substantially  all of whose  assets  are  comprised  of  securities  of the type
described in clauses (a) through (d) above.

     "Cash Velocity" shall mean, for any period,  collections of the Accounts of
PHC-Michigan in respect of Harbor Oaks and PHC-Utah in respect of Highland Ridge
during such period,  calculated  on a  consolidated  basis as of the end of each
calendar  month for the Test  Period  (as such term is  defined in Annex I) then
ending.

     "Change of Control" shall mean,  with respect to any Borrower or Guarantor,
the  occurrence  of  any  of  the  following:   (i)  a  merger,   consolidation,
reorganization, recapitalization or share or interest exchange, sale or transfer
or any other  transaction or series of transactions  in which its  stockholders,
managers,  partners or interest holders immediately prior to such transaction or
series of transactions  receive, in exchange for the stock or interests owned by
them,  cash,  property or securities of the resulting or surviving entity or any
Affiliate thereof, and, as a result thereof, Persons who, individually or in the
aggregate,  were  holders  of 50% or more of its  voting  stock,  securities  or
equity, partnership or ownership interests immediately prior to such transaction
or series of transactions hold less than 50% of the voting stock,  securities or
other equity,  partnership or ownership  interests of the resulting or surviving
entity or such Affiliate  thereof,  calculated on a fully diluted basis,  (ii) a
direct or indirect sale,  transfer or other  conveyance or  disposition,  in any
single transaction or series of transactions, of all or substantially all of its
assets,  or (iii) any  "change  in/of  control"  or "sale" or  "disposition"  or
similar event as defined in any document  governing  indebtedness of such Person
which gives the holder of such indebtedness the right to accelerate or otherwise
require payment of such indebtedness prior to the maturity date thereof.

     "Charter and Good  Standing  Documents"  shall mean,  for each  Borrower or
Guarantor (i) a copy of the certificate of  incorporation or formation (or other
charter  document)  certified  as of a date  satisfactory  to Lender  before the
Restatement Date by the applicable Governmental Authority of the jurisdiction of
incorporation or organization of such Borrower or Guarantor,  (ii) a copy of the
bylaws  or  similar   organizational   documents  of  certified  as  of  a  date
satisfactory to Lender before the Restatement Date by the corporate secretary or
assistant secretary of such Borrower or Guarantor, (iii) an original certificate
of good  standing as of a date  acceptable  to Lender  issued by the  applicable
Governmental  Authority of the  jurisdiction of incorporation or organization of
such  Borrower  or  Guarantor  and of every  other  jurisdiction  in which  such
Borrower  or  Guarantor  has an  office or  conducts  business  or is  otherwise
required to be in good standing, and (iv) copies of the resolutions of the Board
of Directors or managers (or other applicable  governing body) and, if required,
stockholders, members or other equity owners authorizing the execution, delivery
and  performance  of the Loan Documents to which such Borrower or Guarantor is a
party,  certified by an authorized  officer of such Person as of the Restatement
Date.

     "Closing" shall mean the satisfaction,  or written waiver by Lender, of all
of the conditions precedent set forth in this Agreement required to be satisfied
prior to the consummation of the transactions contemplated hereby.

     "Closing Date" shall have the meaning given such term in the Preamble.

     "Collateral" shall mean, collectively and each individually, all collateral
and/or security granted to Lender by any Borrower and/or  Guarantor  pursuant to
the Loan Documents.

     "Collateral  Management  Fee"  shall  have the  meaning  given such term in
Section 3.4.

                                 Appendix A - 3

                                      173
<PAGE>
     "Collateral  Patent,  Trademark,   Copyright  Assignment"  shall  mean  the
Collateral,  any patent,  trademark or copyright  assignment or  acknowledgement
executed by and between any Borrower or Guarantor, as applicable, and Lender, as
such may be modified, amended or supplemented from time to time.

     "Concentration  Account"  shall have the meaning given such term in Section
2.5.

     "Cross  Guaranty"  shall have the meaning  assigned to such term in Section
2.13(b).

     "Credit  Party"  or  "Credit  Parties"  shall  mean  any  Borrower  and any
Guarantor, individually or collectively, as the context may require.

     "Debtor Relief Law" shall mean,  collectively,  the Bankruptcy  Code of the
United States of America and all other applicable liquidation,  conservatorship,
bankruptcy, moratorium, rearrangement,  receivership, insolvency, reorganization
or similar  debtor relief laws from time to time in effect  affecting the rights
of creditors generally, as amended from time to time.

     "Debt Service Reserve Amount" shall mean an amount equal to $30,000.

     "Default" shall mean any event, fact,  circumstance or condition that, with
the giving of applicable  notice or passage of time or both, would constitute or
be or result in an Event of Default.

     "Dilution Items" shall have the meaning given such term in Section 2.1(b).

     "Distribution" shall mean any fee, payment,  bonus or other remuneration of
any kind, and any repayment of or debt service on loans or other indebtedness.

     "EBITDAM" shall mean the sum, without duplication, of the following for any
Test  Period  (as such term is  defined in Annex I): (a) EBITDA (as such term is
defined in Annex I) for  Harbor  Oaks and (b)  Management  Fees,  whether  paid,
payable or accrued.

     "Eligible  Receivables"  shall mean each  Account  arising in the  ordinary
course of Harbor  Oaks's and Highland  Ridge's  business (or the business of any
other  Borrower  whose Accounts may be included at any time in the future within
the  Borrowing  Base)  from the sale of goods or  rendering  of  Services  which
Lender, in its sole discretion, deems an Eligible Receivable unless:

(a) it is not subject to a valid perfected first priority security interest in
favor of Lender, subject to no other Lien;

(b) it is not collected through the Lockbox Accounts;

     (c) it is not  evidenced  by an  invoice,  statement  or other  documentary
evidence  satisfactory to Lender;  provided,  that Lender in its sole discretion
may from time to time include as Accounts  that are not evidenced by an invoice,
statement  or other  documentary  evidence  satisfactory  to Lender as  Eligible
Receivables  and  determine  the advance  rate,  liquidity  factors and reserves
applicable to Advances made on any such Accounts;

     (d) it or any portion thereof (in which case only such portion shall not be
an Eligible  Receivable)  is payable by a  beneficiary,  recipient or subscriber
individually  and  not  directly  by  a  Medicaid/Medicare   Account  Debtor  or
commercial medical insurance carrier acceptable to Lender;

                                 Appendix A - 4

                                      174
<PAGE>
     (e) it arises  out of  services  rendered  or a sale made to, or out of any
other transaction between with , one or more Affiliates of any such Borrower;

     (f) it remains  unpaid for longer than the earlier of (i) 150 calendar days
after  the  first to occur  of the  claim  date or  invoice  date,  and (ii) 165
calendar days after the applicable Services were rendered;

     (g) with  respect to all Accounts  owed by any  particular  Account  Debtor
and/or its  Affiliates,  if more than 50% of the  aggregate  balance of all such
Accounts owing from such Account Debtor and/or its Affiliates  remain unpaid for
longer than the earlier of (i) 150 calendar days after the first to occur of the
claim date or invoice  date,  and (ii) 165  calendar  days after the  applicable
Services were rendered;

     (h) with  respect to all Accounts  owed by any  particular  Account  Debtor
and/or its Affiliates,  50% or more of all such Accounts are not deemed Eligible
Receivables  for any reason  hereunder  (which  percentage may, in Lender's sole
discretion, be increased or decreased);

     (i) with  respect to all Accounts  owed by any  particular  Account  Debtor
and/or its Affiliates, if such Accounts exceed 20% of the net collectible dollar
value of all  Eligible  Receivables  at any one time  (including  Accounts  from
Medicaid/Medicare  Account  Debtors)  (which  percentage  may, in Lender's  sole
discretion, be increased or decreased);

     (j) any covenant,  agreement,  representation or warranty  contained in any
Loan  Document  with  respect to such  Account  has been  breached  and  remains
uncured;

     (k) the  Account  Debtor for such  Account has  commenced a voluntary  case
under  any  Debtor  Relief  Law or has made an  assignment  for the  benefit  of
creditors,  or a decree or order for relief has been  entered by a court  having
jurisdiction in respect of such Account Debtor in an involuntary  case under any
Debtor  Relief Law, or any other  petition or  application  for relief under any
Debtor  Relief Law has been filed against such Account  Debtor,  or such Account
Debtor has failed, suspended business, ceased to be solvent, called a meeting of
its creditors, or has consented to or suffered a receiver,  trustee,  liquidator
or custodian to be appointed for it or for all or a  significant  portion of its
assets or affairs, or Borrower, in the ordinary course of business,  should have
known of any of the foregoing;

     (l) it arises from the sale of property or services rendered to one or more
Account  Debtors  outside  the  continental  United  States or that  have  their
principal place of business or chief  executive  offices outside the continental
United States;

     (m) it represents  the sale of goods or rendering of services to an Account
Debtor on a bill-and-hold,  guaranteed sale, sale-and-return,  sale on approval,
consignment  or any other  repurchase or return basis or is evidenced by Chattel
Paper or an Instrument of any kind or has been reduced to judgment;

     (n) the  applicable  Account  Debtor for such  Account is any  Governmental
Authority, unless rights to payment of such Account have been assigned to Lender
pursuant to the Assignment of Claims Act of 1940, as amended (31 U.S.C.  Section
3727,  et seq.  and 41  U.S.C.  Section  15,  et seq.),  or  otherwise  all with
applicable  statutes or  regulations  respecting  the  assignment  of Government
Accounts  have been  complied  with (for  example,  with  respect to all Account
payable directly by a Medicaid/Medicare Account Debtor);

                                 Appendix A - 5

                                      175
<PAGE>
     (o) it is subject to any offset,  credit  (including  any resource or other
income  credit or offset)  deduction,  defense,  discount,  chargeback,  freight
claim, allowance,  adjustment,  dispute or counterclaim, or is contingent in any
respect or for any reason;

     (p) there is any agreement  with an Account  Debtor for any deduction  from
such Account,  except for discounts or allowances made in the ordinary course of
business for prompt payment,  all of which discounts or allowances are reflected
in the calculation of the face value of each invoice related thereto,  such that
only the discounted amount of such Account after giving effect to such discounts
and allowances shall be considered an Eligible Receivable;

     (q) any return,  rejection or repossession of goods or services  related to
it has occurred;

     (r) it is not payable to such Borrower;

     (s) such Borrower has agreed to accept or has accepted any non-cash payment
for such Account;

     (t) with respect to any Account  arising from the sale of goods,  the goods
have not been shipped to the Account Debtor or its designee;

     (u) with respect to any Account  arising from the  performance of Services,
the Services have not been actually performed or the Services were undertaken in
violation of any law; or

     (v) such account fails to meet such other  specifications  and requirements
which  may  from  time to time be  established  by  Lender  or is not  otherwise
satisfactory to Lender, as determined in Lender's sole discretion.

     "Environmental  Laws" shall mean,  collectively and each  individually ,the
Comprehensive  Environmental  Response,  Compensation and Liability Act of 1980,
the  Superfund   Amendment  and   Reauthorization  Act  of  1986,  the  Resource
Conservation and Recovery Act, the Toxic  Substances  Control Act, the Clean Air
Act, the Clean Water Act, any other "Superfund" or "Superlien" law and all other
federal,  state and local and foreign  environmental,  land use, zoning, health,
chemical  use,  safety  and  sanitation  laws,  statutes,  ordinances  and codes
relating to the protection of the environment and/or governing the use, storage,
treatment,  generation,  transportation,  processing,  handling,  production  or
disposal of  Hazardous  Substances,  in each case,  as  amended,  and the rules,
regulations,  policies,  guidelines,  interpretations,   decisions,  orders  and
directives of Governmental Authorities with respect thereto.

     "ERISA" shall mean the Employee  Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.

     "Event of  Default"  shall  mean the  occurrence  of any event set forth in
Article VIII.

     "Excess Cash Flow" shall mean, for any fiscal year, without duplication, an
amount  equal to the sum of (i)  consolidated  net income or loss of PHC and its
Subsidiaries  for such  period,  plus  (ii) an  amount  equal to the  amount  of
depreciation  expenses,  amortization  expense  (including the  amortization  of
goodwill),  accrued  non-cash  interest  expense and all other non-cash  charges
deducted  in  arriving at such  consolidated  net income or loss,  plus (iii) an
amount equal to the aggregate net cash proceeds of the sale, lease,  transfer or

                                 Appendix A - 6

                                      176
<PAGE>
other  disposition of assets by PHC and its  Subsidiaries  during such period to
the extent not  required to be applied to mandatory  prepayments  or payments on
the  Loans,  plus  (iv) an  amount  equal  to the net loss on the  sale,  lease,
transfer or other disposition of assets by PHC and its Subsidiaries  during such
period to the extent  deducted in arriving  at such  consolidated  net income or
loss, plus (v) without  duplication of other items included in this  definition,
an  amount  equal  to any  tax  refunds  or  credits  received  by PHC  and  its
Subsidiaries  during such  period,  less (vi) an amount  equal to the  permitted
Capital  Expenditures of PHC and its Subsidiaries for such period, less (vii) an
amount  equal to the sum of all  regularly  scheduled  payments and optional and
mandatory prepayments of principal on Indebtedness for money borrower of PHC and
its  Subsidiaries  (other than on the Loans) actually made during such period to
the extent permitted  hereunder,  less (viii) an amount equal to the net gain on
the  sale,  lease,  transfer  or  other  disposition  of  assets  by PHC and its
Subsidiaries  during  such  period to the extent  included  in  arriving at such
consolidated net income or loss.

     "Existing  Advances" shall mean all outstanding  loans and advances made by
Lender to  Borrower  under the  Existing  Credit  Agreement  in  respect  of the
Revolving Facility.

     "Existing  Credit  Agreement"  shall have the meaning given the term in the
Recitals of this Agreement.

     "Existing Revolving Notes" shall have the meaning given the term in Section
2.11(a).

     "Existing Term Loan" shall have the meaning given the term in. the Recitals
of this Agreement.

     "Existing  Term  Note"  shall  have the  meaning  given the term in Section
2.11(a).

     "Facility  Cap" shall have the  meaning  given the term in the  Recitals of
this Agreement.

     "Fair  Valuation"  shall  mean  the  determination  of  the  value  of  the
consolidated assets of a Person on the basis of the amount which may be realized
by a willing seller within a reasonable time through  collection or sale of such
assets at market value on a going concern  basis to an  interested  buyer who is
willing  to  purchase  under  ordinary  selling  conditions  in an arm's  length
transaction.

     "GAAP" shall mean generally  accepted  accounting  principles in the United
States  of  America  in  effect  from  time  to time as  applied  by  nationally
recognized accounting firms.

     "Government  Account" shall be defined to mean all Accounts  arising out of
or with respect to any Government Contract.

     "Government  Contract"  shall be  defined  to mean all  contracts  with the
United States Government or with any agency thereof, and all amendments thereto.

     "Governmental   Authority"  shall  mean  any  federal,   state,  municipal,
national,  local or other governmental  department,  court,  commission,  board,
bureau,  agency or  instrumentality  or political  subdivision  thereof,  or any
entity or officer exercising executive,  legislative or judicial,  regulatory or
administrative  functions of or  pertaining to any  government or any court,  in
each case,  whether of the United  States or a state,  territory  or  possession
thereof,  a foreign  sovereign entity or country or jurisdiction or the District
of Columbia.

     "Guarantor"  shall mean,  collectively and each individually all guarantors
of the  Obligations or any part thereof (but shall not include any Borrower that
executes a Cross Guaranty).

                                 Appendix A - 7

                                      177
<PAGE>
     "Guaranty" shall mean,  collectively and each individually,  all guarantees
(other than any Cross Guaranty) executed by any Guarantors.

     "Harbor Oaks" shall mean that certain 64-bed psychiatric hospital owned and
operated by PHC of Michigan,  Inc.  under the name "Harbor  Oaks  Hospital"  and
located in New Baltimore, Michigan.

     "Hazardous  Substances"  shall  mean,  without  limitation,  any  flammable
explosives,  radon,  radioactive  materials,  asbestos,  urea  formaldehyde foam
insulation,   polychlorinated  biphenyls,   petroleum  and  petroleum  products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances or
related materials as defined in or subject to any applicable Environmental Law.

     "Healthcare  Laws" shall mean all applicable  statutes,  laws,  ordinances,
rules and regulations of any  Governmental  Authority with respect to regulatory
matters  primarily  relating to patient  healthcare,  healthcare  providers  and
healthcare services (including without limitation Section 1128B(b) of the Social
Security  Act, as amended,  42 U.S.C.  Section  1320a-7(b)  (Criminal  Penalties
Involving  Medicare or State Health Care Programs),  commonly referred to as the
"Federal  Anti-Kickback  Statute,"  and the Social  Security  Act,  as  amended,
Section 1877, 42 U.S.C.  Section 1395nn (Prohibition Against Certain Referrals),
commonly referred to as "Stark Statute").

     "Highland  Ridge" shall mean that certain 41-bed  substance abuse treatment
facility leased and operated by PHC of Utah, Inc. under the name "Highland Ridge
Hospital" and located in Midvale, Utah.

     "Indebtedness" of any Person shall mean, without duplication, (a) all items
which,  in  accordance  with  GAAP,  would  be  included  in  determining  total
liabilities  as shown on the liability  side of the balance sheet of such Person
as of the date as of which Indebtedness is to be determined, including any lease
which,  in  accordance  with  GAAP  would  constitute   Indebtedness,   (b)  all
indebtedness secured by any mortgage, pledge, security, Lien or conditional sale
or other title retention  agreement to which any property or asset owned or held
by such Person is subject, whether or not the indebtedness secured thereby shall
have been assumed, (c) all indebtedness of others which such Person has directly
or indirectly guaranteed,  endorsed (otherwise than for collection or deposit in
the ordinary  course of  business),  discounted  or sold with recourse or agreed
(contingently or otherwise) to purchase or repurchase or otherwise  acquire,  or
in respect of which such Person has agreed to supply or advance  funds  (whether
by way of loan,  stock,  equity or other ownership  interest  purchase,  capital
contribution or otherwise) or otherwise to become directly or indirectly liable.

     "Indemnified  Person"  shall  have the  meaning  given such term in Section
12.4.

     "Initial  Term Loan Amount"  shall have the meaning  given such term in the
third recital hereof.

     "Insured Event" shall have the meaning given such term in Section 12.4.

     "Insurer" shall mean a Person that insures another Person against any costs
incurred  in the  receipt  by such  other  Person  of  Services,  or that has an
agreement  with any Borrower to  compensate  it for  providing  Services to such
Person.

     "Inventory"  shall mean all "inventory" (as defined in the UCC) of Borrower
(or,  if  referring  to  another  Person,  of such other  Person),  now owned or
hereafter acquired,  and all documents of title or other documents  representing

                                 Appendix A - 8

                                      178
<PAGE>
any of the foregoing,  and all  collateral  security and guaranties of any kind,
now or  hereafter in  existence,  given by any Person with respect to any of the
foregoing.

     "Landlord  Waiver  and  Consent"  shall mean a  waiver/consent  in form and
substance satisfactory to Lender from the owner/lessor of any premises not owned
by Borrower at which any of the  Collateral is now or hereafter  located for the
purpose of providing Lender access to such Collateral,  in each case as such may
be modified, amended or supplemented from time to time.

                  "Leasehold" shall mean the Seven Hills Leasehold and the Utah
Leasehold, individually or collectively.

     "Liability Event" shall mean any event, fact,  condition or circumstance or
series  thereof (i) in or for which any  Borrower  becomes  liable or  otherwise
responsible for any amount owed or owing to any Medicaid or Medicare  program by
a provider  under common  ownership  with such Borrower or any provider owned by
such Borrower pursuant to any applicable law, ordinance,  rule, decree, order or
regulation of any Governmental  Authority after the failure of any such provider
to pay any such  amount when owed or owing,  (ii) in which  Medicaid or Medicare
payments to any Borrower are lawfully  set-off  against  payments to such or any
other  Borrower to satisfy any  liability of or for any amounts owed or owing to
any Medicaid or Medicare  program by a provider under common ownership with such
Borrower or any provider owned by such Borrower  pursuant to any applicable law,
ordinance,  rule, decree, order or regulation of any Governmental  Authority, or
(iii) any of the  foregoing  under  clauses (i) or (ii) in each case pursuant to
statutory  or  regulatory  provisions  that are similar to any  applicable  law,
ordinance,  rule,  decree,  order or  regulation of any  Governmental  Authority
referenced in clauses (i) and (ii) above or successor provisions thereto.

     "Lien" shall mean any mortgage,  pledge,  security  interest,  encumbrance,
restriction,  lien or charge of any kind (including any agreement to give any of
the foregoing,  any conditional  sale or other title retention  agreement or any
lease in the nature thereof),  or any other arrangement  pursuant to which title
to the  property  is  retained  by or vested in some other  Person for  security
purposes.

     "Loan" or "Loans" shall mean, individually and collectively,  the Term Loan
and all Advances under the Revolving Facility.

     "Loan  Documents"  shall mean,  collectively  and each  individually,  this
Agreement,  the Notes,  the  Security  Documents,  the Lockbox  Agreements,  the
Uniform Commercial Code Financing Statements,  the Subordination Agreements, the
Landlord Waiver and Consents,  the Borrowing  Certificates,  and the Warrant and
all other  agreements,  documents,  instruments and  certificates  heretofore or
hereafter  executed  or  delivered  to  Lender  in  connection  with  any of the
foregoing  or the Loans,  as the same may be amended,  modified or  supplemented
from time to time.

     "Lockbox  Accounts"  shall mean the accounts  maintained by Borrower at the
Lockbox Banks into which all collections or payments on their Accounts and other
Collateral are paid.

     "Lockbox Agreement" shall have the meaning given such term in Section 2.5.

     "Lockbox Bank" shall have the meaning given such term in Section 2.5.

     "Management  Fees" shall mean collectively any and all management and other
fees, all charges,  expenses  and/or  payments,  and payables of any kind at any
time owing,  owed or payable,  by Harbor Oaks to PHC or any of its  Subsidiaries
other than Harbor Oaks.

                                 Appendix A - 9

                                      179
<PAGE>
     "Material  Adverse  Effect" or  "Material  Adverse  Change"  shall mean any
event,  condition or circumstance or set of events,  conditions or circumstances
or any change(s) which (i) has, had or could  reasonably be expected to have any
material adverse effect upon or change in the validity or  enforceability of any
Loan Document,  (ii) has been or could reasonably be expected to be material and
adverse to the value of any of the  Collateral or to the  business,  operations,
prospects,  properties,  assets,  liabilities  or condition  of Borrower  and/or
Guarantors,  either individually in the case of PHC or PHC-Michigan,  or, in the
case of each Borrower and Guarantor,  taken as a whole,  or (iii) has materially
impaired or could reasonably be expected to materially impair the ability of any
Borrower  or  Guarantor  to  perform  the   Obligations  or  to  consummate  the
transactions under the Loan Documents executed by such Person.

     "Medicaid/Medicare  Account  Debtor" shall mean any Account Debtor which is
(i) the United States of America  acting under the Medicaid or Medicare  program
established  pursuant to the Social Security Act or any other federal healthcare
program, including, without limitation,  CHAMPUS, (ii) any state or the District
of Columbia  acting  pursuant to a health plan adopted  pursuant to Title XIX of
the Social  Security  Act or any other state health care  program,  or (iii) any
agent, carrier, administrator or intermediary for any of the foregoing.

     "Minimum  Termination  Fee" shall mean (for the time period  indicated) the
amount  equal to (i) three  percent  (3%) of the  Facility  Cap,  if the date of
notice of such  termination by Borrower is after the Restatement Date but before
the first  anniversary of the Restatement Date; and (ii) two percent (2%) of the
Facility  Cap,  if the date of notice of such  termination  by Borrower is on or
after the first anniversary of the Restatement Date.

     "Monthly  Compliance  Certificate"  shall have the meaning ascribed to such
term in Section 6.1(a).

     "Mortgage" shall have the meaning ascribed to such term in Section 2.13(c).

     "Mount  Regis" shall mean that certain  25-bed  substance  abuse  treatment
facility owned and operated by PHC of Virginia, Inc. under the name "Mount Regis
Center" and located in Salem, Virginia.

     "Note" shall mean any promissory  note or notes issued  pursuant to Section
2.11.

     "Obligations" shall mean all shall mean all present and future obligations,
Indebtedness and liabilities of Borrower and/or Guarantors to Lender at any time
and from time to time of every kind, nature and description, direct or indirect,
secured or  unsecured,  joint and  several,  absolute or  contingent,  due or to
become due, matured or unmatured, now existing or hereafter arising, contractual
or tortious,  liquidated  or  unliquidated,  under any of the Loan  Documents or
otherwise relating to Notes and/or Loans,  including,  without  limitation,  all
applicable  fees,  charges and  expenses  and/or all amounts paid or advanced by
Lender on behalf of or for the benefit of any Borrower and/or  Guarantor for any
reason at any time, including in each case obligations of performance as well as
obligations  of payment and interest that accrue after the  commencement  of any
proceeding under any Debtor Relief Law by or against any such Person.

     "Offer" shall have the meaning given such term in Section 6.13.

     "Option Period" shall have the meaning given such term in Section 6.13.

                                 Appendix A - 10


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<PAGE>
     "Payment  Office"  shall  mean  initially  the  address  set forth  beneath
Lender's name on the signature page of the Agreement, and thereafter, such other
office of Lender, if any, which it may designate by notice to Borrower to be the
Payment Office.

     "Permit" shall mean  collectively all licenses,  leases,  powers,  permits,
franchises,  certificates,  authorizations,  approvals,  certificates  of  need,
provider numbers and other rights.

     "Permit Assignment" shall have the meaning ascribed to such term in Section
2.13(c).

     "Permitted  Discretion"  shall mean a  determination  or  judgment  made by
Lender in good faith in the exercise of reasonable  (from the  perspective  of a
secured lender) business judgment.

     "Permitted  Indebtedness" shall have the meaning given such term in Section
7.2.

     "Permitted  Liens" shall have the meaning  ascribed to such term in Section
7.3.

     "Permitted  Subordinated Debt" shall have the meaning ascribed to such term
in Section 7.2.

     "Person" shall mean an individual, a partnership,  a corporation, a limited
liability  company,  a  business  trust,  a joint  stock  company,  a trust,  an
unincorporated  association,  a joint venture,  a Governmental  Authority or any
other entity of whatever nature.

     "PHC" means PHC, Inc., a Massachusetts corporation.

     "PHC-Michigan" means PHC of Michigan, Inc., a Massachusetts corporation.

     "PHC-Utah" means PHC of Utah, Inc., a Massachusetts corporation.

     "PHC-Virginia" means PHC of Utah, Inc., a Massachusetts corporation.

     "Pivotal"  means  Pivotal  Research  Centers,  L.L.C.,  an Arizona  limited
liability company.


     "Pivotal  Acquisition" means the acquisition of the membership interests of
Pivotal Research Centers, L.L.C. by PHC, Inc.

     "Pivotal Acquisition Documents" means the documents and agreements executed
and delivered by PHC or its  Subsidiaries  and the Pivotal Sellers in connection
with the Pivotal Acquisition.

     "Pivotal  Sellers"  shall mean the holders of the  membership  interests of
Pivotal prior to the consummation of the Pivotal Acquisition.

     "Pivotal Seller Notes" shall mean each promissory note issued by PHC to the
Pivotal Sellers in connection with the Pivotal Acquisition.

     "Prime Rate" shall mean a fluctuating  interest rate per annum equal at all
times to the rate of interest  announced publicly from time to time by Citibank,
N.A. as its base rate; provided, that such rate is not necessarily the best rate
offered to its customers,  and,  should Lender be unable to determine such rate,
such other indication of the prevailing prime rate of interest as may reasonably
be chosen by Lender; provided, that each change in the fluctuating interest rate
shall take  effect  simultaneously  with the  corresponding  change in the Prime
Rate.

                                 Appendix A - 11

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<PAGE>
     "Private  Payors" shall mean Account  Debtors other than  Medicaid/Medicare
Account Debtors, any other governmental payor and any commercial insurers.

     "Real Estate" shall mean the following  described real  property,  together
with all building, structures and improvements located thereon:

     35031 23 Mile Road,  North  Baltimore,  Michigan  and known as Harbor  Oaks
     Psychiatric Hospital

     405  Kimball Avenue, Salem, Virginia and known as Mount Regis Center

     "Receipt" shall have the meaning given such term in Section 12.5.

     "Released Parties" shall have the meaning given such term in Section 12.11.

     "Releasing  Parties"  shall  have the  meaning  given  such term in Section
     12.11.

     "Restatement Date" shall mean the date the Closing occurs.

     "Revolver  Termination"  shall have the meaning  given such term in Section
      11.1(b).

     "Revolving  Facility Maturity Date" shall have the meaning assigned to such
     term in Section 2.2(b).

     "Revolving Facility  Obligations" shall mean all of the Obligations related
     to the Revolving Facility.

     "Security  Documents" shall mean any Notes,  this Agreement,  any Guaranty,
     Stock  Pledge  Agreement,   Collateral  Patent,   Trademark  and  Copyright
     Assignment,   each  Mortgage,   each  Assignment  of  Rents,   each  Permit
     Assignment, the Purchase Document Assignment,  each Cross Guaranty, Lockbox
     Agreements,  Uniform  Commercial  Code  Financing  Statements and all other
     documents  or  instruments  necessary to create or perfect the Liens in the
     Collateral,  as such may be modified,  amended or supplemented from time to
     time.

     "Services"  shall mean  medical  and health  care  services  provided  to a
     Person,  including,  but not limited to,  medical and health care  services
     which are covered by a policy of insurance issued by an Insurer,  physician
     services, nurse and therapist services, dental services, hospital services,
     skilled nursing facility services,  comprehensive outpatient rehabilitation
     services,   home  health  care  services,   residential  and  out-  patient
     behavioral healthcare services.

     "Seven Hills Hospital"  means Seven Hills  Hospital,  Inc., a Massachusetts
     corporation.

     "Seven  Hills" shall mean that certain  60-bed  substance  abuse  treatment
     facility leased and operated by Seven Hills  Hospital,  Inc. under the name
     "Seven Hills Hospital" and located in Las Vegas, Nevada.

     "Seven Hills  Leasehold"  shall mean the real  property,  together with all
     buildings,  structures,  and improvements located thereon,  leased by Seven
     Hills Hospital for the operation of Seven Hills.

     "Solvency  Certificate"  shall have the meaning  given such term in Section
     4.1(d).

                                 Appendix A - 12

                                      182
<PAGE>
     "Stock Pledge  Agreement" shall mean,  collectively and each  individually,
     (i) that  certain  Stock  Pledge  Agreement  by and  between PHC and Lender
     executed in connection herewith,  and (ii) if applicable,  all stock pledge
     agreements  executed  by and between  Lender and any other  Borrower or any
     Guarantor,  in each case as such may be modified,  amended or  supplemented
     from time to time.

     "Subsidiary"  shall mean, (i) as to any Borrower,  any Person in which more
     than  50%  of  all  equity,  membership,  partnership  or  other  ownership
     interests is owned  directly or  indirectly by such Borrower or one or more
     of its Subsidiaries,  and (ii) as to any other Person,  any Person in which
     more than 50% of all equity,  membership,  partnership  or other  ownership
     interests is owned  directly or indirectly by such Person or by one or more
     of such Person's Subsidiaries.

     "Term" shall mean the period  commencing on the Restatement Date and ending
     on October __, 2011;  provided that in the case of the Revolving  Facility,
     the Term is subject to extension  for up to two (2)  additional  periods of
     one (1) year in duration as provided in Section 2.2(b).

     "Term  Loan" shall have the  meaning  given such term in the third  recital
     hereof.

     "Term Loan  Amount"  shall mean  during  the  period  commencing  as of the
     Restatement  Date and  continuing  through June 30, 2007,  the Initial Term
     Loan Amount.  Commencing  July 1, 2007,  and  continuing on the same day of
     each calendar month thereafter,  the Term Loan Amount shall be reduced on a
     cumulative  basis  by the  following  amounts  during  the  following  time
     periods:

                  Time Period                          Monthly Reduction Amount

        July 1, 2007 through June 30, 2009                     $50,000

        July 1, 2009 and each month thereafter                 $62,500


     "Term  Loan  Borrowing  Date"  shall  have the  meaning  given such term in
     Section 2.5.

     "Term Loan  Draw(s)"  shall mean a borrowing or  borrowings  under the Term
     Loan.

     "Term Loan Maturity  Date" shall have the meaning  assigned to such term in
     Section 2.6(a).

     "Term Loan  Obligations"  shall mean all of the Obligations  related to the
     Term Loan.

     "Term Loan  Finance Fee Amount"  shall mean the amount equal to one-half of
     one percent (.5%) of the Initial Term Loan Amount.

     "Termination  Date" shall have the meaning ascribed to such term in Section
     11.1(a).

     "Transferee" shall have the meaning given such term in Section 12.2.

     "Transaction" shall have the meaning given such term in Section 6.13.

     "UCC" shall mean the Uniform  Commercial  Code as in effect in the State of
     Maryland from time to time.

                                 Appendix A - 13

                                      183
<PAGE>
     "Utah Leasehold" shall mean the real property, together with all buildings,
     structures,  and improvements  located thereon,  leased by PHC-Utah for the
     operation of Highland Ridge.

     "Warrant" shall mean the Warrant dated as of the Restatement Date issued by
     PHC to CSE Equity Holdings LLC, as such may be modified,  restated, amended
     or supplemented from time to time.

     "Waived Finance Fee" shall have the meaning given such term in Section 3.5.

     "Wellplace"  shall  mean  Wellplace,  Inc.,  a  Massachusetts  corporation.

     "Yield  Maintenance  Amount" shall mean an amount equal to the future value
     at the last day of the  Term,  discounted  to the  present  value as of the
     later of the  Termination  Date or the date of  prepayment  using  the most
     recently  published  asked  yield to  maturity as quoted in the Wall Street
     Journal for the United States  Treasury Notes or Bills with a maturity date
     closest  to the  last day of the  Term,  of the  product  of (A) the all in
     effective  yield  (measured  as a  percentage  per annum) on the  Revolving
     Facility  for the six (6) months  prior to the  Termination  Date;  (B) the
     Facility Cap; and (C) the quotient of (i) the number of months remaining in
     the Term, and (ii) twelve (12).

                                 Appendix A - 14


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