Document:

<PAGE>

                                                                EXHIBIT 10.12

                              EMPLOYMENT AGREEMENT

         This EMPLOYMENT AGREEMENT ("Agreement") made effective as of May 1,
2000 by and between PSYCHIATRIC SOLUTIONS, INC., a Delaware corporation (the
"Company"), and JACK SALBERG (the "Executive").

         In consideration of the mutual covenants contained in this Agreement,
the parties hereby agree as follows:

                                    SECTION I
                                   EMPLOYMENT

         The Company agrees to employ the Executive and the Executive agrees to
be employed by the Company for the Period of Employment as provided in Section
III.A. below upon the terms and conditions provided in the Agreement.

                                   SECTION II
                          POSITION AND RESPONSIBILITIES

         During the Period of Employment, the Executive agrees to serve as Chief
Operating Officer of the Company and President of the Company's subsidiary, PSI
Hospital Management Services, Inc., and to be responsible for the typical
management responsibilities expected of an officer holding such positions and
such other responsibilities as may be assigned to Executive from time to time by
the President/CEO of the Company.

                                   SECTION III
                                TERMS AND DUTIES

         A.   Period of Employment.

              The period of Executive's employment under this Agreement will
commence as of May 1, 2000, and shall continue through April 30, 2001, subject
to extension or termination as provided in this Agreement ("Period of
Employment"). On each anniversary of the commencement of the Period of
Employment, the period of Executive's employment shall be extended for
additional one (1) year periods, unless either party gives notice thirty (30)
days in advance of the expiration of the then current period of employment of
such party's intent not to extend the Period of Employment.

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         B.   Duties.

              During the Period of Employment, the Executive shall devote most
of his business time, attention and skill to the business and affairs of the
Company and its subsidiaries. The Company agrees to grant the Executive some
time away from his business duties for reasonable outside activities typically
consistent with this type position. In addition Mr. Salberg may support Seller
in collecting its accounts receivable outstanding as of Closing. The Executive
will perform faithfully the duties which may be assigned to him from time to
time by the Company.

                                   SECTION IV
                            COMPENSATION AND BENEFITS

         A.   Compensation.

              For all services rendered by the Executive in any capacity during
the Period of Employment, the Executive shall be compensated as follows:

              1.   Base Salary.

                   The Company shall pay the Executive an annual base salary
("Base Salary") as follows: $216,000.00.

                   Base Salary shall be payable according to the customary
payroll practices of the Company but in no event less frequently than once each
month. The Base Salary shall be reviewed each fiscal period and shall be subject
to adjustment according to the policies and practices adopted by the Company
from time to time.

         B.   Annual Incentive Award.

              The Executive shall be eligible for annual incentive compensation
awards ("Incentive Compensation Awards") tied to objective criteria to be
established from time to time by the Compensation Committee. The initial
incentive award shall be determined as set forth in Exhibit A hereto.

         C.   Additional Benefits.

              The Executive will be eligible to participate in all compensation
or employee benefit plans or programs and receive all benefits and perquisites
for which any salaried employees are eligible under any existing or future plan
or program established by the Company for salaried employees. The Executive will
participate to the extent permissible under the terms and provisions of such
plans or programs in accordance with program provisions. These may include group
hospitalization, health, dental care, life or other insurance, tax qualified
pension, savings, thrift and profit sharing plans, termination pay programs,
sick leave plans, travel or accident insurance, disability insurance, and
contingent compensation plans including capital accumulation programs,
Restricted Stock programs, stock purchase programs and stock option plans.
Nothing in this

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Agreement will preclude the Company from amending or terminating any of the
plans or programs applicable to salaried or senior executives as long as such
amendment or termination is applicable to all salaried employees or senior
executives. The Executive will be entitled to an annual paid vacation of four
(4) weeks. The Executive's Stock Option Grant shall be as set forth in Exhibit B
hereto. Executive's Stock Option Grant will be subject to the Company's stock
option plan, as amended from time to time, a current copy of which is attached
as Exhibit C. As an additional benefit, the Company will provide Executive a
term life insurance policy in the amount of twice Executive's Base Salary.

                                    SECTION V
                                BUSINESS EXPENSES

         The Company will reimburse the Executive for all reasonable travel and
other expenses incurred by the Executive in connection with the performance of
his duties and obligations under this Agreement.

                                   SECTION VI
                                   DISABILITY

         A. In the event of disability of the Executive during the Period of
Employment, the Company will continue to pay the Executive according to the
compensation provisions of this Agreement during the period of his disability,
until such time as Executive's long term disability insurance benefits are
available. However, in the event the Executive is disabled for a continuous
period of six (6) months after the Executive first becomes disabled, the Company
may terminate the employment of the Executive. In this case, normal compensation
will cease, except for earned but unpaid Base Salary and Incentive Compensation
Awards which would be payable on a pro-rated basis for the year in which the
disability occurred. In the event of, and upon such termination, all then
unvested stock options that otherwise would vest during the immediately
succeeding eighteen (18) month period shall vest immediately.

         B. During the period the Executive is receiving payments of either
regular compensation or disability insurance described in this Agreement and as
long as he is physically and mentally able to do so, the Executive will furnish
information and assistance to the Company and from time to time will make
himself available to the Company to undertake assignments consistent with his
prior position with the Company and his physical and mental health. If the
Company fails to make a payment or provide a benefit required as part of the
Agreement, the Executive's obligation to fulfill information and assistance will
end.

         C. The term "disability" will have the same meaning as under any
disability insurance provided pursuant to this Agreement or in the absence
thereof or otherwise in force as to Executive.

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                                   SECTION VII
                                      DEATH

         In the event of the death of the Executive during the Period of
Employment, the Company's obligation to make payments under this Agreement shall
cease as of the date of death, except for earned but unpaid Base Salary and
Incentive Compensation Awards which will be paid on a prorated basis for that
year. The Executive's designated beneficiary will be entitled to receive the
proceeds of any life or other insurance or other death benefit programs provided
in this Agreement, in accordance with the terms of such policies and/or
programs.

                                  SECTION VIII
                       EFFECT OF TERMINATION OF EMPLOYMENT

         A. The Board may at any time upon sixty (60) days prior notice
terminate Executive's employment without cause (as "Cause" is defined below) by
giving Executive notice of the effective date of termination. In the event
Executive's employment is terminated without cause, the Company's sole
obligation to Executive shall be (i) to pay Executive a severance payment of 1.5
times his previous 12 months compensation, paid out over a period of eighteen
(18) months plus any earned but unpaid bonus, which shall be paid as an
immediate lump sum. "Compensation" shall be defined as all salary and bonuses
earned for the previous 12 month period. If the Executive's employment
terminates due to either a without cause termination or a constructive
discharge, or pursuant to Section XI, all then unvested stock options that
otherwise would vest during the immediate succeeding eighteen (18) month period
shall vest immediately. The Company shall cause any Options so vested to remain
exercisable for twelve (12) months from the date of termination, subject to the
terms and provisions of the Company's stock option plan as to the permissible
exercise period for incentive stock options. Additional benefits as described in
Section IV-C shall continue for the eighteen (18) month period.

         B. If the Executive's employment terminates due to a Termination for
Cause, earned but unpaid Base Salary and earned but unused vacation will be paid
on a pro-rated basis for the year in which the termination occurs. No other
payments will be made or benefits provided by the Company.

         C. Upon termination of the Executive's employment other than for
reasons due to death, disability, or pursuant to Paragraph A of this Section or
Section XI, the Period of Employment and the Company's obligation to make
payments under this Agreement will cease as of the date of the termination
except as expressly defined in this Agreement; provided, however, that Executive
shall have the right to resign within eight (8) months of the effective date of
this Agreement and, in such event, to receive the sum of Four Hundred Fifty
Thousand ($450,000) Dollars, payable in eighteen (18) equal monthly installments
beginning the month after his resignation is effective. Additional benefits as
described in Section IV-C shall be continued for an eighteen (18) month period.

         D. For this Agreement, the following terms have the following meanings:

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            1. "Termination for Cause" means termination of the Executive's
employment by the Company's Board of Directors acting in good faith by the
Company by written notice to the Executive specifying the event relied upon for
such termination, due to the Executive's serious, willful misconduct with
respect to his duties under this Agreement, including but not limited to
conviction for a felony, misdemeanor involving moral turpitude or perpetration
of a common law fraud, in each case which has resulted or is likely to result in
material economic damage to the Company.

            2. "Constructive Discharge" means termination of the Executive's
employment by the Executive due to a failure of the Company to fulfill its
obligations under this Agreement in any material respect including any reduction
of the Executive's Base Salary or other compensation other than reductions
applicable to all employees of the Company or failure to appoint or reappoint
the Executive to the position specified in Section II hereof, or other material
change by the Company in the functions, duties or responsibilities of the
position which would reduce the ranking or level, responsibility, importance or
scope of the position. The Executive will provide the Company a written notice
which describes the circumstances being relied on for the termination with
respect to the Agreement within ninety (90) days after the event giving rise to
the notice. The Company will have thirty (30) days to remedy the situation prior
to the Termination for Constructive Dismissal.

            3. "Without Cause Termination" means termination of the Executive's
employment by the Company (a) other than due to death, disability, Termination
for Cause or pursuant to Section XI; or (b) upon expiration of the Period of
Employment as a result of the giving of notice by the Company of its intent not
to extend the Period of Employment as provided in Section III.A.

                                   SECTION IX
                      OTHER DUTIES OF THE EXECUTIVE DURING
                       AND AFTER THE PERIOD OF EMPLOYMENT

         A. The Executive will, with reasonable notice during or after the
Period of Employment, furnish information as may be in his possession and
cooperate with the Company as may reasonably be requested in connection with any
claims or legal actions in which the Company is or may become a party.

         B. The Executive recognizes and acknowledges that all information
pertaining to the affairs, business, clients, customers or other relationships
of the Company, as hereinafter defined, is confidential and is a unique and
valuable asset of the Company. Access to and knowledge of this information are
essential to the performance of the Executive's duties under this Agreement. The
Executive will not during the Period of Employment or after except to the extent
reasonably necessary in performance of the duties under this Agreement, give to
any person, firm, association, corporation or governmental agency any
information concerning the affairs, business, clients, customers or other
relationships of the Company, except as required by law. The Executive will not
make use of this type of information for his own purposes or for the benefit of
any person or organization other than the Company. The Executive will also use
his best efforts to prevent the disclosure of this information by others. All
records, memoranda, etc. relating to the business of the

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Company, whether made by the Executive or otherwise coming into his possession,
are confidential and will remain the property of the Company.

         C. During the Period of Employment and for a eighteen (18) month period
thereafter, the Executive will not use his status with the Company to obtain
loans, goods or services from another organization on terms that would not be
available to him in the absence of his relationship to the Company. During the
Period of Employment and for a eighteen (18) month period following termination
of the Period of Employment, other than termination due to a Without Cause
Termination, the Executive will not make any statements or perform any acts
intended to advance the interest of any existing or prospective competitors of
the Company in any way that will injure the interest of the Company; the
Executive, without prior express written approval by the Board of Directors of
the Company, will not directly or indirectly own or hold any proprietary
interest in or be employed by or receive compensation from any party engaged in
the behavioral health business in the same geographic areas the Company does
business; and the Executive, without express prior written approval from the
Board of Directors, will not solicit any members of the then current clients of
the Company or discuss with any employee of the Company information or operation
of any business intended to compete with the Company. For the purposes of the
Agreement, proprietary interest means legal or equitable ownership, whether
through stock holdings or otherwise, of a debt or equity interest (including
options, warrants, rights and convertible interests) in a business firm or
entity, or ownership of more than 1% of any class of equity interest in a
publicly-held company. The Executive acknowledges that the covenants contained
herein are reasonable as to geographic and temporal scope. For a twelve (12)
month period after termination of the Period of Employment for any reason, the
Executive will not directly or indirectly hire any employee of the Company or
solicit or encourage any such employee to leave the employ of the Company.

         D. The Executive acknowledges that his breach or threatened or
attempted breach of any provision of Section IX would cause irreparable harm to
the Company not compensable in monetary damages and that the Company shall be
entitled, in addition to all other applicable remedies, to a temporary and
permanent injunction and a decree for specific performance of the terms of
Section IX without being required to prove damages or furnish any bond or other
security.

         E. The Executive shall not be bound by the provisions of Section IX in
the event of the default by the Company in its obligations under this Agreement
which are to be performed upon or after termination of this Agreement.

         F. Any reference in this Section IX shall expressly be deemed also to
refer to the Company's subsidiaries.

                                    SECTION X
                           INDEMNIFICATION, LITIGATION

         The Company will indemnify the Executive to the fullest extent
permitted by the laws of the state of incorporation in effect at that time, or
certificate of incorporation and by-laws of the Company whichever affords the
greater protection to the Executive. The Executive will be entitled to any
insurance proceeds related to any award, or any fees or expenses incurred in
connection with

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any action, suit or proceeding to which he may be made a party by reason of
being a director or officer of the Company.

                                   SECTION XI
                                CHANGE IN CONTROL

         In the event there is a Change in Control of the ownership of the
Company, the Executive may within eighteen (18) months after the Change in
Control immediately resign upon written notice to the Company. In this event,
the Company shall pay to the Executive upon such resignation an amount equal to
1.5 times his previous 12 month compensation paid out over a period of eighteen
(18) monthly installments. "Compensation" shall be defined consistent with the
definition in Section XIII-A. The benefits and perquisites (but not the salary
or other compensation) described in this Agreement as in effect at the date of
termination of employment will also be continued for eighteen (18) months from
the effective date of termination pursuant to Change of Control.

         A "Change in Control" shall be deemed to have occurred if (i) a tender
offer shall be made and consummated for the ownership of more than 50% of the
outstanding voting securities of the Company, (ii) the Company shall be merged
or consolidated with another corporation and as a result of such merger or
consolidation less than 75% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by the former
shareholders of the Company, as the same shall have existed immediately prior to
such merger or consolidation, (iii) the Company shall sell all or substantially
all of its assets to another corporation which is not a wholly-owned subsidiary,
or (iv) a person, within the meaning of Section 3(a)(9) or of Section 13(d)(3)
(as in effect on the date hereof) of the Securities and Exchange Act of 1934
("Exchange Act"), shall acquire more than 50% of the outstanding voting
securities of the Company (whether directly, indirectly, beneficially or of
record). For purposes hereof, ownership of voting securities shall take into
account and shall include ownership as determined by applying the provisions of
Rule 13d-3(d)(1)(i) (as in effect on the date hereof) pursuant to the Exchange
Act.

                                   SECTION XII
                                WITHHOLDING TAXES

         The Company may directly or indirectly withhold from any payments under
this Agreement all federal, state, city or other taxes that shall be required
pursuant to any law or governmental regulation.

                                  SECTION XIII
                           EFFECTIVE PRIOR AGREEMENTS

         This Agreement contains the entire understanding between the Company
and the Executive with respect to the subject matter and supersedes any prior
employment or severance agreements between the Company and its affiliates, and
the Executive. Executive agrees that he is not entitled to any further
compensation, bonus, severance payments, options, or anything of value from
Sunrise

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Behavioral Healthcare, Ltd. or any affiliate or other employer as a result of
any employment or severance agreement or otherwise.

                                   SECTION XIV
                     CONSOLIDATION, MERGER OR SALE OF ASSETS

         Nothing in this Agreement shall preclude the Company from consolidating
or merging into or with, or transferring all or substantially all of its assets
to, another corporation which assumes this Agreement and all obligations and
undertakings of the Company hereunder. Upon such a Consolidation, Merger or Sale
of Assets, the term "the Company" as used will mean the other corporation and
this Agreement shall continue in full force and effect. This Section XIV is not
intended to modify or limit the rights of the Executive hereunder, including
without limitation, the rights of Executive under Section XI.

                                   SECTION XV
                                  MODIFICATION

         This Agreement may not be modified or amended except in writing signed
by the parties. No term or condition of this Agreement will be deemed to have
been waived, except in writing by the party charged with waiver. A waiver shall
operate only as to the specific term or condition waived and will not constitute
a waiver for the future or act on anything other than that which is specifically
waived.

                                   SECTION XVI
                           GOVERNING LAW; ARBITRATION

         This Agreement has been executed and delivered in the State of
Tennessee and its validity, interpretation, performance and enforcement shall be
governed by the laws of that state.

         Any dispute among the parties hereto shall be settled by arbitration in
Nashville, Tennessee, in accordance with the then applicable rules of the
American Arbitration Association and judgment upon the award rendered may be
entered in any court having jurisdiction thereof. The arbitrator shall award all
costs, legal expenses and fees to the successful party.

                                  SECTION XVII
                                     NOTICES

         All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when delivered or
mailed first-class postage prepaid by registered mail, return receipt requested,
or when delivered if by hand, overnight delivery service or confirmed facsimile
transmission, to the following:

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                (a) If to the Company, at 310 25th Avenue North, Suite 209,
Nashville, Tennessee 37203, Attention: Chairman, or at such other address as may
have been furnished to the Executive by the Company in writing, copy to Lee
Dilworth, Harwell Howard Hyne Gabbert & Manner, P.C., 1800 First American
Center, 315 Deaderick Street, Nashville, Tennessee 37238; or

                (b) If to the Executive, at _____________________________, or
such other address as may have been furnished to the Company by the Executive in
writing.

                                  SECTION XVIII
                                BINDING AGREEMENT

         This Agreement shall be binding on the parties' successors, heirs and
assigns. In the event any payment called for herein is not paid when due it
shall not be deemed a default so long as it is cured within thirty (30) days. If
not cured, then all remaining obligations shall be accelerated and immediately
due and payable.

         IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.

                                         COMPANY:

                                         PSYCHIATRIC SOLUTIONS, INC.

                                         By: /s/ Joey A. Jacobs
                                             -----------------------------------
                                             Joey A. Jacobs,
                                             President & Chief Executive Officer

                                         EXECUTIVE:

                                         /s/ Jack Salberg
                                         ---------------------------------------
                                         JACK SALBERG

                                        9

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                                    EXHIBIT A

                      INCENTIVE COMPENSATION AWARD CRITERIA

                                       10

<PAGE>

                                    EXHIBIT B

                               STOCK OPTION GRANT

                                       11

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                                    EXHIBIT C

                                STOCK OPTION PLAN

                                       12

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                                    EXHIBIT D

                           STOCK RESTRICTION AGREEMENT

                                       13<PAGE>
                                                                   EXHIBIT 10.13

                    REVOLVING CREDIT AND TERM LOAN AGREEMENT

                                      AMONG

                          PSYCHIATRIC SOLUTIONS, INC.,
                     PSYCHIATRIC SOLUTIONS OF ALABAMA, INC.,
                     PSYCHIATRIC SOLUTIONS OF FLORIDA, INC.,
                    PSYCHIATRIC SOLUTIONS OF TENNESSEE, INC.,
                     SOLUTIONS CENTER OF LITTLE ROCK, INC.,
                 PSYCHIATRIC SOLUTIONS OF NORTH CAROLINA, INC.,
              PSI COMMUNITY MENTAL HEALTH AGENCY MANAGEMENT, INC.,
                                 PSI-EAP, INC.,
                        SUNSTONE BEHAVIORAL HEALTH, INC.,
                THE COUNSELING CENTER OF MIDDLE TENNESSEE, INC.,
                              PSI HOSPITALS, INC.,
                            PSI TEXAS HOSPITALS, LLC,
               PSYCHIATRIC PRACTICE MANAGEMENT OF ARKANSAS, INC.,
                       TEXAS CYPRESS CREEK HOSPITAL, L.P.,
                         TEXAS WEST OAKS HOSPITAL, L.P.,
                         NEURO INSTITUTE OF AUSTIN, L.P.

                                       and

                            CAPITALSOURCE FINANCE LLC

                                   DATED AS OF
                                NOVEMBER 30, 2001

<PAGE>

                    REVOLVING CREDIT AND TERM LOAN AGREEMENT

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                               Page
<S>                                                                                            <C>
I.      DEFINITIONS..............................................................................2
        1.1    General Terms.....................................................................2

II.     ADVANCES, PAYMENT AND INTEREST...........................................................2
        2.1    The Revolving Facility............................................................2
        2.2    The Revolving Notes; Maturity.....................................................3
        2.3    Interest..........................................................................4
        2.4    Facility Disbursements; Requirement to Deliver Borrowing Certificate..............4
        2.5    Collections; Repayment; Borrowing Availability and Lockbox........................5
        2.6    Term Loan.........................................................................6
        2.7    Interest on the Term Notes........................................................6
        2.8    Repayment of Term Loan; Maturity..................................................6
        2.9    Manner of Payment.................................................................7
        2.10   Repayment of Excess Advances......................................................7
        2.11   Other Mandatory Prepayments.......................................................7
        2.12   Payments by Agent.................................................................8
        2.13   Collateral; Security Interest.....................................................8
        2.14   Collateral Administration.........................................................8
        2.15   Power of Attorney................................................................10
        2.16   Enterprise and Overadvance Facilities............................................10

III.    FEES AND OTHER CHARGES; ALLOCATION OF PURCHASE PRICE....................................11
        3.1    Commitment and Structuring Fee...................................................11
        3.2    Unused Line Fee..................................................................11
        3.3    Collateral Management Fee........................................................11
        3.4    Early Termination Fees...........................................................12
        3.5    Computation of Fees; Lawful Limits...............................................12
        3.6    Default Rate of Interest.........................................................13
        3.7    Acknowledgement of Joint and Several Liability...................................13
        3.8    Warrants.........................................................................13
        3.9    Allocation of Purchase Price.....................................................13

IV.     CONDITIONS PRECEDENT....................................................................14
        4.1    Conditions to Initial Advance, Funding of Term Loan and Closing..................14
        4.2    Conditions to Each Advance and Funding of Term Loan..............................18

V.      REPRESENTATIONS AND WARRANTIES..........................................................18
        5.1    Organization and Authority.......................................................18
        5.2    Loan Documents...................................................................19
        5.3    Subsidiaries, Capitalization and Ownership Interests.............................19
        5.4    Properties.......................................................................20
        5.5    Other Agreements.................................................................20
        5.6    Litigation.......................................................................20
        5.7    Hazardous Materials..............................................................21
        5.8    Tax Returns; Governmental Reports................................................21
        5.9    Financial Statements and Reports.................................................21
</TABLE>

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<TABLE>
<S>                                                                                            <C>
        5.10   Compliance with Law..............................................................21
        5.11   Intellectual Property............................................................22
        5.12   Licenses and Permits; Labor......................................................22
        5.13   No Default.......................................................................22
        5.14   Disclosure.......................................................................23
        5.15   Existing Indebtedness; Investments, Guarantees and Certain Contracts.............23
        5.16   Other Agreements.................................................................23
        5.17   Insurance........................................................................23
        5.18   Names; Location of Offices, Records and Collateral...............................24
        5.19   Non-Subordination................................................................24
        5.20   Accounts.........................................................................24
        5.21   Healthcare.......................................................................25
        5.22   Survival.........................................................................25

VI.     AFFIRMATIVE COVENANTS...................................................................25
        6.1    Financial Statements, Reports and Other Information..............................25
        6.2    Payment of Obligations...........................................................27
        6.3    Conduct of Business and Maintenance of Existence and Assets......................28
        6.4    Compliance with Legal and Other Obligations......................................28
        6.5    Insurance........................................................................28
        6.6    True Books.......................................................................29
        6.7    Inspection; Periodic Audits......................................................29
        6.8    Further Assurances; Post Closing.................................................29
        6.9    Payment of Indebtedness..........................................................30
        6.10   Lien Searches....................................................................30
        6.11   Use of Proceeds..................................................................30
        6.12   Collateral Documents.............................................................30
        6.13   Right of First Refusal...........................................................30
        6.14   Taxes and Other Charges..........................................................31
        6.15   Patient Bills....................................................................32
        6.16   Modification of Subordination Agreements.........................................32
        6.17   Internal Cost Reports; Reserves..................................................32

VII.    NEGATIVE COVENANTS......................................................................33
        7.1    Financial Covenants..............................................................33
        7.2    Indebtedness.....................................................................33
        7.3    Liens............................................................................34
        7.4    Investments; New Facilities or Collateral; Subsidiaries..........................35
        7.5    Dividends; Redemptions...........................................................35
        7.6    Transactions with affiliates.....................................................35
        7.7    Charter Documents; Fiscal Year; Dissolution; Use of Proceeds.....................36
        7.8    Truth of Statements..............................................................36
        7.9    Payment on Subordinated Debt.....................................................36

VIII.   EVENTS OF DEFAULT.......................................................................37

IX.     RIGHTS AND REMEDIES AFTER DEFAULT.......................................................39
        9.1    Rights and Remedies..............................................................39
        9.2    Rights and Remedies not Exclusive................................................40

X.      WAIVERS AND JUDICIAL PROCEEDINGS........................................................41
        10.1   Waivers..........................................................................41
        10.2   Delay; No Waiver of Defaults.....................................................41
</TABLE>

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<TABLE>
<S>                                                                                            <C>
        10.3   Jury Waiver......................................................................41
        10.4   Cooperation in Discovery and Litigation..........................................42
        10.5   Amendment and Waivers............................................................42

XI.     EFFECTIVE DATE AND TERMINATION..........................................................43
        11.1   Effectiveness and Termination....................................................43
        11.2   Survival.........................................................................43
        11.3   Agent............................................................................43
        11.4   Consents.........................................................................48
        11.5   Set Off and Sharing of Payments..................................................48
        11.6   Disbursement of Funds............................................................49
        11.7   Settlements; Payments and Information............................................50
        11.8   Dissemination of Information.....................................................51

XII.    MISCELLANEOUS...........................................................................52
        12.1   Governing Law; Jurisdiction; Service of Process; Venue...........................52
        12.2   Successors and Assigns; Assignments and Participations...........................52
        12.3   Application of Payments..........................................................54
        12.4   Indemnity........................................................................54
        12.5   Notice...........................................................................55
        12.6   Severability; Captions; Counterparts; Facsimile Signatures.......................55
        12.7   Expenses.........................................................................56
        12.8   Entire Agreement.................................................................56
        12.9   Agent Approvals..................................................................57
        12.10  Confidentiality and Publicity....................................................57
        12.11  Release of Agent and Lenders.....................................................57
        12.12  AMENDMENT, RESTATEMENT, RENEWAL AND EXTENSION....................................57
        1)     Minimum Census....................................................................1
        2)     Net Leverage Ratio (Term Loan to EBITDA)..........................................1
        3)     Fixed Charge Ratio (EBITDA/Fixed Charges).........................................1
        4)     Minimum Debt Service Coverage.....................................................1
        5)     Minimum EBITDA....................................................................1
</TABLE>

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                    REVOLVING CREDIT AND TERM LOAN AGREEMENT

        THIS REVOLVING CREDIT AND TERM LOAN AGREEMENT (the "AGREEMENT") dated as
of November 30, 2001, is entered into among PSYCHIATRIC SOLUTIONS, INC., a
Delaware corporation ("PSI"), PSYCHIATRIC SOLUTIONS OF ALABAMA, INC., a
Tennessee corporation ("PS ALABAMA"), PSYCHIATRIC SOLUTIONS OF FLORIDA, INC., a
Tennessee corporation ("PS FLORIDA"), PSYCHIATRIC SOLUTIONS OF TENNESSEE, INC.,
a Tennessee corporation ("PS TENNESSEE"), SOLUTIONS CENTER OF LITTLE ROCK, INC.,
a Tennessee corporation ("LITTLE ROCK"), PSYCHIATRIC SOLUTIONS OF NORTH
CAROLINA, INC., a Tennessee corporation ("PS NORTH CAROLINA"), PSI COMMUNITY
MENTAL HEALTH AGENCY MANAGEMENT, INC., a Tennessee corporation ("PSI
COMMUNITY"), PSI-EAP, INC., a Delaware corporation ("PSI-EAP"), SUNSTONE
BEHAVIORAL HEALTH, INC., a Tennessee corporation ("SUNSTONE"), THE COUNSELING
CENTER OF MIDDLE TENNESSEE, INC., a Tennessee corporation ("COUNSELING CENTER"),
PSI HOSPITALS, INC., a Delaware corporation ("PSI HOSPITALS"), PSI TEXAS
HOSPITALS, LLC, a Texas limited liability company ("TEXAS HOSPITALS"),
PSYCHIATRIC PRACTICE MANAGEMENT OF ARKANSAS, INC., a Tennessee corporation ("PPM
ARKANSAS"), TEXAS CYPRESS CREEK HOSPITAL, L.P., a Texas limited partnership
("CYPRESS CREEK"), TEXAS WEST OAKS HOSPITAL, L.P., a Texas limited partnership
("WEST OAKS"), NEURO INSTITUTE OF AUSTIN, L.P., a Texas limited partnership
("NEURO INSTITUTE") (individually and collectively, the "BORROWER"),
CAPITALSOURCE FINANCE LLC, a Delaware limited liability company
("CAPITALSOURCE"), as administrative agent and collateral agent for Lenders (in
such capacities, the "AGENT"), and the Lenders.

         A. WHEREAS, PSI, PS Tennessee, PS Florida, PS Alabama, PS North
Carolina, Counseling Center, Little Rock, PSI Community, PPM Arkansas, Sunstone,
PSI Hospitals, Cypress Creek, West Oaks (collectively, "HEALTHCARE BORROWERS")
and Healthcare Business Credit Corporation, formerly known as Copelco/American
Healthfund. Inc. ("HEALTHCARE"), previously entered into that certain Loan and
Security Agreement dated as of May 5, 2000, as amended, pursuant to which
Healthcare has made loans to Healthcare Borrowers (as amended, the "HEALTHCARE
LOAN AGREEMENT").

         B. WHEREAS, Healthcare Borrowers have previously executed the following
promissory notes in favor of Healthcare: (i) a certain Amended and Restated
Revolving Credit Note dated October 31, 2001, in the stated principal amount of
$15,000,000 (the "REVOLVING NOTE A"); (ii) a certain Amended and Restated Term
Note dated October 31, 2001, in the stated principal amount of $7,625,000 (the
"TERM NOTE A"), (iii) a certain Amended and Restated Term Note B dated October
31, 2001, in the stated principal amount of $1,500,000 (the "TERM NOTE B"), and
(iv) a certain Term Note C dated October 31, 2001, in the stated principal
amount of $2,000,000 (the "TERM NOTE C" and, collectively with the Revolving
Note A, Term Note A and Term Note B, the "HEALTHCARE NOTES").

         C. WHEREAS, Borrower has requested that Lenders (i) purchase the
obligations existing pursuant to the Healthcare Loan Agreement and the
Healthcare Notes, in an amount

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equal to their respective Pro Rata Share, and (ii) make available to Borrower
additional credit facilities for working capital needs in connection with its
behavioral health business.

         D. WHEREAS, Lenders are willing to (i) purchase the obligations
existing pursuant to the Healthcare Loan Agreement and the Healthcare Notes, in
an amount equal to their Pro Rata Share and (ii) make available to Borrower (A)
a revolving credit facility (the "REVOLVING FACILITY") in a maximum principal
amount at any time outstanding of up to $17,500,000 (the "FACILITY CAP"), of
which $15,000,000 will be used to purchase and modify Revolving Note A and
$2,500,000 will be evidenced by Revolving Note B, and (B) a term loan (the "TERM
LOAN") in a maximum principal amount of $15,656,305 (the "MAXIMUM LOAN AMOUNT"),
of which $11,125,000 will be used to purchase and modify Term Note A, Term Note
B and Term Note C and $4,531,305 will be evidenced by Term Note D, all 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, Agent and Lenders hereby agree 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 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, each Lender
agrees to make available its Pro Rata Share of Advances to Borrower under the
Revolving Facility from time to time during the Revolving Facility Term;
provided, that (i) the Pro Rata Share of the Advances of any Lender shall not at
any time exceed its separate Commitment, (ii) the aggregate amount of all
Advances at any one time outstanding under the Revolving Facility shall not
exceed the lesser of (A) the Facility Cap and (B) the Availability, and (iii)
the aggregate amount of all Advances under the Revolving Facility, the
Enterprise Facility and the Overadvance Facility shall not exceed the Facility
Cap. Any Advance made in excess of the Availability shall be made as an Advance
under the Overadvance Facility, to the extent available, and then as an

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Advance under the Enterprise Facility to the extent available. The obligations
of Lenders hereunder shall be several and not joint up to the amount of the
Commitments. 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 Agent in its sole discretion and is final and
binding upon Borrower. Unless otherwise permitted by Agent, 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 Dollars, of 85% 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 Notes
and other Obligations on the date when due to the extent available and as
provided for herein.

                  (b) Agent 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 Agent's underwriting
practices and procedures, including, without limitation, Agent'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 Agent
throughout the Revolving Facility Term as warranted by Agent's underwriting
practices and procedures in its sole credit judgment. Also, Agent 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.

                  (c) Each Lender agrees to make an Advance on the Closing Date,
in an amount equal to its Pro Rata Share, to be disbursed to Healthcare,
pursuant to the General Assignment.

2.2      The Revolving Notes; Maturity

                  (a) All Advances under the Revolving Facility, Enterprise
Facility and Overadvance Facility shall be evidenced by the Revolving Notes,
payable to the order of each Lender in the principal amount of the Commitment of
such Lender, duly executed and delivered by Borrower. On the Closing Date,
Borrower will authorize (i) the assignment by Healthcare to CapitalSource of
Revolving Note A and the modification of Revolving Note A pursuant to the
Modification of Notes and Liens and (ii) the issuance of Revolving Note B, which
shall be in the original principal amount of $2,500,000, payable to the order of
CapitalSource, duly executed and delivered by Borrower and dated the Closing
Date (the "REVOLVING NOTE B" and collectively with Revolving Note A, the
"REVOLVING NOTES"). The Revolving Notes shall evidence the aggregate
Indebtedness of Borrower to Lenders resulting from Advances under the Revolving
Facility, Enterprise Facility and Overadvance Facility, from time to time. Each
Lender hereby is authorized, but is not obligated, to enter the amount of such
Lender's Pro Rata Share of each Advance under the Revolving Facility, Enterprise
Facility and Overadvance Facility, and the

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amount of each payment or prepayment of principal or interest thereon in the
appropriate spaces on the reverse of or on an attachment to such Lender's
Revolving Note(s). Agent will account to Borrower monthly with a statement of
Advances under the Revolving Facility, Enterprise Facility and Overadvance
Facility, and charges and payments made pursuant to this Agreement, and in the
absence of manifest error, such accounting rendered by Agent shall be deemed
final, binding and conclusive unless Agent is notified by Borrower in writing to
the contrary within 15 calendar days of Receipt of each accounting, which notice
shall be deemed an objection only to items specifically objected to therein.

                  (b) All amounts outstanding under the Revolving Notes and
other Obligations under the Revolving Facility, Enterprise Facility and
Overadvance Facility 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 Agent's demand upon an Event of
Default, and (ii) the last day of the Revolving Facility Term (such earlier date
being the "REVOLVING FACILITY MATURITY DATE").

2.3      Interest

                  Except as provided in Section 2.16, interest on outstanding
Advances under the Revolving Notes shall be payable monthly in arrears on the
first day of each calendar month at an annual rate of Prime Rate plus 2%,
provided, however, that, notwithstanding any provision of any Loan Document, the
interest on outstanding Advances under the Revolving Notes shall be not less
than 7.25%, 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.
Interest accrued on each Advance under the Revolving Notes shall be due and
payable on the first day of each calendar month, in accordance with the
procedures provided for in Section 2.5 and Section 2.9, commencing January 1,
2002 and continuing until the later of the expiration of the Revolving Facility
Term and the full performance and irrevocable payment in full in cash of the
Obligations and termination of this Agreement.

2.4      Facility Disbursements; Requirement to Deliver Borrowing Certificate

                  So long as no Default or Event of Default shall have occurred
and be continuing, Borrower may give Agent irrevocable written notice requesting
an Advance under the Revolving Facility, Overadvance Facility or Enterprise
Facility by delivering to Agent not later than 11:00 a.m. (New York City Time)
at least two 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 Agent, which
shall (a) specify the proposed Borrowing Date of such Advance which shall be a
Business Day, (b) specify the principal amount of such requested Advance, (c)
certify the matters contained in Section 4.2, and (d) 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 Revolving Facility Term (and more frequently
if Agent shall so request) until the Obligations are indefeasibly paid in cash
in full and this Agreement is terminated, Borrower shall deliver to Agent a
Borrowing Certificate accompanied by a separate

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<PAGE>

detailed aging and categorizing of Borrower's accounts receivable and accounts
payable and such other supporting documentation with respect to the figures and
information in the Borrowing Certificate as Agent shall reasonably request from
a credit or security perspective or otherwise. On each Borrowing Date, Borrower
irrevocably authorizes Agent to disburse the proceeds of the requested Advance
to the appropriate Borrower's account(s) as set forth on Schedule 2.4, in all
cases for credit to the appropriate Borrower (or to such other account as to
which the appropriate Borrower shall instruct Agent) via Federal funds wire
transfer no later than 4:00 p.m. New York City Time.

2.5      Collections; Repayment; Borrowing Availability and Lockbox

                  Each Borrower shall maintain one or more lockbox accounts
(individually and collectively, the "LOCKBOX ACCOUNT") with one or more banks
acceptable to Agent (each, a "LOCKBOX BANK"), and shall execute with each
Lockbox Bank one or more agreements acceptable to Agent (individually and
collectively, the "LOCKBOX AGREEMENT"), and such other agreements related
thereto as Agent may require. Each Borrower shall ensure that all collections of
their respective Accounts and all other cash payments received by any Borrower
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 Agent or an affiliate of
Agent at such bank as Agent may communicate to Borrower from time to time (the
"CONCENTRATION ACCOUNT"), except, with respect only to Accounts payable by
Medicaid/Medicare Account Debtors, as instructed by applicable Borrower to whom
such Accounts are payable as permitted pursuant to the applicable Lockbox
Agreement. Notwithstanding and without limiting any other provision of any Loan
Document, Agent shall apply, on a daily basis, all funds transferred into the
Concentration Account pursuant to the Lockbox Agreement and this Section 2.5 in
such order and manner as determined by Agent. To the extent that any Accounts
collections of any Borrower or any other cash payments received by any Borrower
are not sent directly to the appropriate Lockbox Account but are received by any
Borrower or any of their affiliates, such collections and proceeds shall be held
in trust for the benefit of Agent and Lenders 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.
Borrower acknowledges and agrees that compliance with the terms of this Section
2.5 is an essential term of this Agreement, and that, in addition to and
notwithstanding any other rights Agent 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 Agent shall be
entitled to assess a non-compliance fee which shall operate to increase the
Applicable Rate by 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 Agent from considering any failure to comply with the
terms of this Section 2.5 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, Enterprise Facility or Overadvance Facility shall
be applied to reduce the Obligations under the Revolving Facility, Enterprise
Facility or Overadvance Facility (as Agent shall determine in its sole
discretion), but, for purposes of calculating interest hereunder, shall be
subject to a seven 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 2.5 a credit balance exists with respect to the

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<PAGE>

Concentration Account, such credit balance shall not accrue interest in favor of
a 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 Agent in its sole discretion.

2.6      Term Loan

                  Subject to the terms and  conditions set forth in this
Agreement, each Lender agrees to loan to Borrower its Pro Rata Share of the Term
Loan, which is in the aggregate original principal amount of $15,656,305. The
Term Loan shall be evidenced by Term Notes, payable to the order of each Lender
in the principal amount of the Commitment of the applicable Lender, duly
executed and delivered by Borrower. On the Closing Date, Borrower will authorize
(a) the assignment by Healthcare to CapitalSource of Term Note A, Term Note B
and Term Note C and the modification of each note pursuant to the Modification
of Notes and Liens and (b) the issuance of Term Note D, which shall be in the
original principal amount of $4,531,305 payable to the order of CapitalSource,
duly executed and delivered by Borrower and dated the Closing Date (the "TERM
NOTE D" and collectively with Term Note A, Term Note B and Term Note C, the
"TERM NOTES"). Each Lender agrees to loan to Borrower on the Closing Date the
Maximum Loan Amount, in an amount not to exceed its Pro Rata Share, in the form
of the Term Loan to be constituted of a single draw equal to such Maximum Loan
Amount to be disbursed to (x) Healthcare, pursuant to the General Assignment and
(y) the appropriate Borrower's account(s) as set forth on Schedule 2.4. The Term
Loan is not a revolving credit facility, and any repayments of principal shall
be applied to permanently reduce the Term Loan. The Term Loan shall be evidenced
by the Term Notes.

2.7      Interest on the Term Notes

                  Interest on the outstanding balance of the Term Loan under the
Term Notes shall be payable monthly in arrears on the first day of each calendar
month at an annual rate of Prime Rate plus 4.75%; provided, however, that,
notwithstanding any other provision of any Loan Document, the interest on the
outstanding principal balance of the Term Loan under the Term Notes shall be not
less than 10%, 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.
Interest accrued on the Term Loan shall be due and payable on the first day of
each calendar month commencing January 1, 2002, and continuing until the later
of the expiration of the Term Loan Term and the full performance and irrevocable
payment in full in cash of the Obligations and termination of this Agreement.
Advances under the Revolving Facility shall be made automatically for the
payment of interest on the Term Loan and other Obligations on the date when due
to the extent available and as provided for herein.

2.8      Repayment of Term Loan; Maturity

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                  Payment of principal (in addition to the interest payments in
Section 2.7) and all other amounts outstanding under the Term Loan shall be made
monthly as follows:

                  (a) $65,234.60 per month shall be due and payable, beginning
January 1, 2002 and continuing on the 1st day of each month thereafter through
the last month of the Term Loan Term; and

                  (b) the unpaid principal of the Term Loan and all other
Obligations under the Term Loan shall be due and payable in full, and the Term
Notes shall mature, 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 Agent's demand upon an Event of Default, and (ii) the last day of the Term
Loan Term (such earlier date being the "TERM LOAN MATURITY DATE").

2.9      Manner of Payment

                  Any 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 Dollars, in immediately available funds to such
account as may be indicated in writing by Agent 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.

2.10     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 2.9.

2.11     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 Agent and Lenders under the Loan
Documents;

                  (b) if any Borrower sells any of its assets or properties,
receives any property damage insurance award which is not used to repair or
replace the property covered thereby or

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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 Agent and Lenders
under the Loan Documents, such payment to be applied at such time and in such
manner and order as Agent shall decide in its sole discretion; and

                  (c) until such time as the Obligations relating to the Term
Loan are indefeasibly paid in full in cash and fully performed, 50% of
Borrower's Excess Cash Flow for each fiscal year shall be paid by Borrower to
Agent, for the benefit of Lenders, and shall be applied by Agent to reduce the
Obligations relating to the Term Loan. Such payments shall be made no later than
thirty (30) calendar days after preparation of Borrower's audited financial
statements, but in any event not later than one hundred and forty-five (145)
calendar days after the end of the fiscal year to which such Excess Cash Flow
relates; provided, however, that such payments are to be applied to the
Obligations relating to the Term Loan at such time and in such manner and order
as Agent shall decide in its sole discretion.

2.12     Payments by Agent

                  Should any amount required to be paid under any Loan Document
be unpaid, such amount may be paid by Agent, for the account of Lenders, 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 Agent, for the benefit of Lenders, by way of
direct payment of the relevant amount, interest or Obligations. No payment or
prepayment of any amount by Agent, Lenders or any other Person shall entitle any
Person to be subrogated to the rights of Agent and/or Lenders 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
Agent and/or Lenders as a result of 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.

2.13     Collateral; Security Interest

                  To secure the payment and performance of the Obligations, each
Borrower has granted to Agent, for the benefit of itself and Lenders, a valid,
continuing perfected first priority security interest in and lien upon their
respective Collateral pursuant to the Security Documents to which each is a
party and PSI, PS Tennessee, PSI Hospitals and Texas Hospitals have pledged to
Agent, for the benefit of itself and Lenders, certain securities pursuant to
Stock Pledge Agreements.

2.14     Collateral Administration

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

                  (b) Borrower shall keep accurate and complete records of its
Accounts and all payments and collections thereon and shall submit such records
to Agent on such periodic bases as Agent may request. In addition, if Accounts
of Borrower 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, Borrower shall notify Agent of
such occurrence on the first Business Day following such occurrence and the
Borrowing Base shall thereupon be adjusted to reflect such occurrence. If
requested by Agent, Borrower shall execute and deliver to Agent formal written
assignments of all of its Accounts weekly or daily as Agent 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 Borrower upon Borrower's written request.

                  (c) Whether or not an Event of Default has occurred, any of
the Agent's officers, employees, representatives or agents shall have the right,
at any time during normal business hours, in the name of Agent, any designee of
Agent or Borrower, to verify the validity, amount or any other matter relating
to any Accounts of Borrower. Borrower shall cooperate fully with Agent in an
effort to facilitate and promptly conclude such verification process.

                  (d) To expedite collection, Borrower shall endeavor in the
first instance to make collection of its Accounts for Agent, for the account of
Lenders. Agent shall have the right at all times after the occurrence of an
Event of Default to notify (i) Account Debtors owing Accounts to Borrower, other
than Medicaid/Medicare Account Debtors, that their Accounts have been assigned
to Agent, for the benefit of itself and Lenders, 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 Borrower has waived any and all defenses and counterclaims it may
have or could interpose in any such action or procedure brought by Agent to
obtain a court order recognizing the assignment or security interest and lien of
Agent, for the benefit of itself and Lenders, in and to any Account or other
Collateral and that Agent is seeking or may seek to obtain a court order
recognizing the assignment or security interest and lien of Agent, for the
benefit of itself and Lenders, in and to all Accounts and other Collateral
payable by Medicaid/Medicare Account Debtors.

                  (e) As and when determined by Agent in its sole discretion,
Agent will perform the searches described in clauses (i) and (ii) below against
Borrower and Guarantors (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 Borrower and/or any Guarantors (A) are
organized and (B) maintain 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)
below.

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                  (f) Borrower (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 Agent 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 Borrower hereby authorizes Agent and/or
Lenders, 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 Agent and/or any Lender to secure Agent, for the benefit
of itself and Lenders, and effectuate the intentions of the Loan Documents. At
Agent's request, Borrower shall immediately deliver to Agent all items for which
Agent 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.

2.15     Power of Attorney

         Agent is hereby irrevocably made, constituted and appointed the true
and lawful attorney for Borrower (without requiring any of them to act as such)
with full power of substitution to do the following: (a) 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; (b) execute and file 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 Agent under any of
the Loan Documents; and (c) do such other and further acts and deeds in the name
of such Person that Agent may deem necessary or desirable to enforce any Account
or other Collateral or to perfect Agent's, for the benefit of itself and
Lenders, security interest or lien in 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, Agent, 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 Agent'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.

2.16     Enterprise and Overadvance Facilities.

         (a) Enterprise Facility. Any contrary provision of this Agreement
notwithstanding, each Lender agrees to make its Pro Rata Share of Advances to
Borrower under the Enterprise Facility from time to time during the Revolving
Facility Term, so long as (i) after giving effect to such Advances, the
aggregate amount of all Advances pursuant to this Section 2.16(a) does not
exceed the lesser of (A) $3,000,000 and (B) the Enterprise Availability, (ii)
after giving effect to such Advances, the aggregate amount of all Advances
pursuant to this Section 2.16(a), together all Advances under the Revolving
Facility and the Overadvance facility, does not exceed the Facility Cap, and
(iii) the proceeds of all Advances pursuant to this Section 2.16(a) are used
solely for working capital needs of Borrower and not for any other purpose,
including but not limited to any acquisition of any Person or any prepayment of
Indebtedness other than the Obligations ("ENTERPRISE FACILITY"). Each Advance
pursuant to the Enterprise Facility (each, an

                                       10
<PAGE>

"ENTERPRISE ADVANCE") shall be subject to the same terms and conditions as any
other Advance under the Revolving Facility, except that the rate of interest
applicable thereto shall be payable monthly in arrears on the first day of each
calendar month at an annual rate of Prime Rate plus 3.8%; provided, however,
that, notwithstanding any provision of any Loan Document, the interest on
outstanding Advances under the Enterprise Facility shall be not less than 9.05%.

         (b) Overadvance Facility. Any contrary provision of this Agreement
notwithstanding, each Lender agrees to make its Pro Rata Share of Advances to
Borrower under the Overadvance Facility from time to time during the Revolving
Facility Term, so long as (i) after giving effect to such Advances, the
aggregate amount of all Advances pursuant to this Section 2.16(b) does not
exceed the lesser of (A) 582,363.28 and (B) the Overadvance Availability, (ii)
after giving effect to such Advances, the aggregate amount of all Advances
pursuant to this Section 2.16(b), together with all Advances under the Revolving
Facility and the Enterprise Facility, does not exceed the Facility Cap, and
(iii) the proceeds of all Advances pursuant to this Section 2.16(b) are used
solely for working capital needs of Borrower and not for any other purpose,
including but not limited to any acquisition of any Person or any prepayment of
Indebtedness other than the Obligations (the "OVERADVANCE FACILITY"). Each
Advance pursuant to the Overadvance Facility (each, an "OVERADVANCE") shall be
subject to the same terms and conditions as any other Advance under the
Revolving Facility, except that the rate of interest applicable thereto shall be
payable monthly in arrears on the first day of each calendar month at an annual
rate of Prime Rate plus 3.05%; provided, however, that, notwithstanding any
provision of any Loan Document, the interest on outstanding Advances under the
Overadvance Facility shall be not less than 8.3%.

III.     FEES AND OTHER CHARGES; ALLOCATION OF PURCHASE PRICE

3.1      Commitment and Structuring Fee

                  On or before the Closing Date, Borrower shall pay to Agent,
for the ratable benefit of Lenders, (a) 0.5% of the Facility Cap and (b) 0.5% of
the Term Loan, each as a nonrefundable commitment fee. Borrower shall pay Agent
a structuring fee as provided in the letter agreement between Agent and Borrower
of even date herewith.

3.2      Unused Line Fee

                  Borrower shall pay to Agent, for the ratable benefit of
Lenders, an unused line fee (the "UNUSED LINE FEE") in an amount equal to 0.05%
(per month) of the difference derived by subtracting (a) the daily average
amount of the balances under the Revolving Facility outstanding during the
preceding month, from (b) the Facility Cap. The Unused Line Fee shall be payable
monthly in arrears on the first day of each successive calendar month (starting
with the month in which the Closing Date occurs).

3.3      Collateral Management Fee

                                       11
<PAGE>

                  Borrower shall pay Agent a monthly collateral management fee
as provided in the letter agreement between Agent and Borrower of even date
herewith.

3.4      Early Termination Fees

                  (a) If (i) Borrower terminates the Revolving Facility under
Section 11.1 hereof, (ii) Agent 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
voluntary or involuntary 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 Agent's exercising its
right of set-off or otherwise, (v) any Lender accelerates any Revolving Note or
makes any demand on any Revolving Note, or (vi) any payment or reduction of the
outstanding balance of any Revolving Note and/or 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 termination,
Borrower shall pay Agent, for the account of Lenders (in addition to the then
outstanding principal, accrued interest and other Obligations 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 applicable
Minimum Termination Fee.

                  (b) If (i) Borrower terminates the Term Loan under Section
11.1 hereof, (ii) Agent demands or Borrower is otherwise required to make
payment in full of the Obligations relating to the Term Loan upon the occurrence
of an Event of Default, (iii) a voluntary or involuntary Change of Control or
payment pursuant to Section 2.11 occurs, (iv) any other voluntary or involuntary
prepayment of the Obligations relating to the Term Loan by Borrower or any other
Person occurs, whether by virtue of Agent's exercising its right of set-off or
otherwise, (v) any Lender accelerates any Term Note or makes any demand on any
Term Note, (vi) any payment or reduction of the outstanding balance of any Term
Note and/or the Term Loan 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 or (v) the unpaid principal of the Term Loan and all other
Obligations under the Term Loan shall become due and payable in full on the Term
Loan Maturity Date (each, a "TERM TERMINATION"), then, at the effective date of
any such termination, Borrower shall pay Agent, for the account of Lenders (in
addition to the then outstanding principal, accrued interest and other
Obligations relating to the Term Loan owing under the Term Loan 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 Term
Termination Fee.

3.5      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 otherwise, shall the interest and other charges paid or agreed
to be paid to Agent, for the benefit of Lenders, for the use, forbearance or

                                       12
<PAGE>

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 Lenders 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, Lenders
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 3.5 shall control to the extent any other provision
of any Loan Document is inconsistent herewith.

3.6      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").

3.7      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 (a) Borrowers are all
affiliated entities by common ownership, (b) each Borrower desires to have the
availability of one common credit facility instead of separate credit
facilities, (c) each Borrower has requested that each Lender extend such a
common credit facility on the terms herein provided, (d) each Lender will be
lending against, and relaying 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, (e) each Borrower will nonetheless benefit by
the making of all such loans by each Lender and the availability of a single
credit facility of a size greater than each could independently warrant, and (f)
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.

3.8      Warrants

                  As additional consideration for the extensions of credit
hereunder and as more fully described in the Warrant Agreement, PSI shall issue
and deliver to CapitalSource Holdings LLC on the Closing Date, the Warrant. The
Warrant and number of securities purchasable upon exercise of the Warrant shall
be subject to adjustment and shall be subject to various rights in favor of
CapitalSource Holdings LLC as set forth in the Warrant Agreement.

3.9      Allocation of Purchase Price

                  Under both GAAP consistently applied and the regulations of
the Internal Revenue Service, the issuance to Lenders of the Term Notes and to
CapitalSource Holdings LLC

                                       13
<PAGE>

of the Warrant for an aggregate purchase price equal to the aggregate principal
amount of the Term Notes being so purchased results in the creation of "original
issue discount" on each Term Note (which original issue discount may also be
deemed to constitute the value of any Warrant issued in connection with the
issuance of such Term Notes), and such regulations require the determination of
the value of any warrant so delivered. Pursuant to GAAP consistently applied and
applicable Treasury Regulations, Borrower, Agent and Lenders agree to allocate
$15,596,305 of the purchase price to the Term Notes and the remaining $60,000 of
the purchase price to the Warrant and that such allocation reflects the relative
fair market values of the Term Notes and the Warrant as of their issue date. As
a result, the Term Notes will be issued with original issue discount of $60,000.
Borrower, Agent and Lenders agree to recognize and adhere to the determinations
and allocations of original issue discount and valuation of the Warrant set
forth herein for all federal and state income tax purposes. In the event of any
proposed transfer of any Term Note by any Lender, such Lender shall, prior to
such transfer, mark such Term Note with a legend pertaining to the original
issue discount in the form required by Treasury Regulation Section
1.1275-3(b)(1).

IV.      CONDITIONS PRECEDENT

4.1      Conditions to Initial Advance, Funding of Term Loan and Closing

                  The obligations of Lenders to consummate the transactions
contemplated herein and to make the initial Advance under the Revolving Facility
(the "INITIAL ADVANCE") and to fund the Term Loan are subject to the
satisfaction, in the sole judgment of Agent, of the following:

                  (a) (i) Borrower shall have delivered to Agent (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 the
Initial Advance under the Revolving Facility executed by an authorized officer
of Borrower, and (ii) each Guarantor shall have delivered to Agent 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 Agent in its
sole discretion, Agent 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 Agent 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 Agent to be filed, registered or recorded to create,
in favor of Agent, for the benefit of Lenders, a perfected first priority
security interest upon the Collateral, and (iii) evidence of each such filing,
registration or recordation and of the payment by Borrower of any necessary fee,
tax or expense relating thereto;

                  (c) Agent shall have received (i) the Charter and Good
Standing Documents, all in form and substance acceptable to Agent, (ii) a
certificate of the corporate secretary or assistant secretary of each Borrower
dated the Closing Date, as to the incumbency and signature

                                       14
<PAGE>

of the Persons executing the Loan Documents, in form and substance acceptable to
Agent, (iii) the written legal opinion of counsel for Borrower and Guarantors,
in form and substance satisfactory to Agent and its counsel; and (iv) a
certificate executed by an authorized officer of each Borrower, which shall
constitute a representation and warranty by such Borrower as of the Closing Date
and the applicable Borrowing Date and the date of funding of the Term Loan that
the conditions contained in this Agreement have been satisfied;

                  (d) Agent shall have received a certificate of the chief
financial officer (or, in the absence of a chief financial officer, the chief
executive officer) of each Borrower, in form and substance satisfactory to Agent
(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, 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 Closing Date and the Borrowing Date for the Initial Advance and the date
of funding of the Term Loan and after giving effect to such transactions and
Indebtedness: (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) Agent shall have completed examinations, the results of
which shall be satisfactory in form and substance to Agent, 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 Agent's satisfaction that (i) its
operations comply, in all respects deemed material by Agent, 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 Agent, in its sole judgment, and
(iii) it has no liability (whether contingent or otherwise) that is deemed
material by Agent, in its sole judgment;

                  (f) Agent shall have received all fees, charges and expenses
payable to Agent and Lenders on or prior to the Closing Date pursuant to the
Loan Documents;

                  (g) all in form and substance satisfactory to Agent in its
sole discretion, Agent shall have received such consents, approvals 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 Agent 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 or
the Collateral;

                  (h) Borrower shall be in compliance with Section 7.6 and
Section 6.5, and Agent shall have received (i) certified copies of all such
insurance policies, and (ii) original certificates of such insurance policies
confirming that they are in effect and that the premiums due and owing with
respect thereto have been paid in full and naming Agent, for the benefit of
itself and Lenders, 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

                                       15
<PAGE>

(including, but not limited to, those relating to corporate and capital
structures of Borrower) shall be satisfactory to Agent;

                  (j) Agent shall have received, in form and substance
satisfactory to Agent, (i) evidence of the assignment in full to Agent of the
obligations owing and existing pursuant to the Healthcare Loan Agreement and all
related documents, agreements and instruments and of all Liens, security
interests and Uniform Commercial Code financing statements relating thereto, and
(ii) assignment to Agent 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 (other than Permitted Liens);

                  (k) no default exists pursuant to any of Borrower's
obligations under any material contract or compliance with applicable laws and
there will exist no fact or circumstance which, with the passage of time, the
giving of notice, or both, could constitute a default under any material
contract to which Borrower or any Guarantor is a party or any law to which
Borrower or any Guarantor is subject;

                  (l) Borrower shall have established a Lockbox Account pursuant
to Section 2.5;

                  (m) Agent shall have received a mortgagee title insurance
policy on the Real Property (or binding commitment therefor) in form and
substance and from Stewart Guaranty Title or such other title insurer reasonably
acceptable to Agent, on an A.L.T.A. 1970 form designated by Agent, which title
insurance policy shall (i) specifically contain no exception as to survey
matters or creditors rights, (ii) contain affirmative coverage against
mechanics', contractors', suppliers' and/or materialmen's liens, which may be
filed or unfiled, (iii) must affirmatively insure that the mortgage or deed of
trust is a valid first lien against the fee simple, marketable estate, insuring
Agent and Lenders for a sum not less than the maximum principal amount of the
Term Loan, (iv) insure any easements or leases necessary to access the Real
Property and such easements or leases shall not be subject to any prior liens,
encumbrances, covenants or restrictions and (v) contain such endorsements as may
be reasonably required by Agent; provided, however, that such mortgagee title
insurance policy may contain the usual "pending disbursements" clause, if
applicable;

                  (n) Agent shall have received evidence that Borrower has a fee
simple title to the Real Property and to the material fixtures, equipment,
furniture and personal property encumbered by the Loan Documents, and such title
shall be marketable, and free and clear of all defects, liens, encumbrances,
security interests, assessments, restrictions and easements, unless otherwise
approved in writing by Agent;

                  (o) if access to the Real Property is by means of easements or
leases, said easements or leases shall be satisfactory in form and substance to
Agent, shall be covered by the mortgagee title insurance policy pursuant to
subsection (m)(iv) above;

                  (p) all streets necessary to serve the Real Property for the
use represented by Borrower shall have been completed and shall be serviceable
and all streets to be dedicated shall have been dedicated and accepted for
public use and maintenance;

                                       16
<PAGE>

                  (q) Agent shall have received, in form and substance
reasonably satisfactory to Agent, evidence that the Real Property and all
improvements (to the extent required) (i) comply with applicable codes,
regulations and ordinances, (ii) are zoned for their current use, (iii) are
adequately served by public utilities, (iv) are completed free of mechanics and
materialmens liens, (v) are not the subject to any pending or threatened
litigation, (vi) are not the subject of any pending or threatened condemnation
proceeding, (vii) have not been damaged by fire or other casualty and (viii) are
not within a special flood hazard area and are not eligible for flood insurance
under the U.S. Flood Disaster Protection Act of 1973, as amended, or such other
flood insurance which in Agent's reasonable opinion adequately protects against
the risk of damage by flood;

                  (r) Agent shall have received, in form and substance
reasonably satisfactory to Agent, evidence that all taxes and assessments on all
real property owned by Borrower and Guarantors have currently been paid,
settlement copies of all recent real estate tax bills, with proof of payment,
together with evidence that the mortgaged premises is a separately identifiable
tax lot;

                  (s) Agent shall have received, in form and substance
reasonably satisfactory to Agent, a report of a search of the public records
performed against the Real Property, Borrower and Guarantor in each state and
local jurisdiction, and such report shall show no conditional sales contracts,
chattel mortgages, leases of personalty, financing statements or title retention
agreements filed and/or recorded against the Real Property, Borrower and
Guarantor, other than liens which are specifically permitted under this
Agreement;

                  (t) Agent shall have received, each in form and substance
satisfactory to Agent, any and all property as-built A.L.T.A. surveys,
environmental reports and other third party reports as Agent shall deem
necessary or appropriate; provided, that the environmental report must address
such matters as Agent shall request in its sole and absolute discretion,
including, without limitation, confirmation of the absence of asbestos in any
form that is or could become friable and confirmation of the absence of
underground storage tanks;

                  (u) Agent shall have received copies of all licenses and
permits required for Borrower to conduct the business in which it is currently
engaged or is contemplated pursuant to the Loan Documents or shall have received
an opinion from licensure counsel verifying that all approvals for licensure
have been granted;

                  (v) Agent shall have received copies of all material
agreements between Borrower and any healthcare management consultants and/or
agents, including documents relating to borrowed money, capital leases and
occupancy leases;

                  (w) Agent shall have received copies of all participation
agreements relating to medical plans of Borrower;

                  (x) Agent shall have completed its due diligence examinations
of Borrower, each Subsidiary and each Guarantor, the results of which shall be
satisfactory in form and substance to Agent;

                                       17
<PAGE>

                  (y) Borrower shall have delivered that certain Asset Purchase
Agreement, dated as of November 30, 2001, duly executed by PSI, PS North
Carolina and Holly Hill and in form and substance satisfactory to Agent; and

                  (z) Agent shall have received the Assignment of
Representations, Warranties, Covenants and Indemnities, duly executed by PSI and
PS North Carolina.

4.2      Conditions to Each Advance and Funding of Term Loan

                  The obligations of Lenders to make any Advance (including,
without limitation, the Initial Advance) and to fund the Term Loan are subject
to the satisfaction, in the sole judgment of Agent, of the following additional
conditions precedent:

                  (a) Borrower shall have delivered to Agent a Borrowing
Certificate for the Advance executed by an authorized officer of Borrower, 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 Agent 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 and/or funding the Term Loan, and no Default or Event of
Default shall have occurred or be continuing or would exist after giving effect
to the Advance or the funding of the Term Loan on such date;

                  (c) immediately after giving effect to the requested Advance,
the aggregate outstanding principal amount of Advances under the Revolving
Facility shall not exceed the lesser of the Availability and the Facility Cap,
Advances under Section 2.16 are in compliance therewith and the aggregate
outstanding principal amount of the Term Loan shall not exceed the Maximum Loan
Amount;

                  (d) 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;

                  (e) Agent shall have received all fees, charges and expenses
payable to Agent on or prior to such date pursuant to the Loan Documents; and

                  (f) there shall not have occurred any Material Adverse Change
or Material Adverse Effect or Liability Event.

V.       REPRESENTATIONS AND WARRANTIES

         Each Borrower, jointly and severally, represents and warrants as of the
date hereof, the Closing Date, each Borrowing Date and, if applicable, the date
of funding of the Term Loan as follows:

5.1      Organization and Authority

                                       18
<PAGE>

         Each Borrower is an entity duly organized, validly existing and in good
standing under the laws of its state of formation. Borrower (a) 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, (b) 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 (c) has all requisite power and authority (i) to execute, deliver
and perform the Loan Documents to which it is a party, (ii) to borrow hereunder,
(iii) to consummate the transactions contemplated under the Loan Documents, and
(iv) to grant the Liens with regard to the Collateral pursuant to the Security
Documents to which it is a party. No Borrower 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 Borrower of the
Loan Documents to which it is a party, and the consummation of the transactions
contemplated thereby, (a) 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; (b) do not violate any provisions of (i) applicable law,
statute, rule, regulation, ordinance or tariff, (ii) any order of any
Governmental Authority binding on any such Person or any of their respective
properties, or (iii) 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 shareholders, members, partners or
equity owners or among any such shareholders, members, partners or equity
owners; (c) 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; (d) except as set
forth therein, 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 (e) 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 Borrower is a party will constitute the legal, valid
and binding obligation of Borrower, enforceable against Borrower 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

                  Borrower has no Subsidiaries other than those persons listed
as Subsidiaries on Schedule 5.3, each of which have executed this Agreement and
such other Security Documents as required by Agent. Schedule 5.3 states the
authorized and issued capitalization of Borrower, the number and class of equity
securities and/or ownership, voting or partnership interests issued and
outstanding of Borrower and the record and beneficial owners thereof (including
options, warrants and other rights to acquire any of the foregoing). The
outstanding equity securities

                                       19
<PAGE>

and/or ownership, voting or partnership interests of Borrower have been duly
authorized and validly issued and are fully paid and nonassessable, and each
Person listed on Schedule 5.3 owns beneficially and of record all the equity
securities and/or ownership, voting or partnership interests it is listed as
owning free and clear of any Liens other than Liens created by the Security
Documents. Schedule 5.3 also lists the directors, members, managers and/or
partners of Borrower. Except as listed on Schedule 5.3, Borrower does not own an
interest or participates or engages in any joint venture, partnership or similar
arrangements with any Person.

5.4      Properties

                  Borrower (a) 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, whether personal or real, subject to no
transfer restrictions or Liens of any kind except for Permitted Liens, and (b)
is in compliance in all 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, Borrower and all leases (including leases of leased real property)
covering or with respect to such properties and assets. Borrower enjoys peaceful
and undisturbed possession under all such leases and such leases are all the
leases necessary for the operation of such properties and assets, are valid and
subsisting and are in full force and effect.

5.5      Other Agreements

                  Borrower is not (a) a party to any judgment, order or decree
or any agreement, document or instrument, or subject to any restriction, which
would materially adversely affect its ability to execute and deliver, or perform
under, any Loan Document or to pay the Obligations, (b) 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 (c) 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

                  There is no action, suit, proceeding or investigation pending
or, to its knowledge, threatened against Borrower that (a) questions or could
prevent the validity of any of the Loan Documents or the right of Borrower to
enter into any Loan Document or to consummate the transactions contemplated
thereby, (b) could reasonably be expected to be or have, either individually or
in the aggregate, any Material Adverse Change or Material Adverse Effect, or (c)
could reasonably be expected to result in any Change of Control or other change
in the

                                       20
<PAGE>

current ownership, control or management of Borrower. Borrower is not aware that
there is any basis for the foregoing. Borrower is not a party or subject to any
order, writ, injunction, judgment or decree of any Governmental Authority. There
is no action, suit, proceeding or investigation initiated by Borrower currently
pending. Borrower has not any existing accrued and/or unpaid Indebtedness to any
Governmental Authority or any other governmental payor.

5.7      Hazardous Materials

                  Borrower is in compliance in all material respects with all
applicable Environmental Laws. Borrower has not been notified of any action,
suit, proceeding or investigation (a) relating in any way to compliance by or
liability of Borrower under any Environmental Laws, (b) which otherwise deals
with any Hazardous Substance or any Environmental Law, or (c) 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

                  Borrower (a) has filed all federal, state, foreign (if
applicable) and local tax returns and other reports which are required by law to
be filed by Borrower, and (b) 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 Borrower is currently contesting in good faith and that are described
on Schedule 5.8.

5.9      Financial Statements and Reports

                  All financial statements and financial information relating to
Borrower that have been or may hereafter be delivered to Agent by Borrower are
accurate and complete and have been prepared in accordance with GAAP
consistently applied with prior periods. Borrower has no 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 Agent, there has not occurred any Material Adverse Change, Material Adverse
Effect or Liability Event or, to Borrower'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

                  Borrower (a) is in compliance with all laws, statutes, rules,
regulations, ordinances and tariffs of any Governmental Authority applicable to
Borrower and/or Borrower's business, assets or operations, including, without
limitation, ERISA and Healthcare Laws, and (b) 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. Borrower has not received any notice that Borrower

                                       21
<PAGE>

is not in compliance in any respect with any of the requirements of any of the
foregoing. Borrower has (i) not 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, (ii) not
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, (iii) no any 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, (iv) no 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 (v) not
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 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. ss. 2615.3 has not been waived.
Borrower 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 Borrower, 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

                  Except as set forth on Schedule 5.11, Borrower does not own,
license or utilize, and is not 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

                  Borrower is in compliance with and has 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. Borrower
is not (a) 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, (b) 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 (c) and has not 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

                                       22
<PAGE>

                  There does not exist any Default or Event of Default or any
event, fact, condition or circumstance which, with the giving of notice or
passage of time or both, would constitute or result in a Default or Event of
Default.

5.14     Disclosure

                  No Loan Document nor any other agreement, document,
certificate, or statement furnished to Agent by or on behalf of Borrower in
connection with the transactions contemplated by the Loan Documents, nor any
representation or warranty made by Borrower 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
Borrower which has not been disclosed to Agent 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 Document or as otherwise
set forth on Schedule 5.15, Borrower (a) has no outstanding Indebtedness, (b) is
not subject or party to any mortgage, note, indenture, indemnity or guarantee
of, with respect to or evidencing any Indebtedness of any other Person, or (c)
does not own or hold 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. Borrower has
performed all material obligations required to be performed by Borrower 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

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

5.17     Insurance

                                       23
<PAGE>

                  Borrower 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, Borrower has not conducted
business under or used any name (whether corporate, partnership or assumed)
other than as shown on Schedule 5.18A. Borrower 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 Borrower's sales, business and invoices. Each trade
name of Borrower represents a division or trading style of Borrower. Borrower
maintains its places of business and chief executive offices only at the
locations set forth on Schedule 5.18B, and all Accounts of Borrower 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 Borrower or to the rights of any other Person.

5.20     Accounts

                  In determining which Accounts are Eligible Receivables, Agent
may rely on all statements and representations made by Borrower with respect to
any Account. Unless otherwise indicated in writing to Agent, each Account of
Borrower (a) is genuine and in all respects what is purports to be and is not
evidenced by a judgment, (b) arises out of a completed, bona fide sale and
delivery of goods or rendering of Services by 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 Borrower
and the Account Debtor, (c) 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 Agent, (d) together with Agent's
security interest therein, is not and will not be in the future (by voluntary
act or omission by Borrower), subject to any offset, lien, deduction, defense,
dispute, counterclaim or other adverse condition, is absolutely owing to
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), (e) there are no facts, events or
occurrences which in any way impair the 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 Agent with respect thereto, (f) to the
best of Borrower's knowledge, (i) the Account Debtor thereunder had the capacity
to contract at the time any contract or other document giving rise thereto was
executed and (ii) such Account Debtor is solvent, (g) to the best of Borrower's
knowledge, subject to subsection (j) 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

                                       24
<PAGE>

Account Debtor's financial condition or the collectability thereof, (h) 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, (i) Borrower has
obtained and currently has all Permits necessary in the generation thereof, and
(j) Borrower has disclosed to Agent on each Borrowing Certificate the amount of
all Accounts of 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 Borrower is
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, Borrower 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 (j) of Section 5.20, there are no claims, actions or appeals pending
(and Borrower has not 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
Health Care Financing Administration, with respect to any state or federal
Medicare or Medicaid cost reports or claims filed by 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 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 Borrower, 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

                  Borrower makes the representations and warranties contained
herein with the knowledge and intention that Agent and Lenders are relying and
will rely thereon. All such representations and warranties will survive the
execution and delivery of this Agreement, the making of the Advances and the
funding of the Term Loan.

VI.      AFFIRMATIVE COVENANTS

                  Each Borrower, 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:

6.1      Financial Statements, Reports and Other Information

                                       25
<PAGE>

                  (a) Financial Reports. Borrower shall furnish to Agent and
each Lender (i) as soon as available and in any event within ninety (90)
calendar days after the end of each fiscal year of Borrower, audited annual
consolidated and consolidating financial statements of Borrower, 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 Agent and accompanied by related management
letters, if available, and (ii) as soon as available and in any event within
thirty (30) calendar days after the end of each calendar month, unaudited
consolidated and consolidating financial statements of Borrower 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, Borrower shall
also deliver a certificate of its chief financial officer in the form of Exhibit
B hereto (the "COMPLIANCE CERTIFICATE"), stating that (A) such person has
reviewed the relevant terms of the Loan Documents and the condition of Borrower,
(B) 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, (C) Borrower is in compliance with all financial covenants
attached as Annex I hereto. Such certificate shall be accompanied by the
calculations necessary to show compliance with the financial covenants in a form
satisfactory to the Agent.

                  (b) Other Materials. Borrower shall furnish to Agent and each
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 Borrower
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 Borrower shall send to
its stockholders, members, partners or other equity owners at any time, (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) any other reports, materials or other information regarding or
otherwise relating to Medicaid or Medicare prepared by, for, or on behalf of,
Borrower or any of its Subsidiaries, including, without limitation, (A) copies
of licenses and permits required by any applicable federal, state, foreign or
local law, statute ordinance or regulation or Governmental Authority for the
operation of its business, (B) Medicare and Medicaid provider numbers and
agreements, (c) state surveys pertaining to any healthcare facility operated or
owned or leased by Borrower or any of its Affiliates or Subsidiaries, (D)
participating agreements relating to medical plans, (v) within fifteen (15)
calendar days after the end of each calendar month for such month, (A) a report
of the status of all payments, denials and appeals of all Medicare and/or
Medicaid Accounts, (B) a sales and collection report and accounts receivable and
accounts payable aging schedule, including a report of sales, credits issued and
collections received, all such reports showing a reconciliation to the amounts
reported in the monthly financial statements, and (C) a report of census and
occupancy percentage by payor type, (v) promptly upon receipt thereof, copies of
any reports submitted to Borrower by its independent accountants in connection
with any interim

                                       26
<PAGE>

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 Agent may reasonably request from a credit or security perspective or
otherwise from time to time.

                   (c) Notices. Borrower shall promptly, and in any event within
two (2) calendar days after Borrower or any authorized officer of Borrower
obtains knowledge thereof, notify Agent in writing of (i) any pending or
threatened litigation, suit, investigation, arbitration, dispute resolution
proceeding or administrative proceeding brought or initiated by Borrower 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 Borrower from any payor
of a claim, suit or other action such payor has, claims or has filed against
Borrower, (v) any matter(s) affecting the value, enforceability or
collectability of any of the Collateral, including, without limitation, claims
or disputes in the amount of $10,000 or more, singly or in the aggregate, in
existence at any one time, (vi) any notice given by Borrower to any other lender
of Borrower and shall furnish to Agent 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
Borrower 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. Borrower shall obtain and deliver from time to
time all required consents, approvals and agreements from such third parties as
Agent shall determine are necessary or desirable in its sole discretion and that
are satisfactory to Agent with respect to (i) the Loan Documents and the
transactions contemplated thereby, (ii) claims against Borrower, or the
Collateral, and/or (iii) any agreements, consents, documents or instruments to
which Borrower is a party or by which any properties or assets of Borrower or
any of the Collateral is or are bound or subject, including, without limitation,
Landlord Waivers and Consents with respect to leases.

                  (e) Operating Budget. Borrower shall furnish to Agent and each
Lender on or prior to the Closing Date and for each fiscal year of Borrower
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 Borrower 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.

6.2      Payment of Obligations

                                       27
<PAGE>

                  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 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

                  Borrower shall (a) conduct its business in accordance with
good business practices customary to the industry, (b) engage principally in the
same or similar lines of business substantially as heretofore conducted, (c)
collect its Accounts in the ordinary course of business, (d) 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), (e) from time to time to make all necessary or
desirable repairs, renewals and replacements thereof, (f) 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
(g) remain in good standing and maintain operations in all jurisdictions in
which currently located.

6.4      Compliance with Legal and Other Obligations

                  Borrower shall (a) comply with all laws, statutes, rules,
regulations, ordinances and tariffs of all Governmental Authorities applicable
to it or its business, assets or operations, (b) 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, (c)
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 is
bound, except where the failure to comply, pay or perform could not reasonably
be expected to have a Material Adverse Effect, (d) 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 (e) properly file
all Medicaid and Medicare cost reports, including without limitation the filing
of all termination cost reports (if not otherwise filed by the applicable
sellers) when due.

6.5      Insurance

                  Borrower shall (a) 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

                                       28
<PAGE>

customary for a business engaged in activities similar to those of Borrower; and
(b) maintain insurance under all applicable workers' compensation laws; all of
the foregoing insurance policies to (i) be reasonably satisfactory in form and
substance to Agent, (ii) name Agent, for the benefit of itself and Lenders, as
loss payee and additional insured thereunder, and (iii) expressly provide that
they cannot be altered, amended, modified or canceled without thirty (30)
Business Days prior written notice to Agent and that they inure to the benefit
of Agent, for the benefit of itself and Lenders, notwithstanding any action or
omission or negligence of or by Borrower, or any insured thereunder.

6.6      True Books

                  Borrower shall (a) 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 (b) 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

                  Borrower shall permit the representatives of Agent and
Lenders, at the expense of Borrower, from time to time during normal business
hours upon reasonable notice, to (a) 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, (b) make copies and extracts therefrom, and (c)
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).

6.8      Further Assurances; Post Closing

                  At Borrower's cost and expense, Borrower shall (a) within five
(5) Business Days after Agent's demand, take such further actions, obtain such
consents and approvals and duly execute and deliver such further agreements,
assignments, instructions or documents as Agent may reasonably 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, (b) 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 (c) upon the
exercise by Agent, any Lender or any of their 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,

                                       29
<PAGE>

qualification or authorization. Without limiting the foregoing, upon the
exercise by Agent, any Lender or any of their 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, Borrower shall
execute and deliver, or cause the execution and delivery of, all applications,
certificates, instruments and other documents that Agent, any Lender or such
affiliate may be required to obtain for such consent, approval, registration,
qualification or authorization.

6.9      Payment of Indebtedness

                  Except as otherwise prescribed in the Loan Documents, Borrower
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 Agent may deem proper and necessary in its sole
discretion shall have been made.

6.10     Lien Searches

                  If Liens other than Permitted Liens exist, Borrower
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 recitals to this
Agreement.

6.12     Collateral Documents

                  On demand of Agent or any Lender, Borrower shall make
available to Agent or such Lender copies of any and all documents, instruments,
materials and other items that relate to, secure, evidence, give rise to or
generate or otherwise involve Accounts of such Person.

6.13     Right of First Refusal

                  If at any time Borrower receives from a third party an offer,
term sheet or commitment or makes a proposal (including without limitation any
application filed in connection with a "HUD financing or HUD refinancing")
accepted by any Person (each, an "OFFER") which provides for any type of
financing to or for Borrower, Borrower shall notify Agent and Lenders of the
Offer in writing (including all material terms of the Offer) and Agent and
Lenders shall have 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) as set forth in the Offer. Agent shall notify Borrower in writing of
Agent's and Lenders' acceptance of the Offer pursuant hereto (the "ACCEPTANCE
NOTICE"), in which case Borrower shall obtain such financing from Agent and
Lenders and shall not accept the Offer from such other Person. If no Acceptance
Notice has

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<PAGE>

been Received from Agent within the Option Period, Borrower 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
Agent 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, Borrower shall not be permitted to consummate
the Transaction without again complying with this Section 6.13. The provisions
of this Section 6.12 shall survive the payment in full of the Obligations and
termination of this Agreement for a period of six months. For purposes of this
Section 6.13, "Lender" shall include CapitalSource Finance LLC and any of its
parents, subsidiaries or affiliates.

6.14     Taxes and Other Charges

                  All payments and reimbursements to Agent, for the benefit of
Lenders, 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 each Lender's net income. If Borrower
shall be required by law to deduct any such amounts from or in respect of any
sum payable under any Loan Document to Agent, for the benefit of Lenders, then
the sum payable to Agent, for the benefit of Lenders, shall be increased as may
be necessary so that, after making all required deductions, each 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 (a) any change in any existing law, regulation, treaty or
directive or in the interpretation or application thereof, (b) any new law,
regulation, treaty or directive enacted or any interpretation or application
thereof, or (c) compliance by any Lender with any request or directive (whether
or not having the force of law) from any Governmental Authority: (i) subjects
such 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 Agent, for the benefit of Lenders, 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 each Lender), or (ii) imposes on Lenders any other condition or increased
cost in connection with the transactions contemplated thereby or participations
therein; and the result of any of the foregoing is to increase the cost to
Lenders of making or continuing any Loan hereunder or to reduce any amount
receivable hereunder, then, in any such case, Borrower shall promptly pay to
Agent, for the benefit of Lenders, any additional amounts necessary to
compensate each Lender, on an after-tax basis, for such additional cost or
reduced amount as determined by such Lender. If any 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 such Lender has become so
entitled, and each such notice of additional amounts payable pursuant to this
Section 6.14 submitted by such 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, Borrower at all times shall
retain and use a Person acceptable to Agent to process, manage and pay its
payroll taxes and shall cause to be delivered to Agent and each Lender within
ten (10)

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<PAGE>

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.

6.15     Patient Bills

                  Within three Business Days of discharge of a Patient, Borrower
will deliver a bill to the applicable payor(s) for Services rendered to such
Patient. For any Patient who qualifies for billing prior to discharge, Borrower
will deliver a bill to the applicable payor(s) for Services rendered to such
Patient, as frequently as allowed; provided, however, no such billing shall be
required more often than twice per month.

6.16     Modification of Subordination Agreements

                  On or before June 30, 2002, Borrower shall amend and restate
each Subordination Agreement (a) to reference this Agreement, (b) to the extent
any Subordination Agreement has a maximum amount of senior indebtedness
permitted by such Subordination Agreement, Borrower shall cause the holder of
such Subordinated Debt to increase the maximum amount to not less than
$40,000,000 or otherwise revise such Subordination Agreement to the satisfaction
of Agent and (c) to make such other changes as Agent may request.

6.17     Internal Cost Reports; Reserves

                  (a) Notwithstanding and in addition to Section 6.1 and the
other provisions of this Agreement and the Loan Documents, Borrower shall
prepare and furnish to Agent and Lenders when completed, but in no event more
than fifteen (15) calendar days after the end of each calendar quarter, a cost
report for the immediately preceding calendar quarter for Borrower (each
individually and collectively, "INTERNAL COST REPORT") setting forth for
Borrower the precise amount of cumulative cost-year to date accrued Medicare and
Medicaid liability for the Medicare and Medicaid cost-year in which such
preceding quarter falls based on and calculated as the difference between actual
reported costs and the interim reimbursement rate then being used for Medicare
and Medicaid, as applicable (such cumulative cost-year to date amounts being the
"ACCRUED LIABILITIES"). Borrower agrees and acknowledges that, unless Agent
agrees in writing to do otherwise, for purposes of all Advances there shall be
reserved an amount equal to the aggregate total of all Accrued Liabilities for
Borrower as set forth in the Internal Cost Reports for the preceding quarter
(the "AGGREGATE ACCRUED LIABILITIES") such that, as set forth in Section 2.1,
the Availability at any time shall be determined by reducing the Borrowing Base
as determined pursuant to the most recent Borrowing Certificate by the amount of
such Aggregate Accrued Liabilities.

                  (b) At the expense of Borrower, Borrower agrees and
acknowledges that Agent shall have the right at any time within ninety (90)
Business Days after the Closing and at such other times as Agent deems necessary
(provided, that any such audits other than the initial audit contemplated by
this sentence shall be at the expense of Borrower only if Agent determines as a
result of and based on any such audit that the methods or procedures used by
Borrower in preparing any of the Internal Cost Reports or the amounts or figures
contained in any such reports are incorrect or inaccurate in any material
respect), during normal business hours, to have

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<PAGE>

an independent third party expert in reimbursement issues as chosen and
determined by Agent visit and inspect any of the offices or properties of
Borrower and any other place where Collateral is located or Accounts and
Receivables are generated to audit the methods and procedures used by Borrower
in preparing the Internal Cost Reports and calculating the amounts and figures
contained in such reports and all of its books of account, records, reports and
other papers relating in any way thereto. If Agent in its sole discretion
determines as a result of and based on any such audit that the methods or
procedures used by Borrower in preparing any of the Internal Cost Reports or the
amounts or figures contained in any such reports are not correct or accurate in
any respect, Agent shall have the right, and Borrower hereby consents to and
agrees that Agent shall have the right, to determine from time to time in its
sole discretion the amount of Accrued Liabilities and Aggregate Accrued
Liabilities to be reserved pursuant to and for purposes of this Section 6.17 and
Section 2.1, and any amounts so determined by Agent shall be deemed to be the
Accrued Liabilities and Aggregate Accrued Liabilities for all purposes under
this Agreement.

VII.     NEGATIVE COVENANTS

                  Each Borrower, 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      Indebtedness

                  Borrower shall not create, incur, assume or suffer to exist
any Indebtedness, except the following (collectively, "PERMITTED INDEBTEDNESS"):
(a) Indebtedness under the Loan Documents, (b) any Indebtedness set forth on
Schedule 7.1; provided, that any refinancing of the Indebtedness set forth on
Schedule 7.1 shall have the following terms: (i) the stated applicable
pre-default or post-default interest rate (or the margin thereon if based on a
variable rate) on such Indebtedness shall not be greater than the stated
applicable pre-default or post-default interest rate (or the margin thereon if
based on a variable rate) as in effect on the date hereof; (ii) the maximum
principal amount outstanding under such Indebtedness as so refinanced does not
exceed the maximum principal amount permitted to be outstanding on the date
hereof; and (iii) no advances under such Indebtedness may be made on or after
the date hereof, (c) Capitalized Lease Obligations incurred after the Closing
Date and Indebtedness incurred pursuant to purchase money Liens permitted by
Section 7.3(e); provided, that the aggregate amount thereof outstanding at any
time shall not exceed $75,000, (d) 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 Agent's and Lenders' rights and in form and substance
satisfactory to Agent; (e) 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 30 days from the due date,
in each case

                                       33
<PAGE>

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; (f) Indebtedness owing by any Borrower to another Borrower; provided,
that such Indebtedness shall be (i) evidenced by a note, (ii) on an unsecured
basis, subordinated in right of repayment and remedies to all of the Obligations
and to all of Agent's and Lenders' rights and in form and substance satisfactory
to Agent, and (iii) pledged to Agent, for the benefit of itself and Lenders, and
(g) 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 all of Agent's
and Lenders' rights and in form and substance satisfactory to Agent. Borrower
shall not make prepayments on any existing or future Indebtedness to any Person
other than to Agent, for the benefit of Lenders, or to the extent specifically
permitted by this Agreement or any subsequent agreement between Borrower, Agent
and Lenders.

7.3      Liens

                  Borrower shall not 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"): (a) Liens under the Loan
Documents or otherwise arising in favor of Agent, for the benefit of itself and
Lenders, (b) Liens imposed by law for 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 Agent in its sole discretion, (c)
(i) statutory Liens of landlords (provided that any such landlord has executed a
Landlord Waiver and Consent in form and substance satisfactory to Agent) and of
carriers, warehousemen, mechanics, materialmen, and (ii) 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 Agent in its sole
discretion, (d) Liens (i) 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 (ii) arising as a result of progress payments
under government contracts, (e) purchase money Liens (i) securing Indebtedness
permitted under Section 7.2(c), or (ii) 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, (f) Liens necessary and
desirable for the operation of such Person's business; provided, that Agent 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 Agent and each Lender, all

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<PAGE>

in form and substance satisfactory to Agent in its sole discretion; (g) Liens
shown on the title policy or survey covering the Real Property and approved by
Agent prior to the date hereof; (h) promptly after the rendition thereof, Liens
imposed by any judgment rendered against Borrower or any of its Subsidiaries in
excess of (i) $250,000, if such amount is covered by insurance or (ii) $50,000,
if such amount is not covered by insurance; and (i) Liens disclosed on Schedule
7.3.

7.4      Investments; New Facilities or Collateral; Subsidiaries

                  Borrower, directly or indirectly, shall not (a) 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 (b) 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 set forth on Schedule 7.1 and other than (i) trade credit
extended in the ordinary course of business, (ii) advances for business travel
and similar temporary advances made in the ordinary course of business to
officers, directors and employees, and (iii) the endorsement of negotiable
instruments for deposit or collection or similar transactions in the ordinary
course of business. Borrower, directly or indirectly, shall not 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 Borrower shall provide to Agent at least thirty (30) Business Days
prior written notice. Borrower shall have no Subsidiaries other than Borrowers
hereunder.

7.5      Dividends; Redemptions

                  Borrower shall not (a) 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), (b) 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 Borrower 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), (c) otherwise make any payments or Distributions to any stockholder,
member, partner or other equity owner in such Person's capacity as such, or (d)
make any payment of any management, service or related or similar fee to any
Person or with respect to any facility owned, operated or leased by Borrower.

7.6      Transactions with affiliates

                  Borrower shall not 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: (a) 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

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<PAGE>

by or result from such payment, (b) distributions and dividends permitted
pursuant to Section 7.5, (c) transactions on overall terms at least as favorable
to Borrower as would be the case in an arm's-length transaction between
unrelated parties of equal bargaining power, (d) transactions with Agent or
Lenders or any affiliate of Agent or Lenders, or (e) payments permitted under
and pursuant to written agreements entered into by and between Borrower and one
or more of its affiliates that both (i) reflect and constitute transactions on
overall terms at least as favorable to Borrower as would be the case in an
arm's-length transaction between unrelated parties of equal bargaining power,
and (ii) are subject to such terms and conditions as determined by Agent in its
sole discretion; provided, that notwithstanding the foregoing Borrower shall not
(A) 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 (B) make any payment to any of its
affiliates in excess of $10,000 without the prior written consent of Agent.

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

                  Borrower shall not (a) 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 Agent or any Lender, (b) change its fiscal
year unless Borrower demonstrates to Agent'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 Agent and each Lender of
appropriate interim and annual pro forma, historical and current compliance
certificates for such periods and such other information as Agent may reasonably
request, (c) amend, alter or suspend or terminate or make provisional in any
material way, any Permit without the prior written consent of Agent, which
consent shall not be unreasonably withheld, (d) 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 (e) use any proceeds of any Loans
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

                  Borrower shall not furnish to Agent or any 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      Payment on Subordinated Debt.

                  Borrower shall not (a) make any prepayment of any part or all
of any Subordinated Debt, (b) repurchase, redeem or retire any instrument
evidencing any such Subordinated Debt prior to maturity, or (c) 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 Subordinated Debt; provided, however, that Borrower may make
payments on any Subordinated Debt in accordance with the provisions of the note
evidencing such Subordinated Debt, as in effect on the date hereof.
Notwithstanding the

                                       36
<PAGE>

foregoing, Borrower shall not make any payments on any Subordinated Debt if a
Default or Event of Default shall have occurred and be continuing or would occur
as a result of any payment on such Subordinated Debt.

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); provided, that, if Borrower shall fail to pay
any amount on the Obligations when due, there shall be a one day grace period
after Receipt by Borrower of written notice from Agent of such nonpayment;

                  (b) any representation, statement or warranty made or deemed
made by Borrower or any Guarantor 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) Borrower or any Guarantor or other party thereto, other
than Agent or any 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, 6.9 and 6.11 for which there shall be
no cure period), there shall be a thirty (30) 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, or (ii) any Lien created thereunder ceases to constitute a valid
perfected first priority Lien on the Collateral in accordance with the terms
thereof, or Agent, for the benefit of itself and Lenders, ceases to have a valid
perfected first priority security interest in any of the Collateral or any
securities pledged to Agent, for the benefit of itself and Lenders, pursuant to
the Security Documents;

                  (e) one or more judgments or decrees is rendered against any
Borrower or Guarantor in an amount in excess of (i) $250,000, if such amount is
covered by insurance or (ii) $50,000, if such amount is not covered by
insurance, 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 or

                                       37
<PAGE>

Guarantor in excess of $50,000, (y) in the performance, observance or
fulfillment of any provision contained in any agreement, contract, document or
instrument to which any Borrower or Guarantor 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, in excess of $50,000, 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 or Guarantor and Agent or any Lender or affiliate of Agent or any
Lender (other than the Loan Documents), or (ii) any Indebtedness of any Borrower
or Guarantor in excess of $50,000 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 or Guarantor 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 or Guarantor 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 or Guarantor 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 or Guarantor 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 or Guarantor
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 or Guarantor takes
any action to indicate its approval of or consent to;

                  (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, which results or is reasonably expected to result in a
liability of Borrower in excess of $50,000, or (iv) any Borrower or Guarantor
ceases any portion of its business operations as currently conducted;

                                       38
<PAGE>

                  (j) Agent or any Lender receives any indication or evidence
that any Borrower or Guarantor may have directly or indirectly been engaged in
any type of activity which, in Agent'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 Agent;

                  (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 occurs that exceeds $50,000 in the aggregate;

                  (m) any Borrower or 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 or
Guarantor or any of their property or assets; or

                  (o) any Borrower or Guarantor 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);

         then, and in any such event, notwithstanding any other provision of any
Loan Document, Agent may (and at the request of Requisite Lenders, shall), 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 Agent or any 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

                  (a) In addition to the acceleration provisions set forth in
Article VIII above, upon the occurrence and continuation of an Event of Default,
Agent shall have the right to (and

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<PAGE>

at the request of Requisite Lenders, shall) 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 Agent, for the benefit of Lenders, 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 Agent at any place
designated by Agent, (viii) reduce or otherwise change the Facility Cap and/or
the Maximum Loan Amount, and/or (ix) relinquish or abandon any Collateral or
securities pledged or any Lien thereon. Notwithstanding any provision of any
Loan Document, Agent, 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 Agent and shall be secured by the Collateral,
and such payments by Agent and/or any Lender shall not be construed as a waiver
by Agent or Lenders of any Event of Default or any other rights or remedies of
Agent and Lenders.

                  (b) Borrower agrees that notice received by it 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 Agent without prior notice to Borrower. At any sale or
disposition of Collateral or securities pledged, Agent 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.

9.2      Rights and Remedies not Exclusive

                  Agent and Lenders shall have the right in their sole
discretion to determine which rights, Liens and/or remedies Agent or Lenders may
at any time pursue, relinquish, subordinate or modify, and such determination
will not in any way modify or affect any of Agent's or Lenders' 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,

                                       40
<PAGE>

and all rights and remedies of Agent and Lenders described in any Loan Document
are cumulative and are not alternative to or exclusive of any other rights or
remedies which Agent or Lenders 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, Borrower hereby
waives 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.
Borrower hereby waives any and all defenses and counterclaims it may have or
could interpose in any action or procedure brought by Agent or Lenders to obtain
an order of court recognizing the assignment of, or Lien of Agent, for the
benefit of itself and Lenders, in and to, any Collateral, whether or not payable
by a Medicaid/Medicare Account Debtor.

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 Agent's or Lenders' 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, neither Agent or
any Lender waives any breach of any representation or warranty of under any Loan
Document, and all of Agent's and Lenders' 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

                                       41
<PAGE>

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, Borrower waives any and all defenses,
objections and counterclaims it may have or could interpose with respect to (a)
any of its directors, officers, employees or agents being deemed to be employees
or managing agents of Borrower 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), (b) Agent's or any 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
(c) using all commercially reasonable efforts to produce in any such dispute
resolution proceeding, at the time and in the manner requested by Agent, all
Persons, documents (whether in tangible, electronic or other form) and/or other
things under its control and relating to the dispute.

10.5     Amendment and Waivers

                  (a) Except as otherwise provided herein, no amendment,
modification, termination, or waiver of any provision of this Agreement or any
Loan Document, or consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Requisite
Lenders and Agent; provided, that no amendment, modification, termination, or
waiver shall, unless in writing and signed by each Lender directly affected
thereby, do any of the following: (i) increase the Commitment of any Lender
(which action shall be deemed to directly affect all Lenders); (ii) reduce the
principal of, rate of interest on or fees payable with respect to any Loan;
(iii) extend the scheduled due date, reduce the amount due on any scheduled due
date, of any installment of principal, interest, or fees payable with respect to
any Loan, or waive, forgive, extend, defer or postpone the payment thereof; (iv)
change the percentage of the Commitments, of the aggregate unpaid principal
amount of the Loans, or of Lenders which shall be required for Lenders or any of
them to take any action hereunder (which action shall be deemed to directly
affect all Lenders); (v) except as otherwise permitted herein or in the other
Loan Documents, release any Guaranty or release any of the Collateral (which
action shall be deemed to directly affect all Lenders) (provided, that consent
to such release shall not be required if such release is made after and during
the continuance of an Event of Default in connection with the sale or
disposition of the Collateral by Agent); (vi) amend, modify or waive this
Section 10.5 or the definitions of the terms used in this Section 10.5 insofar
as the definitions affect the substance of this Section 10.5 (which action shall
be deemed to directly affect all Lenders); (vii) consent to the assignment or
other transfer by Borrower or any other party (other than any Lender) to any
Loan Documents of any of their rights and obligations under any Loan Document;
and, provided, further, that no amendment, modification, termination or waiver
affecting the rights or duties of Agent under any Loan Document shall in any
event be effective, unless in writing and signed by Agent, in addition to
Lenders required herein above to take such action.

                  (b) Each amendment, modification, termination or waiver shall
be effective only in the specific instance and for the specific purpose for
which it was given. No amendment,

                                       42
<PAGE>

modification, termination or waiver shall be required for Agent to take
additional Collateral pursuant to any Loan Document.

                  (c) Any amendment, modification, termination, waiver or
consent effected in accordance with this Section 10.5 shall be binding upon each
Lender, and, if signed by Borrower, on Borrower.

XI.      EFFECTIVE DATE AND TERMINATION

11.1     Effectiveness and Termination

                  Subject to each 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 Agent 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 Agent of such written notice; provided, however,
that, notwithstanding any other provision of any Loan Document, Borrower shall
have no right to terminate this Agreement until after the first anniversary of
the Closing Date. 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 any 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 Agent, for
the benefit of itself and Lenders, under the Security Documents and the
financing statements filed pursuant thereto and the rights and powers of Agent
and Lenders 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.

11.2     Survival

                  All obligations, covenants, agreements, representations,
warranties, waivers and indemnities made by Borrower 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, 3.6, 6.13, 10.1, 10.3, 11.1, 11.2, 12.4 and 12.7
shall survive termination of the Loan Documents and any payment, in full or in
part, of the Obligations.

11.3     Agent

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<PAGE>

                  (a) Appointment. Each Lender hereby designates and appoints
CapitalSource as the administrative agent and the collateral agent, under this
Agreement and the other Loan Documents, and each Lender hereby irrevocably
authorizes CapitalSource, as the administrative agent and the collateral agent
for such Lender, to take such action or to refrain from taking such action on
its behalf under the provisions of this Agreement and the other Loan Documents
and to exercise such powers and perform such duties as are expressly delegated
to the Agent by the terms of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto. Agent
agrees to act as such on the express conditions contained in this Section 11.3.
The provisions of this Section 11.3 are solely for the benefit of Agent and
Lenders, and Borrower shall have no rights as a third-party beneficiary of any
of the provisions hereof. Agent may perform any of its duties hereunder, or
under the Loan Documents, by or through its agents or employees.

                  (b) Nature of Duties. In performing its functions and duties
under this Agreement, Agent is acting solely on behalf of Lenders and its duties
are administrative in nature and does not assume and shall not be deemed to have
assumed any obligation toward or relationship of agency or trust with or for
Lenders, other than as expressly set forth herein and in the other Loan
Documents, or Borrower. Agent shall have no duties, obligations or
responsibilities except those expressly set forth in this Agreement or in the
other Loan Documents. Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender. Except for information,
notices, reports, and other documents expressly required to be furnished to
Lenders by the Agent hereunder or given to the Agent for the account of or with
copies for Lenders, each Lender shall make its own independent investigation of
the financial condition and affairs of Borrower in connection with the extension
of credit hereunder and shall make its own appraisal of the creditworthiness of
Borrower, and Agent shall have no duty or responsibility, either initially or on
a continuing basis, to provide any Lender with any credit or other information
with respect thereto, whether coming into its possession before the Closing Date
or at any time or times thereafter. If Agent seeks the consent or approval of
any Lenders to the taking or refraining from taking any action hereunder, then
Agent shall send prior written notice thereof to each Lender. Agent shall
promptly notify (in writing) each Lender any time that the applicable percentage
of Lenders have instructed Agent to act or refrain from acting pursuant hereto.

                  (c) Rights, Exculpation, Etc. Neither Agent nor any of its
officers, directors, managers, employees or agents shall be liable to any Lender
for any action lawfully taken or omitted by them hereunder or under any of the
other Loan Documents, or in connection herewith or therewith, except that Agent
shall be obligated on the terms set forth herein for performance of its express
duties and obligations hereunder, and except that Agent shall be liable with
respect to its or their own gross negligence or willful misconduct. Agent shall
not be liable for any apportionment or distribution of payments made by it in
good faith, and if any such apportionment or distribution is subsequently
determined to have been made in error, the sole recourse of any Lender to whom
payment was due but not made shall be to recover from other Lenders any payment
in excess of the amount to which they are determined to be entitled (and such
other Lenders hereby agree to return to such Lender any such erroneous payments
received by them). In performing its functions and duties hereunder, Agent shall
exercise the same care which it would in dealing with loans for its own account.
Agent shall not be responsible to any Lender for any recitals, statements,
representations or warranties made by Borrower herein or for

                                       44
<PAGE>

the execution, effectiveness, genuineness, validity, enforceability,
collectability, or sufficiency of this Agreement or any of the other Loan
Documents or the transactions contemplated thereby, or for the financial
condition of Borrower. Agent shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions,
or conditions of this Agreement or any of the Loan Documents or the financial
condition of Borrower, or the existence or possible existence of any Default or
Event of Default. Agent may at any time request instructions from Lenders with
respect to any actions or approvals which by the terms of this Agreement or of
any of the other Loan Documents Agent is permitted or required to take or to
grant, and Agent shall be absolutely entitled to refrain from taking any action
or to withhold any approval and shall not be under any liability whatsoever to
any Person for refraining from taking any action or withholding any approval
under any of the Loan Documents until it shall have received such instructions
from the applicable percentage of Lenders. Without limiting the foregoing, no
Lender shall have any right of action whatsoever against Agent as a result of
Agent acting or refraining from acting under this Agreement or any of the other
Loan Documents in accordance with the instructions of the applicable percentage
of Lenders and notwithstanding the instructions of Lenders, Agent shall have no
obligation to take any action if it, in good faith believes that such action
exposes Agent to any personal liability unless Agent receives an indemnification
reasonably satisfactory to it from Lenders with respect to such action.

                  (d) Reliance. Agent shall be entitled to rely upon any written
notices, statements, certificates, orders or other documents or any telephone
message or other communication (including any writing, telex, telecopy or
telegram) believed by it in good faith to be genuine and correct and to have
been signed, sent or made by the proper Person, and with respect to all matters
pertaining to this Agreement or any of the other Loan Documents and its duties
hereunder or thereunder, upon advice of legal counsel, independent accountants,
and other experts selected by Agent in its sole discretion.

                  (e) Indemnification. Each Lender, severally and not jointly,
agrees to reimburse and indemnify Agent (to the extent not reimbursed by
Borrower or the Guarantors), ratably according to their respective Pro Rata
Share in effect on the date on which indemnification is sought under this
subsection of the total outstanding obligations (or, if indemnification is
sought after the date upon which the Commitments shall have terminated and the
Loans shall have been paid in full, ratably in accordance with their Pro Rata
Share immediately prior to such date of the total outstanding obligations), from
and against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses, advances, or disbursements of any
kind or nature whatsoever which may be imposed on, incurred by, or asserted
against Agent in any way relating to or arising out of this Agreement or any of
the other Loan Documents or any action taken or omitted by Agent under this
Agreement or any of the other Loan Documents; provided, however, that no Lender
shall be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses, advances
or disbursements resulting from Agent's gross negligence or willful misconduct.
The obligations of Lenders under this Section 11.3(e) shall survive the payment
in full of the Obligations and the termination of this Agreement.

                  (f) CapitalSource Individually. With respect to the Loans made
by it, and the Notes issued to it, CapitalSource shall have and may exercise the
same rights and powers hereunder and under the other Loan Documents and is
subject to the same obligations and

                                       45
<PAGE>

liabilities as and to the extent set forth herein and the other Loan Documents
as any other Lender. The terms "Lenders" or "Requisite Lenders" or any similar
terms shall, unless the context clearly otherwise indicates, include
CapitalSource in its individual capacity as a Lender or one of the Requisite
Lenders. CapitalSource may lend money to, and generally engage in any kind of
banking, trust or other business with Borrower or any subsidiary of Borrower as
if it were not acting as Agent pursuant hereto.

                  (g)      Successor Agent.

                           (i) Resignation. Agent may resign from the
performance of all its functions and duties hereunder at any time by giving at
least thirty (30) days' prior written notice to Borrower and Lenders. Such
resignation shall take effect upon the acceptance by a successor Agent of
appointment pursuant to clause (ii) below or as otherwise provided below.

                           (ii) Appointment of Successor. Upon any such notice
of resignation pursuant to clause (g)(i) above, Requisite Lenders shall appoint
a successor Agent. If a successor Agent shall not have been so appointed within
said thirty (30) day period, the retiring Agent, upon notice to Borrower, may,
on behalf of Lenders, then appoint a successor Agent who shall serve as Agent
until such time, as Requisite Lenders, appoint a successor Agent as provided
above. If no successor Agent has been appointed pursuant to the foregoing within
said thirty (30) day period, the resignation shall become effective and
Requisite Lenders shall thereafter perform all the duties of Agent hereunder,
until such time, if any, as Requisite Lenders appoint a successor Agent as
provided above.

                           (iii) Successor Agent. Upon the acceptance of any
appointment as Agent under the Loan Documents by a successor Agent, such
successor Agent shall thereupon succeed to and become vested with all the
rights, powers, privileges and duties of the retiring Agent, and, upon the
earlier of such acceptance or the effective date of the retiring Agent's
resignation, the retiring Agent shall be discharged from its duties and
obligations under the Loan Documents, except that any indemnity rights or other
rights in favor of such retiring Agent shall continue. After any retiring
Agent's resignation as Agent under the Loan Documents, the provisions of this
Section 11.3 shall inure to its benefit as to any actions taken or omitted to be
taken by it while it was Agent under the Loan Documents.

                  (h)      Collateral Matters.

                           (i) Collateral. Each Lender agrees that any action
taken by the Agent or the Requisite Lenders (or, where required by the express
terms of this Agreement, a greater proportion of Lenders) in accordance with the
provisions of this Agreement or of the other Loan Documents relating to the
Collateral, and the exercise by the Agent or the Requisite Lenders (or, where so
required, such greater proportion) of the powers set forth herein or therein,
together with such other powers as are reasonably incidental thereto, shall be
authorized and binding upon all of Lenders and the Agent. Without limiting the
generality of the foregoing, the Agent shall have the sole and exclusive right
and authority to (i) act as the disbursing and collecting agent for Lenders with
respect to all payments and collections arising in connection herewith and with
the Loan Documents in connection with the Collateral; (ii) execute and deliver
each Loan Document relating to the Collateral and accept delivery of each such
agreement delivered by Borrower or

                                       46
<PAGE>

any of its Subsidiaries; (iii) act as collateral agent for Lenders for purposes
of the perfection of all security interests and Liens created by such agreements
and all other purposes stated therein; (iv) manage, supervise and otherwise deal
with the Collateral; (v) take such action as is necessary or desirable to
maintain the perfection and priority of the security interests and Liens created
or purported to be created by the Loan Documents relating to the Collateral, and
(vi) except as may be otherwise specifically restricted by the terms hereof or
of any other Loan Document, exercise all remedies given to such Agent and
Lenders with respect to the Collateral under the Loan Documents relating
thereto, applicable law or otherwise.

                           (ii) Release of Collateral. Lenders hereby
irrevocably authorize Agent, at its option and in its discretion, to release any
Lien granted to or held by Agent for the benefit of Lenders upon any property
covered by this Agreement or the Loan Documents (A) upon termination of the
Revolving Facility and payment and satisfaction in full of all Obligations; (B)
constituting property being sold or disposed of if Borrower certifies to Agent
that the sale or disposition is made in compliance with the provisions of this
Agreement (and Agent may rely in good faith conclusively on any such
certificate, without further inquiry); or (C) constituting property leased to
Borrower under a lease which has expired or been terminated in a transaction
permitted under this Agreement or is about to expire and which has not been, and
is not intended by Borrower to be, renewed or extended.

                           (iii) Confirmation of Authority; Execution of
Releases. Without in any manner limiting Agent's authority to act without any
specific or further authorization or consent by Lenders (as set forth in Section
11.3(h)(i) and (ii)), each Lender agrees to confirm in writing, upon request by
Borrower, the authority to release any property covered by this Agreement or the
Loan Documents conferred upon Agent under Section 11.3(h)(ii). So long as no
Event of Default is then continuing, upon receipt by Agent of confirmation from
the requisite percentage of Lenders, of its authority to release any particular
item or types of property covered by this Agreement or the Loan Documents, and
upon at least five (5) Business Days prior written request by Borrower, Agent
shall (and is hereby irrevocably authorized by Lenders to) execute such
documents as may be necessary to evidence the release of the Liens granted to
Agent for the benefit of Lenders herein or pursuant hereto upon such Collateral;
provided, however, that (A) Agent shall not be required to execute any such
document on terms which, in Agent's opinion, would expose Agent to liability or
create any obligation or entail any consequence other than the release of such
Liens without recourse or warranty, and (B) such release shall not in any manner
discharge, affect or impair the Obligations or any Liens upon (or obligations of
Borrower or any subsidiary of Borrower, in respect of), all interests retained
by Borrower or any subsidiary of Borrower, including, without limitation, the
proceeds of any sale, all of which shall continue to constitute part of the
property covered by this Agreement or the Loan Documents.

                           (iv) Absence of Duty. Agent shall have no obligation
whatsoever to any Lender or any other Person to assure that the property covered
by this Agreement or the Loan Documents exists or is owned by Borrower or is
cared for, protected or insured or has been encumbered or that the Liens granted
to Agent on behalf of Lenders herein or pursuant hereto have been properly or
sufficiently or lawfully created, perfected, protected or enforced or are
entitled to any particular priority, or to exercise at all or in any particular
manner or under any duty of care, disclosure, or fidelity, or to continue
exercising, any of the rights, authorities and powers granted or available to
Agent in this Section 11.3(h) or in any of the Loan Documents, it

                                       47
<PAGE>

being understood and agreed that in respect of the property covered by this
Agreement or the Loan Documents or any act, omission, or event related thereto,
Agent may act in any manner it may deem appropriate, in its discretion, given
Agent's own interest in property covered by this Agreement or the Loan Documents
as one of Lenders and that Agent shall have no duty or liability whatsoever to
any of the other Lenders; provided, that Agent shall exercise the same care
which it would in dealing with loans for its own account. Notwithstanding the
foregoing, Agent shall be liable with respect to its own gross negligence or
willful misconduct.

                  (i) Agency for Perfection. Each Lender hereby appoints each
other Lender as agent for the purpose of perfecting Lenders' security interest
in Collateral which, in accordance with Article 9 of the UCC in any applicable
jurisdiction, can be perfected only by possession. Should any Lender (other than
Agent) obtain possession of any such Collateral, such Lender shall notify Agent
thereof, and, promptly upon Agent's request therefor, shall deliver such
Collateral to Agent or in accordance with Agent's instructions.

                  (j) Exercise of Remedies. Except as set forth in Section 11.5,
each Lender agrees that it will not have any right individually to enforce or
seek to enforce this Agreement or any Loan Document or to realize upon any
collateral security for the Loans, it being understood and agreed that such
rights and remedies may be exercised only by Agent.

11.4     Consents

                  (a) In the event Agent requests the consent of a Lender and
does not receive a written denial thereof within five (5) Business Days after
such Lender's receipt of such request, then such Lender will be deemed to have
given such consent so long as such request contained a notice stating that such
failure to respond within five (5) business days would be deemed to be a consent
by such Lender.

                  (b) In the event Agent requests the consent of a Lender in a
situation where such Lender's consent would be required and such consent is
denied, then CapitalSource may, at its option, require such Lender to assign its
interest in the Loans to CapitalSource for a price equal to the then outstanding
principal amount thereof plus accrued and unpaid interest and fees due such
Lender (but no Prepayment Fee with respect thereto, it being agreed that the
Prepayment Fee is not applicable to such an assignment), which interest and fees
will be paid when collected from Borrower. In the event that CapitalSource
elects to require any Lender to assign its interest to CapitalSource pursuant to
this Section 11.4, CapitalSource will so notify such Lender in writing within
forty-five (45) days following such Lender's denial, and such Lender will assign
its interest to CapitalSource no later than five (5) days following receipt of
such notice.

11.5     Set Off and Sharing of Payments

                  In addition to any rights and remedies now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default, each
Lender is hereby authorized by Borrower at any time

                                       48
<PAGE>

or from time to time, to the fullest extent permitted by law, with reasonably
prompt subsequent notice to Borrower or to any other Person (any prior or
contemporaneous notice being hereby expressly waived) to set off and to
appropriate and to apply any and all (a) balances (general or special, time or
demand, provisional or final) held by such Lender or such holder at any of its
offices for the account of Borrower or any of its Subsidiaries (regardless of
whether such balances are then due to Borrower or its Subsidiaries), and (b)
other property at any time held or owing by such Lender or such holder to or for
the credit or for the account of Borrower or any of its Subsidiaries, against
and on account of any of the Obligations which are not paid when due; except
that no Lender or any such holder shall exercise any such right without the
prior written notice to Agent; provided, however, that the failure to give
notice to Borrower or to any other Person shall not affect the validity of such
set-off and application. Any Lender which has exercised its right to set off or
otherwise has received any payment on account of the Obligations shall, to the
extent the amount of any such set off or payment exceeds its Pro Rata Share of
payments obtained by all of the Lenders on account of such Obligations, purchase
for cash (and the other Lenders or holders of Term Loans shall sell)
participations in each such other Lender's or holder's Pro Rata Share of
Obligations as would be necessary to cause such Lender to share such excess with
each other Lenders or holders in accordance with their respective Pro Rata
Shares; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such purchasing Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery. Any Lender which has exercised its right to set off or
otherwise has received any payment on account of the Obligations shall, to the
extent the amount of any such set off or payment exceeds its Pro Rata Share of
payments obtained by all the Lenders on account of such Obligations shall, to
the extent the amount of any such set off or payment exceeds it Pro Rata Share
of payments obtained by all the Lenders on account of such Obligations, purchase
for cash (and the other Lenders or holders of Revolving Loans shall sell)
participations in each such other Lender's or holder's Pro Rata Share of the
Obligations as would be necessary to cause such Lender to share such excess with
each other Lenders or holders in accordance with their respective Pro Rata
Share; provided, however, that if all or any portion of such excess payment or
benefits is thereafter recovered from such purchasing Lender, such purchase
shall be rescinded, and the purchase price and benefits returned, to the extent
of such recovery. Borrower agrees, to the fullest extent permitted by law, that
(a) any Lender or holder may exercise its right to set off with respect to
amounts in excess of its Pro Rata Share of the Obligations and may sell
participations in such excess to other Lenders and holders, and (b) any Lender
or holder so purchasing a participation in the Loans made or other Obligations
held by other Lenders or holders may exercise all rights of set-off, bankers'
lien, counterclaim or similar rights with respect to such participation as fully
as if such Lender or holder were a direct holder of Loans and other Obligations
in the amount of such participation.

11.6     Disbursement of Funds

                  Agent may, on behalf of Lenders, disburse funds to Borrower
for Advances requested. Each Lender shall reimburse Agent on demand for its Pro
Rata Share of all funds disbursed on its behalf by Agent, or if Agent so
requests, each Lender will remit to Agent its Pro Rata Share of any Advance
before Agent disburses same to Borrower. If Agent elects to require that funds
be made available prior to disbursement to Borrower, Agent shall advise each
Lender by telephone, telex or telecopy of the amount of such Lender's Pro Rata
Share of such requested Advance no later than one (1) Business Day prior to the
funding date applicable thereto, and

                                       49
<PAGE>

each such Lender shall pay Agent such Lender's Pro Rata Share of such requested
Loan, in same day funds, by wire transfer to Agent's account not later than 3:00
p.m. (Eastern Time). If any Lender fails to pay the amount of its Pro Rata Share
forthwith upon Agent's demand, Agent shall promptly notify Borrower, and
Borrower shall immediately repay such amount to Agent. Any repayment required
pursuant to this Section 11.6 shall be without premium or penalty. Nothing in
this Section 11.6 or elsewhere in this Agreement or the other Loan Documents,
including without limitation the provisions of Section 11.7, shall be deemed to
require Agent to advance funds on behalf of any Lender or to relieve any Lender
from its obligation to fulfill its commitments hereunder or to prejudice any
rights that Agent or Borrower may have against any Lender as a result of any
default by such Lender hereunder.

11.7     Settlements; Payments and Information

                  (a)      Advances and Payments; Term Loan Payments; Interest
and Fee Payments.

                           (i) The amount outstanding pursuant to Advances may
fluctuate from day to day through Agent's disbursement of funds to, and receipt
of funds from, Borrower. In order to minimize the frequency of transfers of
funds between Agent and each Lender notwithstanding terms to the contrary set
forth in Section 11.6, Advances and repayments may be settled according to the
procedures described in Sections 11.7(a)(ii) and 11.7(a)(iii) of this Agreement.
Payments of principal, interest and fees in respect of the Term Loan will be
settled, in accordance with each Lender's Pro Rata Share on the first Business
Day after such payments are received. Notwithstanding these procedures, each
Lender's obligation to fund its Pro Rata Share of any advances made by Agent to
Borrower will commence on the date such advances are made by Agent. Such
payments will be made by such Lender without set-off, counterclaim or reduction
of any kind.

                           (ii) Once each week, or more frequently (including
daily), if Agent so elects (each such day being a "SETTLEMENT DATE"), Agent will
advise each Lender by 1 p.m. (Eastern Time) by telephone, telex, or telecopy of
the amount of each such Lender's Pro Rata Share of the outstanding Advances. In
the event payments are necessary to adjust the amount of such Lender's share of
the Advances to such Lender's Pro Rata Share of the Advances, the party from
which such payment is due will pay the other, in same day funds, by wire
transfer to the other's account not later than 3:00 p.m. (Eastern Time) on the
Business Day following the Settlement Date.

                                       50
<PAGE>

                           (iii) On the first Business Day of each month
("INTEREST SETTLEMENT DATE"), Agent will advise each Lender by telephone,
telefax or telecopy of the amount of interest and fees charged to and collected
from Borrower for the proceeding month in respect of the Advances. Provided that
such Lender has made all payments required to be made by it under this
Agreement, Agent will pay to such Lender, by wire transfer to such Lender's
account (as specified by such Lender on Schedule 1 of this Agreement as amended
by such Lender from time to time after the date hereof pursuant to the notice
provisions contained herein or in the applicable Lender Addition Agreement) not
later than 3 p.m. (Eastern Time) on the next Business Day following the Interest
Settlement Date such Lender's share of such interest and fees.

                  (b)      Availability of Lenders' Pro Rata Share.

                           (i) Unless Agent has been notified by a Lender prior
to any proposed funding date of such Lender's intention not to fund its Pro Rata
Share of the Advance amount requested by Borrower, Agent may assume that such
Lender will make such amount available to Agent on the proposed funding date or
the Business Day following the next Settlement Date, as applicable. If such
amount is not, in fact, made available to Agent by such Lender when due, Agent
will be entitled to recover such amount on demand from such Lender without
set-off, counterclaim, or deduction of any kind.

                           (ii) Nothing contained in this Section 11.7(b) will
be deemed to relieve a Lender of its obligation to fulfill its commitments or to
prejudice any rights Agent or Borrower may have against such Lender as a result
of any default by such Lender under this Agreement.

                  (c)      Return of Payments.

                           (i) If Agent pays an amount to a Lender under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower and such related payment is not received by
Agent, then Agent will be entitled to recover such amount from such Lender
without set-off, counterclaim or deduction of any kind.

                           (ii) If Agent determines at any time that any amount
received by Agent under this Agreement must be returned to Borrower or paid to
any other person pursuant to any solvency law or otherwise, then,
notwithstanding any other term or condition of this Agreement, Agent will not be
required to distribute any portion thereof to any Lender. In addition, each
Lender will repay to Agent on demand any portion of such amount that Agent has
distributed to such Lender, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind.

11.8     Dissemination of Information

                  The Agent will distribute promptly to each Lender copies of
all notices, schedules, reports, projections, financial statements, agreements
and other material and other information, including, but not limited to,
financial and reporting information received from Borrower or its Subsidiaries
or generated by a third party (and excluding only internal

                                       51
<PAGE>

information generated by CapitalSource for its own use as a Lender), as provided
for in this Agreement and the other Loan Documents as received by the Agent. The
Agent shall promptly give notice to Lenders of the receipt or sending of any
notice, schedule, report, projection, financial statement or other document or
information pursuant to this Agreement or any of the other Loan Documents and
shall promptly forward a copy thereof to each Lender. Agent shall request
information from Borrower or its Subsidiaries as Lenders may request from time
to time. Agent shall not be liable to Lenders for any failure to comply with its
obligations under this Section 11.8, except to the extent that such failure is
attributable to Agent's gross negligence or willful misconduct.

XII.     MISCELLANEOUS

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 Borrower 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, Borrower (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, and (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. Nothing shall affect the right of
Agent or any Lender to serve process in any manner permitted by law or shall
limit the right of Agent or any Lender to bring proceedings against Borrower in
the courts of any other jurisdiction having jurisdiction. Any judicial
proceedings against Agent or any 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; Assignments and Participations

                  (a) Each Lender may at any time assign all or a portion of its
rights and delegate all or a portion of its obligations under this Agreement and
the other Loan Documents (including all its rights and obligations with respect
to the Loans) to one or more Persons (an "TRANSFEREE"); provided, that such
Transferee and such assigning Lender shall execute and deliver to Agent for
acceptance and recording in the Register, a Lender Addition Agreement,
substantially in the form of Exhibit C. Upon such execution, delivery,
acceptance and recording, from and after the effective date determined pursuant
to such Lender Addition Agreement, (i) the Transferee thereunder shall be a
party hereto and, to the extent provided in such Lender Addition Agreement, have
the same rights, benefits and obligations as it would if it were a Lender
hereunder, (ii) the assigning Lender shall be relieved of its obligations
hereunder with respect to its Commitment or assigned portion thereof, as the
case may be, to the extent that such

                                       52
<PAGE>

obligations shall have been expressly assumed by the Transferee pursuant to such
Lender Addition Agreement (and, in the case of a Lender Addition Agreement
covering all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such assigning Lender shall cease to be a
party hereto but shall nevertheless continue to be entitled to the benefits of
Section 12.7). Borrower hereby acknowledges and agrees that any assignment will
give rise to a direct obligation of Borrower to the Transferee and that the
Transferee shall be considered to be a "Lender" hereunder. Borrower may not
sell, assign or transfer any interest in this Agreement, any of the other Loan
Documents, or any of the Obligations, or any portion thereof, including
Borrower's rights, title, interests, remedies, powers, and duties hereunder or
thereunder.

                  (b) Each Lender may at any time sell participations in all or
any part of its rights and obligations under this Agreement and the other Loan
Documents (including all its rights and obligations with respect to the Loans)
to one or more Persons (a "PARTICIPANT"). In the event of any such sale by a
Lender of a participation to a Participant, such Lender's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Lender shall remain solely responsible for the performance thereof, such Lender
shall remain the holder of any such Loan (and any Note evidencing such Loan) for
all purposes under this Agreement and the other Loan Documents and the Borrower
and the Agent shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement and
the other Loan Documents. Any agreement pursuant to which any Lender shall sell
and such participation shall provide that such Lender shall retain the sole
right and responsibility to exercise such Lender's rights and enforce each of
the Borrower's obligations hereunder, including the right to consent to any
amendment, supplement, modification or waiver of any provision of this Agreement
or any of the other Loan Documents; provided, that such participation agreement
may provide that such Lender will not agree, without the consent of the
Participant, to any amendment, supplement, modification or waiver of: (i) any
reduction in the principal amount, interest rate or fees payable with respect to
any Loan in which such holder participates; (ii) any extension of the
termination date of this Agreement or the date fixed for any payment of
principal, interest or fees payable with respect to any Loan in which such
holder participates; and (iii) any release of all or substantially all of the
Collateral (other than in accordance with the terms of this Agreement or the
Loan Documents). Borrower hereby acknowledges and agrees that the Participant
under each participation shall, solely for the purposes of Sections 11.5 and
12.4 of this Agreement be considered to be a "Lender" hereunder.

                  (c) The Agent, on behalf of the Borrower, shall maintain at
its address referred to in Section 12.5 a copy of each Lender Addition Agreement
delivered to it and a register (the "REGISTER") for the recordation of the names
and addresses of the Lenders and the Commitment of, and the principal amount of
the Loans owing to, and the Notes evidencing such Loans owned by, each Lender
from time to time. Notwithstanding anything in this Agreement to the contrary,
each of the Borrower, the Agent and the Lenders shall treat each Person whose
name is recorded in the Register as the owner of the Loan, the Notes and the
Commitment recorded therein for all purposes of this Agreement. The Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.

                                       53
<PAGE>

                  (d) Notwithstanding anything in this Agreement to the
contrary, no assignment under subsection 12.2(a) of any rights or obligations
under or in respect of the Loans or the Notes evidencing such Loans shall be
effective unless and until the Agent shall have recorded the assignment pursuant
to subsection 12.2(c). Upon its receipt of a Lender Addition Agreement executed
by an assigning Lender and an Transferee, the Agent shall (i) promptly accept
such Lender Addition Agreement and (ii) on the effective date determined
pursuant thereto record the information contained therein in the Register and
give prompt notice of such acceptance and recordation to the Lenders and the
Borrower. On or prior to such effective date, the assigning Lender shall
surrender any outstanding Notes held by it all or a portion of which are being
assigned, and the Borrower, at its own expense, shall, upon the request of the
Agent by the assigning Lender or the Transferee, as applicable, execute and
deliver to the Agent new Notes to reflect the interest held by the assigning
Lender and its Transferee.

                  (e) Except as otherwise provided in this Section 12.2 no
Lender shall, as between Borrower and that Lender, be relieved of any of its
obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the Loans or
other Obligations owed to such Lender. Each Lender may furnish any information
concerning Borrower and its Subsidiaries in the possession of that Lender from
time to time to assignees and participants (including prospective assignees and
participants) provided that the Persons obtaining such information agrees to
maintain the confidentiality of such information to the extent required by
Section 12.10.

                  (f) Notwithstanding any other provision set forth in this
Agreement, any Lender may at any time create a security interest in all or any
portion of its rights under this Agreement (including, without limitation, the
Loans owing to it and the Notes held by it.

                  (g) Borrower agrees to use its commercially reasonable best
efforts to assist any Lender in assigning or selling participations in all or
any part of any Loans made by such Lender to another Person identified by such
Lender.

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 Agent or any Lender. Any payments with respect
to the Obligations received shall be credited and applied in such manner and
order as Agent shall decide in its sole discretion.

12.4     Indemnity

                  Each Borrower jointly and severally shall indemnify Agent and
each Lender, their affiliates 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,

                                       54
<PAGE>

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 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. Agent agrees to give Borrower reasonable notice of any event of which
Agent becomes aware for which indemnification may be required under this Section
12.4, and Agent may elect (but is not obligated) to direct the defense thereof;
provided, that the selection of counsel shall be subject to Borrower'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"), Agent agrees not to exercise its right to select counsel to
defend the event if that would cause any Borrower's insurer to deny coverage;
provided, however, that Agent 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 Agent or any Lender obtains recovery from a third
party other than an Indemnified Person of any of the amounts that any Borrower
has paid to Agent or any Lender pursuant to the indemnity set forth in this
Section 12.4, then Agent and/or Lender shall promptly pay to such Borrower 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 hereafter specify in a notice given in the manner required under
this Section 12.5. 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 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

                                       55
<PAGE>

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 Agent, Lenders and/or their 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 Agent's,
for the benefit of itself and Lenders, Liens in any of the Collateral or
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 Agent's and Lenders' transactions with
Borrower, (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 Agent,
any Lender or any of their affiliates uses in-house counsel for any purpose
under any Loan Document for which Borrower is responsible to pay or indemnify,
Borrower expressly agrees that its Obligations include reasonable charges for
such work commensurate with the fees that would otherwise be charged by outside
legal counsel selected by Agent, such 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 each 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.

12.8     Entire Agreement

                  This Agreement and the other Loan Documents to which Borrower
is a party constitute the entire agreement between Borrower, Agent and Lenders
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

                                       56
<PAGE>

by Borrower, Agent and such Lenders. 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 Borrower, Agent and Lenders. 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     Agent Approvals

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

12.10    Confidentiality and Publicity

                  Borrower agrees, and agrees to cause each of its affiliates,
(i) not to transmit or disclose any provision of any Loan Document to any Person
(other than to Borrower's advisors and officers on a need-to-know basis) without
Agent'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. Agent
and each Lender reserve the right to review and approve all materials that
Borrower or any of its affiliates prepares that contain Agent's or such Lender's
name or describe or refer to any Loan Document, any of the terms thereof or any
of the transactions contemplated thereby. Borrower shall not, and shall not
permit any of its affiliates to, use either Agent's or any Lender's name (or the
name of any of Agent's or any Lender's affiliates) in connection with any of its
business operations. Nothing contained in any Loan Document is intended to
permit or authorize Borrower or any of its affiliates to contract on behalf of
Agent or any Lender.

12.11    Release of Agent and Lenders

                  Notwithstanding any other provision of any Loan Document,
Borrower voluntarily, knowingly, unconditionally and irrevocably, with specific
and express intent, for and on behalf of itself, it managers, members,
directors, officers, employees, shareholders, 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 "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. Borrower acknowledges that the foregoing release is a material
inducement to Agent's and each Lender's decision to extend to Borrower the
financial accommodations hereunder and has been relied upon by Agent and each
Lender in agreeing to make the Loans.

12.12    AMENDMENT, RESTATEMENT, RENEWAL AND EXTENSION.

                                       57
<PAGE>

THIS AGREEMENT IS GIVEN IN AMENDMENT, RESTATEMENT, RENEWAL AND EXTENSION (BUT
NOT IN NOTATION) OF THE HEALTHCARE LOAN AGREEMENT. BORROWER HEREBY AGREES THAT,
WITH RESPECT TO MATTERS RELATING TO THE PERIOD PRIOR TO THE DATE HEREOF, ALL
PROVISIONS OF THE HEALTHCARE LOAN AGREEMENT ARE HEREBY RATIFIED AND CONFIRMED
AND SHALL REMAIN IN FULL FORCE AND EFFECT.

                [REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

                                       58

<PAGE>

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

                                       BORROWER:

                                       PSYCHIATRIC SOLUTIONS, INC.
                                       PSYCHIATRIC SOLUTIONS OF ALABAMA, INC.
                                       PSYCHIATRIC SOLUTIONS OF FLORIDA, INC.
                                       PSYCHIATRIC SOLUTIONS OF TENNESSEE, INC.
                                       SOLUTIONS CENTER OF LITTLE ROCK, INC.
                                       PSYCHIATRIC SOLUTIONS OF NORTH
                                       CAROLINA, INC.
                                       PSI COMMUNITY MENTAL HEALTH AGENCY
                                       MANAGEMENT, INC.
                                       PSI-EAP, INC.
                                       SUNSTONE BEHAVIORAL HEALTH, INC.
                                       THE COUNSELING CENTER OF MIDDLE
                                       TENNESSEE, INC.
                                       PSI HOSPITALS, INC.
                                       PSI TEXAS HOSPITALS, LLC
                                       PSYCHIATRIC PRACTICE MANAGEMENT OF
                                       ARKANSAS, INC.

                                       By: /s/ Joey A. Jacobs
                                          --------------------------------------
                                       Name: Joey A. Jacobs
                                            ------------------------------------
                                       Title: President
                                             -----------------------------------

                                       TEXAS CYPRESS CREEK HOSPITAL, L.P.

                                       By:    PSI Texas Hospitals, LLC,
                                              its general partner

                                              By:     /s/ Joey A. Jacobs
                                                      --------------------------
                                              Name:   Joey A. Jacobs
                                                      --------------------------
                                              Title:  President
                                                      --------------------------

<PAGE>

                                       TEXAS WEST OAKS HOSPITAL, L.P.

                                       By:    PSI Texas Hospitals, LLC,
                                              its general partner

                                              By:     /s/ Joey A. Jacobs
                                                      --------------------------
                                              Name:   Joey A. Jacobs
                                                      --------------------------
                                              Title:  President
                                                      --------------------------

                                       NEURO INSTITUTE OF AUSTIN, L.P.

                                       By:    PSI Texas Hospitals, LLC,
                                              its general partner

                                              By:     /s/ Joey A. Jacobs
                                                      --------------------------
                                              Name:   Joey A. Jacobs
                                                      --------------------------
                                              Title:  President
                                                      --------------------------

                                       310 25th Avenue North, Suite 209
                                       Nashville, Tennessee  37203
                                       Attention: President and Chief Executive
                                                  Officer
                                       Telephone:  (615) 463-9338
                                       FAX: (615) 463-9353

                                       2
<PAGE>

                                       AGENT AND LENDER:

                                       CAPITALSOURCE FINANCE LLC

                                       By: /s/ Keith Reuben
                                          --------------------------------------
                                       Name: Keith Reuben
                                            ------------------------------------
                                       Title: Director
                                             -----------------------------------

                                       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
                                       E-Mail: dcole@capitalsource.com

                                       3
<PAGE>

                                    EXHIBITS

A            Borrowing Certificate
B            Compliance Certificate
C            Lender Addition Agreement

                               SCHEDULES

1            Lenders/Commitments
2.4          Borrower's Accounts
5.2          Consents, Approvals and Authorizations Required
5.3          Subsidiaries; Authorized and Issued Capital Stock; Capitalization;
             Directors, Members, Managers and/or Partners; Joint Venture and
             Partnership Arrangements
5.4          Real Properties
5.8          Taxes Contested in Good Faith
5.11         Intellectual Property
5.15         Indebtedness; Material Obligations
5.16         Other Agreements
5.17         Insurance Policies
5.18A        Corporate Names
5.18B        Place of Business/Chief Executive Officer
6.8          Post Closing Obligations
7.1          Permitted Indebtedness
7.3          Permitted Liens
A-1          Facility Census

<PAGE>

                                     ANNEX I

                               FINANCIAL COVENANTS

1)       Minimum Census

                  As of the end of each month, the three-month rolling average
(for the immediately preceding three months) of (a) the aggregate combined
census levels at the facilities owned, operated or leased by Borrower and (b)
the census level at each facility, shall be not less than 85% of the census
levels for such applicable calendar months for the facilities listed on Schedule
A-1.

2)       Net Leverage Ratio (Term Loan to EBITDA)

                  At the time of Closing, the making of the Initial Advance and
the funding of the Term Loan, the Net Leverage Ratio shall not exceed 3.00:1.00.
At any time the Net Leverage Ratio shall not exceed 3.00:1.00.

3)       Fixed Charge Ratio (EBITDA/Fixed Charges)

                  At the time of the Closing, the making of the Initial Advance
and the funding of the Term Loan and as of the last day of each Monthly Test
Period through and including December 31, 2002, the Fixed Charge Ratio shall be
a minimum of 1.90:1.00. As of the last day of each Monthly Test Period after
December 31, 2002, the Fixed Charge Ratio shall not be less than 1.50:1.00.

4)       Minimum Debt Service Coverage

                  At the time of the Closing, the making of the Initial Advance
and the funding of the Term Loan and as of the last day of each Monthly Test
Period, the Debt Service Coverage Ratio Coverage shall not exceed 1.90:1.00.

5)       Minimum EBITDA

                  At the time of Closing, the making of the Initial Advance, the
funding of the Term Loan and as of the last day of each Monthly Test Period,
Borrower shall not permit its EBITDA for each Monthly Test Period, to be less
than an annualized amount equal to $3,500,000; provided, that for purposes of
this financial covenant, the term "EBITDA" of any Person shall relate solely to
the Unit Management Division and shall be calculated giving effect to overhead
allocated to the Unit Management Division.

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

                                        1
<PAGE>

                  "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.

                   "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.

"Debt Service Coverage Ratio" shall mean, at any date of determination, for
Borrower individually and on a consolidated and consolidating basis, without
duplication, the ratio of (a) EBITDA for the Monthly Test Period most recently
ended before such date (taken as one accounting period), to (b) Total Debt
Service for the Monthly Test Period most recently ended before such date (taken
as one accounting period).

                  "EBITDA" shall mean, for any Test Period, the sum, without
duplication, of the following for Borrower, on a consolidated and consolidating
basis: 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) gain or loss from any sale of assets, other than sales in
the ordinary course of business, all of the foregoing determined in accordance
with GAAP.

                   "Fixed Charge Ratio" shall mean, at any date of
determination, for Borrower individually and collectively on a consolidated
and consolidating basis, the ratio of (a) EBITDA for the Monthly Test Period
most recently ended before such date, to (b) Fixed Charges for the Monthly Test
Period most recently ended before such date, in each case taken as one
accounting period.

                  "Fixed Charges" shall mean, on any calculation date, for any
Monthly Test Period, the sum of the following for Borrower, individually and
collectively, on a consolidated

                                       2
<PAGE>
and consolidating basis: (a) Total Debt Service for such period, (b) Capital
Expenditures and management and services fees during such period, (c) income
taxes paid in cash or accrued during such period, and (d) dividends paid or
accrued or declared during such period. Any payments by Borrower made pursuant
to the Revolving Facility or from Borrower's Excess Cash Flow (pursuant to
Section 2.11(c)) shall be excluded from this definition.

                  "Interest Expense" shall mean, for any Test Period, total
interest expense (including attributable to Capital Leases in accordance with
GAAP) of Borrower individually and collectively, on a consolidated and
consolidating basis 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.

                  "Monthly 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.

                  "Net Income" shall mean, for any Test Period, the net income
(or loss) of Borrower individually and collectively on a consolidated and
consolidating basis for such period taken as a single accounting period
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
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 during such
period, (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.

                  "Net Leverage Ratio" shall mean, at any date of determination,
for Borrower individually and collectively on a consolidated and consolidating
basis, the ratio of (i) the Term Loan balance on such date, to (ii) EBITDA
(including overhead without duplication to overhead allocated to the Unit
Management Division) generated from the operation of Borrower owned Real
Property for the Net Leverage Test Period most recently ended before such date
(taken as one accounting period).

                                       3
<PAGE>

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

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

                  "Test Period" means, individually and/or collectively, Monthly
Test Period, Net Leverage Test Period and Quarterly Test Period.

                  "Total Debt" shall mean, at any date of determination, for
Borrower individually and collectively on a consolidated and consolidating
basis, the total Indebtedness on such date less cash and Cash Equivalents held
on such date.

                  "Total Debt Service" shall mean for any period, for Borrower
individually and collectively 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.

                  "Unit Management Division" shall mean Borrower's business unit
(which operates under Sunstone Behavioral Health, Inc. and its Subsidiaries)
which provides management services to the psychiatric units of medical/surgical
hospitals pursuant to management contracts.

                                       4
<PAGE>

                                   APPENDIX A

                                   DEFINITIONS

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

                  "Accounts" shall mean all "accounts" (as defined in the UCC)
of 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.

                  "Advances" shall mean, individually and/or collectively, (a) a
borrowing under the Revolving Facility, (b) a borrowing under the Enterprise
Facility and (c) a borrowing under the Overadvance Facility. Any amounts paid by
Agent or any Lender on behalf of Borrower or any Guarantor under any Loan
Document shall be an Advance for purposes of the Agreement.

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

                  "Assignment of Liens" shall mean that certain Assignment of
Liens, dated as of the Closing Date, by and among Borrower, Agent and
Healthcare.

                  "Assignment of Representations, Warranties, Covenants and
Indemnities" shall mean that certain Assignment of Representations, Warranties,
Covenants and Indemnities, dated as of the Closing Date, by and among PSI, PS
North Carolina and Agent.

                  "Borrowing Base" shall mean, as of any date of determination,
the Net Collectible Value of Eligible Receivables, 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 Business Days before or after such date,
the Borrowing Base shall be determined by Agent in its sole discretion.

                  "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 Agent is closed.

                  "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.

                                       1
<PAGE>

                  "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.

                  "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, excluding any sale and issuance of new equity securities by
PSI, (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, (iii) the initial public offering of its
securities, or (iv) 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 (i) a copy of the certificate of incorporation or formation (or other
charter document) certified as of a date not more than three (3) Business Days
before the Closing Date by the applicable Governmental Authority of the
jurisdiction of incorporation or organization of such Borrower, (ii) a copy of
the bylaws or similar organizational documents of certified as of a date not
more than three (3) Business Days before the Closing Date by the corporate
secretary or assistant secretary of such Borrower, (iii) an original certificate
of good standing as of a date acceptable to Agent issued by the applicable
Governmental Authority of the jurisdiction of incorporation or organization of
such Borrower and of every other jurisdiction in which such Borrower 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 is a party, certified by an authorized officer
of such Person as of the Closing Date.

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

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

                  "Collateral" shall mean, collectively and each individually,
all collateral and/or security granted to Agent, for the benefit of itself and
Lenders, by Borrower and/or Guarantors pursuant to the Loan Documents.

                                       2
<PAGE>

                  "Commitment" or "Commitments" shall mean (a) as to any Lender,
the aggregate commitment of such Lender to make Advances, as set forth on
Schedule 1 or in the most recent Lender Addition Agreement executed by such
Lender, and (b) as to all Lenders, the aggregate commitment of all Lenders to
make Advances.

                  "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.

                  "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.

                  "Deposit Account" shall mean, collectively, the Lockbox
Account and all bank or other depository accounts of any Borrower.

                  "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.

                   "Eligible Receivables" shall mean each Account arising in the
ordinary course of Borrower's business from the sale of goods or rendering of
Services which Agent, in its reasonable discretion, deems an Eligible Receivable
unless:

                   (a) it is not subject to a valid perfected first priority
security interest in favor of Agent, for the benefit of itself and Lenders,
subject to no other Lien of equal or higher priority;

                   (b) it is not evidenced by an invoice, statement or other
documentary evidence satisfactory to Agent; provided, that Agent 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 Agent as
Eligible Receivables and determine the advance rate, liquidity factors and
reserves applicable to Advances made on any such Accounts;

                   (c) 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 Agent;

                   (d) 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
Borrower;

                   (e) it remains unpaid for longer than the earlier of (i) 120
calendar days after the first to occur of the claim date or invoice date, and
(ii) 135 calendar days after the applicable Services were rendered;

                   (f) with respect to all Accounts owed by any particular
Account Debtor and/or its affiliates, if more than ten 10% of the aggregate
balance of all such Accounts owing

                                       3
<PAGE>

from such Account Debtor and/or its affiliates remain unpaid for longer than the
earlier of (i) 120 calendar days after the first to occur of the claim date or
invoice date, and (ii) 135 calendar days after the applicable Services were
rendered;

                   (g) with respect to all Accounts owed by any particular
Account Debtor and/or its affiliates, 25% or more of all such Accounts are not
deemed Eligible Receivables for any reason hereunder (which percentage may, in
Agent's sole discretion, be increased or decreased);

                   (h) with respect to all Accounts owed by any particular
Account Debtor and/or its affiliates (except Medicaid/Medicare Account Debtors),
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 Agent's sole discretion, be increased or
decreased); provided, that only the portion of Accounts which exceed 20% shall
be deemed ineligible for purposes of this subsection (h);

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

                   (j) 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;

                   (k) 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;

                   (l) 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;

                   (m) the applicable Account Debtor for such Account is any
Governmental Authority, unless rights to payment of such Account have been
assigned to Agent, for the benefit of itself and Lenders, 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);

                   (n) 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; provided, however,

                                       4
<PAGE>

that such Account shall be ineligible only to the extent of such offset, credit,
deduction, defense, discount, chargeback, freight claim, allowance, adjustment,
dispute, counterclaim or contingency;

                   (o) 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;

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

                   (q) it is not payable to Borrower;

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

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

                   (t) 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

                   (u) it fails to meet such other specifications and
requirements which may from time to time be established by Agent or is not
otherwise satisfactory to Agent, as determined in Agent's reasonable discretion.

                  "Enterprise Availability" shall mean, at any time, the result
of $15,984,206.28 minus the outstanding aggregate Advances under the Overadvance
Facility and the Revolving Facility.

                  "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.

                                       5
<PAGE>

                  "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 Borrower 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
other disposition of assets by Borrower 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 Borrower during such period to the extent deducted in
arriving at such consolidated net income or loss, plus (v) without duplication
with other items included in this definition other amount of any tax refunds or
credits received by Borrower during such period, less (vi) an amount equal to
the permitted Capital Expenditures of Borrower 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
Borrower (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 Borrower during such
period to the extent included in arriving at such consolidated net income or
loss.

                  "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.

                  "General Assignment" shall mean that certain General
Assignment, dated as of the Closing Date, by and among Borrower, Agent and
Healthcare.

                  "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.

                  "Guaranty" shall mean, collectively and each individually, all
guarantees executed by any Guarantors.

                                       6
<PAGE>

                  "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").

                  "Healthcare Loan Agreement" shall mean that certain Loan and
Security Agreement dated as of May 5, 2000, by and between Healthcare Business
Credit Corporation (formerly known as Copelco/American Healthfund. Inc.) and
Borrower and its Subsidiaries and affiliates named therein, as amended.

                  "Holly Hill" shall mean Holly Hill / Charter Behavioral Health
System, LLC, a Tennessee limited liability company.

                  "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.

                  "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 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.

                                       7
<PAGE>

                  "Landlord Waiver and Consent" shall mean a waiver/consent in
form and substance satisfactory to Agent 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 Agent access to such Collateral, in each case as
such may be modified, amended or supplemented from time to time.

                  "Lender Addition Agreement" shall mean an agreement among
Agent, a Lender and such Lender's assignee regarding their respective rights and
obligations with respect to assignments of the Loans and other interests under
this Agreement and the other Loan Documents substantially in the form of Exhibit
C hereto.

                  "Lenders" shall mean the financial institutions, from time to
time named on Schedule 1 under the heading "Lenders", their respective
successors and permitted assigns (but not, except as expressly set forth herein,
any participant that is not otherwise a party to this Agreement).

                  "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.

                  "Loan Documents" shall mean, collectively and each
individually, the Agreement, the Notes, the Security Documents, the Guarantees,
the Stock Pledge Agreements, the Assignment of Liens, the General Assignment,
the Modification of Notes and Liens, the Assignment of Representations,
Warranties, Covenants and Indemnities, the Lockbox Agreements, the Participation
Agreement, the Uniform Commercial Code Financing Statements, the Subordination
Agreements, the Landlord Waiver and Consents, the Borrowing Certificates, the
Warrant Agreement and the Warrant and all other agreements, documents,
instruments and certificates heretofore or hereafter executed or delivered to
Agent in connection with any of the

                                       8
<PAGE>

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.

                  "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 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 or 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) 3% of the Facility Cap, if the date of notice
of such termination by Borrower is after the Closing Date but before the second
anniversary of the Closing Date; and (ii) 2% of the Facility Cap, if the date of
notice of such termination by Borrower is on or after the second anniversary of
the Closing Date.

                  "Modification of Notes and Liens" shall mean that certain
Modification of Notes and Liens, dated as of the Closing Date, by and among
Borrower, Agent and Healthcare.

"Mortgages" shall mean, collectively, those certain Mortgages, Assignments of
Rents, Security Agreements and Fixture Filings executed by Borrower in favor of
Agent, for the benefit of itself and Lenders, by which Borrower granted and
conveyed to Agent, for the benefit of itself and Lenders, as security for the
Obligations, a Lien upon the each of the Real Properties.

                  "Net Collectible Value" shall mean the amount Borrower bills
third-party payors, less deductible obligations and contractual allowances.

                  "Note" shall mean, collectively and each individually, the
Revolving Notes and the Term Notes.

                  "Obligations" shall mean all shall mean all present and future
obligations, Indebtedness and liabilities of Borrower and/or Guarantors to Agent
or Lenders 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

                                       9
<PAGE>

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 Agent or Lenders 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.

                  "Overadvance Availability" shall mean, at any time, the result
of $12,984,206.28 minus the outstanding Advances under the Revolving Facility.

                  "Participation Agreement" shall mean that certain
Participation Agreement by and between Agent and Healthcare.

                  "Patient" shall mean any Person receiving Services from
Borrower and all Persons legally liable to pay Borrower for such Services other
than Insurers.

                  "Payment Office" shall mean initially the address set forth
beneath the Agent's name on the signature page of the Agreement, and thereafter,
such other office of Agent, 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.

                  "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.

                  "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 Agent be unable to determine
such rate, such other indication of the prevailing prime rate of interest as may
reasonably be chosen by Agent; provided, that each change in the fluctuating
interest rate shall take effect simultaneously with the corresponding change in
the Prime Rate.

                  "Pro Rata Share" shall mean (a) with respect to matters
relating to a particular Commitment of a Lender, the percentage obtained by
dividing (i) such Commitment of that Lender by (ii) all such Commitments of all
Lenders; provided, however, that if any Commitment is terminated pursuant to the
terms hereof, then "Pro Rata Share" means the percentage obtained by dividing
(x) the aggregate amount of such Lender's outstanding Loans related to such
Commitment by (y) the aggregate amount of all outstanding Loans related to such
Commitment, (b) with respect to matters relating to a particular Term Loan of a
Lender, the percentage obtained by dividing (i) the aggregate amount of such
Lender's outstanding Term Loans by (ii) the aggregate amount of all outstanding
Term Loans, and (c) with respect to all other matters, the percentage obtained
by dividing (i) the aggregate amount of a Lender's Term Loans outstanding and
such Lender's Commitment by (ii) the aggregate amount of all Lenders' Term Loans
outstanding and all Lender's Commitments; in any case as such percentage may be
adjusted by assignments permitted pursuant to Section 12.3;

                                       10
<PAGE>

                  "Real Property" shall mean shall mean that certain property
located at (a) 17750 Cali Drive, Houston, Texas 77090 (Cypress Creek Hospital),
(b) 6500 Hornwood Drive, Houston, Texas 77074 (West Oaks Hospital), (c) 3019
Falstaff Road, Raleigh, North Carolina (Holly Hill Hospital) and (d) 1106 W.
Dittmar Road, Austin, Texas 78745 (Texas NeuroRehab Center), each as more
particularly described in its respective Mortgage.

                  "Requisite Lenders" shall mean Lenders holding or being
responsible for 51% or more of the sum of (a) all outstanding Loans and (b) all
unutilized Commitments.

                  "Revolving Facility Extension Fee" shall mean 0.70% of the
Facility Cap, payable by Borrower in the event the Revolving Facility Term of
the Revolving Facility is extended for an additional two years.

                  "Revolving Facility Term" shall mean the period commencing on
the Closing Date and ending on the date that is three years after the Closing
Date (i.e., the third year anniversary of the Closing Date); provided, that this
period may be extended for an additional two years (i.e., the fifth year
anniversary of the Closing Date) upon (i) the mutual written agreement of the
parties hereto and (ii) payment by Borrower of the Revolving Facility Extension
Fee.

                  "Revolving Note(s)" shall mean, collectively and each
individually, the Revolving Note A, the Revolving Note B and any additional
promissory note(s) payable to the order of each Lender executed by Borrower
evidencing the Revolving Facility, as the same may be modified, amended or
supplemented from time to time.

                  "Security Agreement" shall mean that certain Security
Agreement executed by Borrower in favor of Agent, for the benefit of itself and
Lenders, as such may be modified, amended or supplemented from time to time.

                  "Security Documents" shall mean the Notes, Security Agreement,
Mortgages, Guarantees, Stock Pledge Agreements, 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.

                  "Stock Pledge Agreement" shall mean, collectively and each
individually, (i) that certain Stock Pledge Agreement executed by PSI in favor
of Agent, for the benefit of itself and Lenders, (ii) that certain Stock Pledge
Agreement executed by PS Tennessee in favor of Agent, for the benefit of itself
and Lenders, (iii) that certain Stock Pledge Agreement executed by PSI Hospitals
in favor of Agent, for the benefit of itself and Lenders, (iv) that certain
Stock Pledge Agreement executed by Texas Hospitals in favor of Agent, for the
benefit of itself and Lenders, and (v) any additional stock pledge agreements
executed by a Borrower or Guarantor in favor of

                                       11
<PAGE>

Agent, for the benefit of itself and Lenders, as the same may be modified,
amended or supplemented from time to time.

                  "Subordinated Debt" shall mean any Indebtedness of Borrower
that is expressly subordinated to the Obligations, including, without
limitation, the Indebtedness identified in each Subordination Agreement.

                  "Subordination Agreement" shall mean, collectively and each
individually, (i) that certain Subordination Agreement, dated as May 5, 2000, by
and among Healthcare, PSI and Sunrise Holdings, Inc., (ii) that certain
Subordination Agreement, dated as of May 5, 2000, by and among Healthcare, PSI
and Randy Best, (iii) that certain Subordination Agreement, dated as of May 5,
2000 by and among Healthcare, PSI and Michael Crothers, (iv) that certain
Subordination Agreement, dated as of May 5, 2000 by and among Healthcare, PSI
and Jack Salberg, (v) that certain Subordination Agreement, dated as of May 5,
2000 by and among Healthcare, PSI and Paul Yeoham, (vi) that certain
Subordination Agreement, dated as of May 5, 2000 by and among Healthcare, PSI
and Stan Kantanie, (vii) that certain Subordination Agreement, dated as of May
5, 2000 by and among Healthcare, PSI and Barney Young, (viii) that certain
Subordination Agreement, dated as of May 5, 2000 by and among Healthcare, PSI
and Hunt Capital Partners, L.P., (ix) that certain Subordination Agreement,
dated as of May 5, 2000 by and among Healthcare, PSI and Joe L. Shull, Inc., (x)
that certain Subordination Agreement, dated as of May 5, 2000 by and among
Healthcare, PSI and Gail Thomas Patterson, (xi) that certain Subordination
Agreement, dated as of August 31, 2001 by and among Healthcare, PSI and The
Brown Schools, Inc., (xii) that certain Subordination Agreement, dated as of
October 31, 2001 by and among Healthcare, PSI and The Brown Schools, Inc.,
(xiii) that certain Subordination Agreement, dated as of October 12, 2000, by
and among Healthcare, PSI, Acacia Venture Partners, L.P., South Pointe Venture
Partners, L.P., Oak Investment Partners VII, Limited Partnership, Oak VII
Affiliates Fund, Limited Partnership and FCA Venture Partners II, L.P., and
(xiv) any other subordination agreements to which Agent or any Lender and other
service providers or creditors of any Borrower are a party.

                  "Subsidiary" shall mean, (i) as to Borrower, any Person in
which more than 50% of all equity, membership, partnership or other ownership
interests is owned directly or indirectly by 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 Loan Extension Fee" shall mean 1.0% of the Maximum Loan
Amount, payable by Borrower in the event the Term of the Term Loan is extended
an additional two years.

                  "Term Loan Term" shall mean the period commencing on the
Closing Date and ending on the date that is two years after the Closing Date
(i.e., the second year anniversary of the Closing Date); provided, that this
period may be extended for an additional two years (i.e., the fourth year
anniversary of the Closing Date) upon (i) the mutual written agreement of the
parties hereto and (ii) payment by Borrower of the Term Loan Extension Fee.

                  "Term Note(s)" shall mean, collectively and each individually,
Term Note A, Term Note B, Term Note C, Term Note D and any additional promissory
note(s) payable to the

                                       12
<PAGE>

order of each Lender executed by Borrower evidencing the Term Loan, as the same
may be modified, amended or supplemented from time to time.

                  "Term Termination Fee" shall mean (for the time period
indicated) the amount equal to 1.0% of the Maximum Loan Amount.

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

                  "Warrant" shall have the meaning given such term in the
Warrant Agreement.

                  "Warrant Agreement" shall mean the Common Stock Purchase
Warrant dated as of the Closing Date by and between Borrower and CapitalSource,
as such may be modified, restated, amended or supplemented from time to time.

                                       13

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