Exhibit 10.1

 

EXECUTION VERSION

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT

 

by and among

 

HHC KINGWOOD INVESTMENT, LLC

 

as Purchaser,

 

SIGNET HEALTH CORPORATION

 

as Seller

 

and

 

SHC-KPH, LP

 

 

 

Dated as of January 17, 2006

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TABLE OF CONTENTS

 

         Page No.

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ARTICLE 1    DEFINITIONS; SALE AND TRANSFER OF LIMITED PARTNER INTEREST;
CONSIDERATION;

                        CLOSING

   1     1.1   Definitions    1     1.2   Agreement to Sell and Purchase    3
    1.3   Excluded Assets    3     1.4   Excluded Liabilities    3     1.5  
Purchase Price    3     1.6   Closing Date    3     1.7   Items to be Delivered
by Seller at Closing    4     1.8   Items to be Delivered by Purchaser at
Closing    5 ARTICLE 2     REPRESENTATIONS AND WARRANTIES OF SELLER    6     2.1
  Authority.    6     2.2   Authorization/Execution    6     2.3   Organization;
No Subsidiaries; No Conflicts.    6     2.4   Title to Limited Partner Interest;
General Partner.    7     2.5   Financial Statements; Changes.    7     2.6  
Tax and Other Returns and Reports    8     2.7   Contracts    10     2.8   Real
and Personal Property; Title to Property; Leases.    11     2.9   Assets    12
    2.10   Limited Partner Interest    13     2.11   Intangible Property    14
    2.12   Legal Proceedings    14     2.13   Accounting Records; Internal
Controls.    14     2.14   Insurance    14     2.15   Employees.    15     2.16
  Employee Benefits.    15     2.17   Certain Interests    16     2.18  
Intercompany Transactions    17     2.19   Inventory    17     2.20  
Receivables    17     2.21   Third Party Payors and Suppliers    17     2.22  
Environmental Compliance    17     2.23   Powers of Attorney    19     2.24  
Medicare and Medicaid; Third-Party Payors; Compliance with Health Care Laws.   
19     2.25   Compliance Program    21     2.26   HIPAA    21     2.27  
Restricted Grant and Loan Programs    21     2.28   Experimental Procedures   
22     2.29   Medical Staff; Physician Relations    22     2.30   No Brokers or
Finders    22

 

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    2.31   Improper Payments    22     2.32   No Misrepresentations    22
    2.33   Liabilities    22     2.34   Conduct of Business    22     2.35  
Negative Assurances    23 ARTICLE 3    REPRESENTATIONS AND WARRANTIES OF
PURCHASER    24     3.1   Authority    24     3.2   Authorization/Execution   
24     3.3   Organization and Good Standing; No Violation.    24     3.4  
Brokers and Finders    25 ARTICLE 4    CONDITIONS PRECEDENT TO OBLIGATIONS OF
SELLER    25     4.1   Accuracy of Representations and Warranties and Compliance
with Obligations    25     4.2   Signing and Delivery of Instruments    25
    4.3   Unfavorable Action or Proceeding    25     4.4   Governmental
Authorizations    26 ARTICLE 5    CONDITIONS PRECEDENT TO OBLIGATIONS OF
PURCHASER    26     5.1   Accuracy of Representations and Warranties and
Compliance with Obligations    26     5.2   Governmental Authorizations    26
    5.3   Signing and Delivery of Instruments    26     5.4   Unfavorable Action
or Proceeding    26     5.5   No Material Adverse Change    27     5.6  
Required Consents    27     5.7   Disclosure Schedules    27     5.8   Real
Property Title Matters    27     5.9   Lock Boxes    27 ARTICLE
6    POST-CLOSING MATTERS    27     6.1   Preservation and Access to Records
After the Closing.    27     6.2   Provision of Benefits of Certain Contracts   
28     6.3   Misdirected Payments, Etc    28     6.4   Insurance    28     6.5  
Processing of Payroll    28 ARTICLE 7    SURVIVAL AND INDEMNIFICATION    29
    7.1   Survival    29     7.2   Indemnification of Purchaser by Seller.    29
    7.3   Indemnification of Seller by Purchaser.    30     7.4   Method of
Asserting Claims    31 ARTICLE 8    TAX AND COST REPORT MATTERS    33     8.1  
Tax Matters.    33 ARTICLE 9    MISCELLANEOUS PROVISIONS    34     9.1   Entire
Agreement    34

 

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    9.2   Further Assurances and Cooperation    34     9.3   Successors and
Assigns    34     9.4   Governing Law    35     9.5   Amendments    35     9.6  
Notices    35     9.7   Headings    35     9.8   Confidentiality and Publicity
   36     9.9   Third Party Beneficiary    36     9.10   Expenses and Attorneys’
Fees    36     9.11   No Waiver    36     9.12   Severability    37     9.13  
Counterparts    37

 

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LIST OF EXHIBITS

 

EXHIBIT

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DESCRIPTION

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A    Assignment of Limited Partner Interest B    Permitted Encumbrances C   
Assignment and Assumption Agreement

 

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LIST OF SCHEDULES

 

SCHEDULE

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DESCRIPTION

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1.3(a)

  

Excluded Contracts

1.3(d)

  

Excluded Assets

2.3(c)

  

Consents/Conflicts

2.3(d)

  

Limited Partnership Agreement

2.5

  

Financial Statement Matters

2.7

  

Contracts

2.8

  

Property/Encumbrances

2.9

  

State of Assets

2.9(a)

  

Real Property

2.9(b)

  

Personal Property

2.9(d)

  

Leases

2.9(o)

  

Lock Boxes and Accounts

2.11

  

Intangible Property

2.12

  

Litigation

2.14

  

Insurance/Claims

2.15

  

Employees

2.16

  

Employee Benefits

2.17

  

Certain Interests

2.18

  

Intercompany Transaction

2.21

  

Payor Contracts

2.24

  

Medicare/Medicare Compliance

2.29

  

Medical Staff/Physician Relations

2.34

  

Conduct of Business

2.35

  

Negative Assurances

 

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TABLE OF DEFINED TERMS

 

Term

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   Page

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Accounts Receivable

   13

Affiliate

   2

Agreement

   1

Assignment and Assumption Agreement

   4

Balance Sheet Date

   7

Claim Notice

   31

Closing

   3

Closing Date

   3

Code

   9

Commonly Controlled Entity

   16

Contract

   10

Contract and Lease Consents

   4

Control

   2

Damages

   29

Declaration

   12

Disclosure Schedules

   2

Document Retention Period

   27

Effective Time

   3

Encumbrances

   3

Environmental Laws

   17

ERISA

   15

Excluded Assets

   3

Excluded Contracts

   3

Excluded Liabilities

   3

GAAP

   2

General Partner

   7

Government Programs

   20

Governmental Approvals

   5

HIPAA

   21

Hospital

   1

Indemnified Party

   31

Indemnifying Party

   31

Indemnity Notice

   32

Intangible Property

   14

Interest Assignment

   4

Inventory

   13

JCAHO

   19

Knowledge of Purchaser

   2

Knowledge of Seller

   2

Leases

   12

 

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Licenses

   12

Limited Partner Interest

   1

Limited Partnership Agreement

   7

Lock Boxes

   13

Management Agreement

   1

Material Adverse Change

   2

Material Adverse Effect

   2

MCC

   1

Notice Period

   31

Option

   1

Partnership

   1

Partnership Agreement Amendment

   4

Party

   1

Permitted Encumbrances

   11

Person

   2

Personal Property

   12

Plan

   15

Prepaids

   13

Purchase Price

   3

Purchaser

   1

Real Property

   12

Real Property Purchase Contract

   1

Relevant Claim

   30

Seller

   1

Superseded Agreements

   34

Tax

   10

Texas Agency

   19

Third Party Claim

   31

 

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LIMITED PARTNER INTEREST PURCHASE AGREEMENT

 

This LIMITED PARTNER INTEREST PURCHASE AGREEMENT (this “Agreement”) is made and
entered into as of the 17th day of January, 2006, by and among SIGNET HEALTH
CORPORATION, a Texas corporation (“Seller”), HHC KINGWOOD INVESTMENT, LLC, a
Delaware limited liability company (“Purchaser”), and SHC-KPH, LP, a Texas
limited partnership (the “Partnership”). Seller, Purchaser and the Partnership
are sometimes collectively referred to herein as the “Parties” and individually
referred to herein as a “Party.”

 

R E C I T A L S:

 

A. The Partnership exclusively operates and manages Kingwood Pines Hospital, a
78-bed private psychiatric hospital located at 2001 Ladbrook, Kingwood, Texas
77339 (the “Hospital”) under that certain Management Agreement dated January 31,
2005, between Medical Capital Corporation (“MCC”) and the Partnership, as
amended by that certain Amendment to Management Agreement dated June 3, 2005 (as
amended, the “Management Agreement”); and

 

B. The Partnership has exercised its option contained in the Management
Agreement to purchase the real property on which the Hospital is located along
with all other assets constituting or relating to the Hospital from MCC (the
“Option”) and is a party to an Improved Property Commercial Contract, dated
effective December 22, 2005, with MCC relating to the purchase of the Real
Property (the “Real Property Purchase Contract”) and has concurrently purchased
the Real Property and related assets constituting or relating to the Hospital
subject to the Option, as described in the Management Agreement (the “Other
Assets”); and

 

C. Seller owns a 99.9% limited partner interest in the Partnership (the “Limited
Partner Interest”), and the Limited Partner Interest constitutes all the issued
and outstanding limited partner interests of the Partnership; and

 

D. Purchaser desires to purchase the Limited Partner Interest from Seller, and
Seller desires to sell the Limited Partner Interest to Purchaser for the
consideration and upon the terms and conditions contained in this Agreement.

 

A G R E E M E N T:

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained in this Agreement, the Parties hereto agree as
follows:

 

ARTICLE 1

DEFINITIONS; SALE AND TRANSFER OF LIMITED PARTNER INTEREST;

CONSIDERATION; CLOSING

 

1.1 Definitions. For all purposes of this Agreement, except as otherwise
expressly provided or unless the context otherwise requires,

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 1

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(a) The defined terms used in this Agreement shall include the plural as well as
the singular.

 

(b) All accounting terms not otherwise defined herein have the meanings
determined in accordance with generally accepted accounting principles (“GAAP”).

 

(c) All references in this Agreement to designated “Articles,” “Sections” and
other subdivisions are to the designated Articles, Sections and other
subdivisions of the body of this Agreement.

 

(d) Pronouns of either gender or neuter shall include, as appropriate, the other
pronoun forms.

 

(e) The words “including” and “include” shall be deemed to mean in each instance
“including, without limitation,” except as stated otherwise herein.

 

(f) The words “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole, including the Exhibits and Schedules
attached hereto, and not to any particular Article, Section or other
subdivision.

 

(g) “Disclosure Schedules” shall mean the schedules attached to and constituting
a part of this Agreement.

 

(h) “Knowledge of Purchaser,” and similar variations thereof, shall mean the
actual knowledge, as of the relevant date, of Purchaser after reasonable inquiry
of employees or agents of Purchaser that were involved in its due diligence
review of the Partnership.

 

(i) “Knowledge of Seller,” and similar variations thereof, shall mean the actual
knowledge, as of the relevant date, of Seller after reasonable inquiry of all
appropriate employees of the Partnership or Seller having primary responsibility
for the relevant matters.

 

(j) “Material Adverse Change” or “Material Adverse Effect”, when used with
respect to the Partnership or the Hospital, shall mean any material adverse
change in or effect on the Partnership taken as a whole or the Hospital, as the
context requires, or other than changes or effects that are or result from
occurrences relating to the United States economy generally or the United States
health care industry generally.

 

(k) Any reference in this Agreement to an “Affiliate” shall mean any Person
directly or indirectly controlling, controlled by or under common control with a
second Person. The term “Control” (including the terms “controlled by” and
“under common control with”) means the possession, direct or indirect, of the
power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise. A “Person” shall mean any natural person, partnership, corporation,
limited liability company, association, trust or other legal entity.

 

Capitalized terms used in this Agreement shall have the definitions assigned to
such terms elsewhere in this Agreement. For ease of reference, the section
containing the definition of each such capitalized term is set forth in the
table of defined terms included elsewhere as a part of this Agreement.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 2

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1.2 Agreement to Sell and Purchase. Subject to the terms and conditions of this
Agreement and in reliance on the representations, warranties and covenants
herein set forth, at the Closing Seller shall sell to Purchaser, and Purchaser
shall purchase from Seller, the Limited Partner Interest, free and clear of any
and all liens, claims, options, charges, pledges, security interests, voting
agreements or trusts, proxies, preemptive rights, rights of first refusal,
encumbrances or other restrictions or interests of any kind or nature whatsoever
(collectively, “Encumbrances”).

 

1.3 Excluded Assets. Notwithstanding the fact that the transactions contemplated
by this Agreement are structured as a Limited Partner Interest Purchase,
immediately before the Effective Time, the following assets, whether owned
directly or indirectly by the Partnership (or any of the Partnership’s
Affiliates) shall be distributed by the Partnership to Seller (collectively, the
“Excluded Assets”):

 

(a) all contracts, agreements and arrangements of the Partnership not listed in
Schedule 2.7, including those contracts listed in Schedule 1.3(a) (the “Excluded
Contracts”);

 

(b) all Partnership records relating to the Excluded Assets and Excluded
Liabilities to the extent that Purchaser does not need the same in connection
with (i) the ongoing activities of the Hospital, (ii) the assets of the
Partnership which are not Excluded Assets, or (iii) the Retained Obligations, as
well as all records which by law Seller is required to maintain in its
possession;

 

(c) any reserves, prepaid expenses, inventory or deposits to the extent related
to Excluded Assets and Excluded Liabilities;

 

(d) any other assets of the Partnership identified in Schedule 1.3(d).

 

1.4 Excluded Liabilities. The Partnership shall not retain or remain responsible
for any of the obligations of the Partnership to Medical Capital under the
Management Agreement (the “Excluded Liabilities”).

 

1.5 Purchase Price. Subject to the terms and conditions of this Agreement, the
aggregate purchase price to be paid by Purchaser to Seller for the purchase of
the Limited Partner Interest (the “Purchase Price”) shall be Two Hundred
Thousand and 00/100 Dollars ($200,000.00) which shall be payable in cash at the
Closing.

 

1.6 Closing Date. The consummation of the transactions contemplated by this
Agreement (the “Closing”) shall be deemed to take place at 10:00 a.m. at the
offices of Strasburger & Price, L.L.P., 901 Main Street, Suite 4400, Dallas,
Texas 75202 on the date hereof provided that all conditions precedent and other
matters required to be completed as of the Closing Date have been or will be
completed on such date or such other date, time and place as the Parties shall
mutually agree (the “Closing Date”). The Closing with respect to the transfer of
the Limited Partner Interest, shall be deemed to have occurred and to be
effective as between the Parties as of 12:01 a.m., Central Standard Time, on
January 17, 2006 (the “Effective Time”).

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 3

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1.7 Items to be Delivered by Seller at Closing. At or before the Closing, Seller
shall deliver to Purchaser the following, duly executed by Seller (and/or the
Partnership) where appropriate and in the form provided for below or otherwise
satisfactory to Purchaser:

 

(a) an Assignment of Limited Partner Interest in the form of Exhibit A attached
hereto (the “Interest Assignment”);

 

(b) an Amendment of the Limited Partnership Agreement of the Partnership duly
executed by all Partners of the Partnership in a form satisfactory to Purchaser
in its sole and absolute discretion (the “Partnership Agreement Amendment”);

 

(c) original certificates of existence and good standing, or comparable status,
of the Partnership and Seller, issued by the State of Texas, dated no earlier
than a date which is fifteen (15) calendar days prior to the Closing Date;

 

(d) a certificate of Seller, executed by the President of Seller, certifying to
Purchaser (i) that all the representations and warranties of Seller and the
Partnership contained herein are true as of the Closing Date with the same
effect as though made at such time, except to the extent such representations
and warranties expressly relate to an earlier date, in which case such
representations and warranties are true on and as of such earlier date,
(ii) that Seller and the Partnership have in all material respects performed or
complied with the covenants and agreements required of Seller and the
Partnership set forth in this Agreement to be satisfied by the Closing Date and
(iii) that all of the conditions contained in Article 4 have been satisfied
except those, if any, waived in writing by Seller;

 

(e) certificates of the corporate Secretary of Seller and the sole member of the
General Partner certifying to Purchaser (i) the incumbency of the officers of
Seller and the appropriate officers or members of the General Partner on the
Closing Date and bearing the authentic signatures of all such Persons who shall
execute this Agreement and any additional documents contemplated by this
Agreement and (ii) the due adoption and text of the resolutions of the directors
of Seller and the sole member of the General Partner, authorizing the execution,
delivery and performance of this Agreement and all ancillary documents and
instruments by Seller and the Partnership, and that such resolutions have not
been amended or rescinded and remain in full force and effect on the Closing
Date;

 

(f) a complete release of liens and mortgages and UCC termination statements for
any and all liens, mortgages, security interests, restrictions and financing
statements with respect to any of the assets of the Partnership;

 

(g) an Assignment and Assumption Agreement, in the form of Exhibit C attached
hereto (the “Assignment and Assumption Agreement”);

 

(h) all consents to the transfer of the Contracts and Leases or the change in
control of the Partnership from the third parties listed in Schedule 2.7 and
Schedule 2.8 required to transfer the Contracts and Leases to the Partnership or
otherwise to approve the change in control of the Partnership (the “Contract and
Lease Consents”);

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 4

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(i) all governmental approvals and authorizations that are required for the
consummation of the transactions contemplated by this Agreement and the
continued operation of the Hospital as currently operated by the Partnership
thereafter (the “Governmental Approvals”);

 

(j) consent of General Partner to transfer of the Limited Partner Interest to
Purchaser and admission of Purchaser as the sole limited partner of the
Partnership; and

 

(k) such other instruments, certificates, consents, affidavits (including a
no-change survey affidavit) or other documents which are reasonably necessary to
carry out the transactions contemplated by this Agreement and to comply with the
terms hereof.

 

1.8 Items to be Delivered by Purchaser at Closing. At or before the Closing,
Purchaser shall execute and deliver or cause to be delivered to Seller the
following, duly executed by Purchaser where appropriate:

 

(a) payment of the Purchase Price on the Closing Date by wire transfer of
immediately available funds to Seller to the account specified by Seller, which
account Seller shall specify to Purchaser not less than three (3) business days
prior to the Closing Date in writing;

 

(b) a certificate of Purchaser, executed by the President or any Vice President
of Purchaser, certifying to Seller (i) that all the representations and
warranties of Purchaser contained herein are true as of the Closing Date with
the same effect as though made at such time, except to the extent such
representations and warranties expressly relate to an earlier date, in which
case such representations and warranties are true on and as of such earlier
date, (ii) that Purchaser has in all material respects performed or complied
with the covenants and agreements required of Purchaser set forth in this
Agreement required to be satisfied by the Closing Date and (iii) that all of the
conditions contained in Article 5 have been satisfied except those, if any,
waived in writing by Purchaser;

 

(c) a certificate of the Manager of Purchaser certifying to Seller (i) the
incumbency of the Manager of Purchaser on the Closing Date and bearing the
authentic signatures of all such officers who shall execute this Agreement and
any additional documents contemplated by this Agreement and (ii) the due
adoption and text of the resolutions of the Manager of Purchaser authorizing the
execution, delivery and performance of this Agreement and all ancillary
documents and instruments by Purchaser, and that such resolutions have not been
amended or rescinded and remain in full force and effect on the Closing Date;

 

(d) original certificate of good standing, or comparable status, of Purchaser,
issued by the Delaware Secretary of State dated no earlier than a date which is
fifteen (15) calendar days prior to the Closing Date;

 

(e) the Interest Assignment;

 

(f) the Assignment and Assumption Agreement;

 

(g) the Partnership Agreement Amendment; and

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 5

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(h) such other instruments, certificates, consents or other documents which are
reasonably necessary to carry out the transactions contemplated by this
Agreement and to comply with the terms hereof.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLER

 

Except as otherwise indicated on the applicable Disclosure Schedules expressly
related to the particular representation, warranty or covenant stated below in
this Article 2, Seller hereby represents, warrants and covenants to Purchaser as
to the following matters as of the Closing Date:

 

2.1 Authority.

 

(a) Seller has full corporate power and authority to enter into this Agreement
and all documents required to be delivered hereunder and full corporate power
and authority to carry out and perform the transactions contemplated herein.

 

(b) The Partnership has full limited partnership power and authority to enter
into this Agreement and all documents required to be delivered hereunder and
full limited partnership power and authority to carry out and perform the
transactions contemplated herein.

 

2.2 Authorization/Execution. All corporate, limited partnership and other
actions required to be taken by Seller and the Partnership to authorize the
execution, delivery and performance of this Agreement, all agreements to be
executed and delivered by Seller and/or the Partnership pursuant to this
Agreement, all documents executed by Seller and the Partnership which are
necessary to give effect to this Agreement, and all transactions contemplated
hereby have been duly and properly taken or obtained by Seller and the
Partnership. No other corporate, limited partnership or other action on the part
of Seller or the Partnership is necessary to authorize the execution, delivery
and performance of this Agreement, all agreements to be executed and delivered
by Seller and/or the Partnership pursuant to this Agreement, all documents
necessary to give effect to this Agreement and all transactions contemplated
herein. This Agreement and all documents delivered hereunder have been duly and
validly executed and delivered by Seller and the Partnership and, assuming due
and valid execution by, and enforceability against, Purchaser, this Agreement
and all documents delivered hereunder constitute valid and binding obligations
of Seller and the Partnership, as applicable, enforceable in accordance with
their respective terms subject to (a) applicable bankruptcy, reorganization,
insolvency, moratorium and other laws affecting creditors’ rights generally from
time to time in effect and (b) limitations on the enforcement of equitable
remedies.

 

2.3 Organization; No Subsidiaries; No Conflicts.

 

(a) The Partnership is a limited partnership duly organized and validly existing
under the laws of the State of Texas. The Partnership has full power and
authority to own, operate and lease its properties and to carry on its business
as now conducted. Seller is a corporation duly organized, validly existing and
in good standing under the laws of the State of Texas.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 6

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(b) The Partnership has no subsidiaries, whether direct or indirect. The
Partnership has no equity interest or investment in, and does not have any other
right or obligation to purchase any equity interest or other investment in, and
is not a partner of or joint venturer with, any other person or entity.

 

(c) Except as provided in Schedule 2.3(c), the execution and delivery of this
Agreement and the performance of the transactions contemplated by this Agreement
and all other instruments, agreements, and certificates referenced herein to
which Seller and the Partnership are or will be a Party do not (i) violate any
decree or judgment of any court or governmental authority which is applicable to
or binding upon Seller or the Partnership; (ii) violate any law, rule or
regulation applicable to Seller or the Partnership; (iii) violate or conflict
with, or result in a breach of, or constitute a default (or an event which, with
or without notice or lapse of time or both, would constitute a default) under,
or permit cancellation of, or result in the creation of any encumbrance upon any
of the assets of the Partnership or the Limited Partner Interest under, any
contract, lease, sales order, purchase order, indenture, mortgage, note, bond,
instrument, license or other agreement to which the Partnership or Seller is a
Party, or by which the Partnership or Seller is bound; (iv) require the consent
of any third party under any Contract or Lease; (v) permit the acceleration of
the maturity of any indebtedness of the Partnership or Seller; or (vi) violate
or conflict with any provision of the Certificate of Limited Partnership or
Limited Partnership Agreement of the Partnership or the Articles of
Incorporation or Bylaws of Seller.

 

(d) A true, correct and complete copy of the Partnership’s Limited Partnership
Agreement is attached as Schedule 2.3(d) (the “Limited Partnership Agreement”).

 

2.4 Title to Limited Partner Interest; General Partner.

 

(a) Seller is the unconditional sole legal, beneficial, record and equitable
owner of the Limited Partner Interest, free and clear of any and all
Encumbrances. Seller has not granted and is not a party to any agreement
granting preemptive rights, rights of first refusal or any similar or comparable
rights with respect to the Limited Partner Interest. At the Closing, Seller will
convey to Purchaser good and valid title to the Limited Partner Interest, free
and clear of any and all Encumbrances. The Limited Partner Interest is not
certificated.

 

(b) Kingwood Pines Hospital, LLC, a Texas limited liability company (the
“General Partner”), is and has always been the sole general partner of the
Partnership. The General Partner owns a 0.1% general partner interest in the
Partnership. Jerry G. Browder is the sole member of the General Partner. The
General Partner is a member-managed limited liability company.

 

2.5 Financial Statements; Changes.

 

(a) Seller has delivered to Purchaser an unaudited balance sheet for the
Partnership at November 30, 2005 (the “Balance Sheet Date”) and the related
statement of income for the period from February 8, 2005 to November 30, 2005.
Such financial statements have been prepared in conformity with GAAP. The
statement of operations presents fairly in all material respects the results of
the operations of the Partnership for the period covered, and the

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 7

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balance sheet presents fairly in all material respects the financial condition
of the Partnership at the Balance Sheet Date. Such financial statements reflect
all adjustments necessary for a fair presentation of the financial information
contained therein other than normal year-end adjustments which are not material
in amount in the aggregate. At the Balance Sheet Date, the Partnership had no
material liability (actual, contingent or accrued) that, in accordance with GAAP
applied on a consistent basis, should have been shown or reflected on the
balance sheet but was not.

 

(b) Except as set forth in Schedule 2.5, since the Balance Sheet Date, whether
or not in the ordinary course of business, there has not been, occurred or
arisen:

 

(i) any change in or event affecting the Partnership or Seller, that has had or
would reasonably be expected to have a Material Adverse Effect; or

 

(ii) any strike or other labor dispute;

 

(iii) any material change in the Partnership’s working capital; or

 

(iv) any casualty, loss, damage or destruction (whether or not covered by
insurance) of any property of the Partnership that is material or that has
involved or may involve a material loss to the Partnership in excess of
applicable insurance coverage.

 

(c) Since February 8, 2005, the Partnership has had no business operations other
than acting as the manager of the Hospital pursuant to the Management Agreement.

 

2.6 Tax and Other Returns and Reports. Except as set forth in Schedule 2.6:

 

(a) For purposes of this Agreement, “Tax” or “Taxes” shall be defined as set
forth below in Section 2.6(c) and shall include (i) any obligations under any
agreements or arrangements with any other Person with respect to such amounts
and including any liability for Taxes of any predecessor or previously owned
entity and (ii) any liability for any Taxes as a result of being a member of an
affiliated, consolidated, combined or unitary group. For purposes of this
Section 2.6, with respect to matters pertaining to this Section 2.6, the term
“Partnership” shall include the Partnership and all entities currently or
previously owned, directly or indirectly, by the Partnership.

 

(b) Tax Returns and Audits.

 

(i) The Partnership has timely filed (taking into account valid extensions of
the time for filing) all Tax returns required to have been filed and all such
Tax returns were true, correct and complete in all material respects. All Taxes
owed by the Partnership (whether or not shown on any Tax return) that have
become due and payable have been paid. The Partnership is not currently the
beneficiary of any extension of time within which to file any Tax return. No
claim has ever been made by an authority in a jurisdiction where the Partnership
does not file Tax returns that it is or may be subject to taxation by that
jurisdiction.

 

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(ii) The Partnership has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, member, or other third party.

 

(iii) The Partnership and Seller have made available to Purchaser (i) correct
and complete copies of all Tax returns of the Partnership and (ii) any
examination reports, statements of deficiencies and assessments by any
governmental authority against or agreed to by the Partnership since the
Partnership’s formation. The Partnership does not expect any authority to assess
additional Taxes for any period for which Tax returns have been filed. There is
no dispute or claim concerning any Tax liability of the Partnership claimed,
threatened or otherwise raised by any authority. The Partnership has not waived
any statute of limitations in respect of Taxes or agreed to any extension of
time with respect to a Tax assessment or deficiency.

 

(iv) All material liabilities of the Partnership for any unpaid Taxes (whether
or not shown to be due on any Tax return) have either (A) been accrued for or
reserved on the Partnership financial statements in accordance with GAAP or
(B) with respect to material unpaid Taxes that may have accrued since the
Balance Sheet Date in connection with the operation of the business of the
Partnership have been recorded on the books of the Partnership in the ordinary
course.

 

(v) There are no liens or security interests on any of the assets of the
Partnership or the Limited Partner Interest that arose in connection with any
failure (or alleged failure) to pay any Tax.

 

(vi) The Partnership has not filed any consent agreement under Section 341(f) of
the Internal Revenue Code of 1986 (the “Code”) or agreed to have
Section 341(f)(2) of the Code apply to any disposition of a subsection (f) asset
(as defined in Section 341(f)(2) of the Code) owned by the Partnership. No
property of the Partnership is “tax-exempt use property” within the meaning of
Section 168(h) of the Code. The Partnership is not a party to any lease made
pursuant to former Section 168(f)(8) of the Internal Revenue Code of 1954.

 

(vii) The Partnership is not under any obligation to make a payment that will
not be deductible because of the application of Sections 280G, 404, 162(m)
and/or 4999 of the Code. The Partnership has disclosed on its Tax returns all
positions taken therein that could give rise to a substantial understatement
(i) of federal income tax under Code Section 6662 or (ii) of any Tax under a
similar provision of state, local or foreign Tax law. The Partnership has not
engaged in any transaction which would be treated as a “reportable transaction”
within the meaning of Treasury Regulations Section 1.6011-4 or otherwise been
involved in a transaction which would require it to disclose a “reportable
transaction.” The Partnership has not been a member of an affiliated group
filing a consolidated federal income Tax return and does not have any liability
for the Taxes of any Person (other than the Partnership) under Treasury
Regulations Section 1.1502-6, or any similar provision of state, local or
foreign law, as a transferee or successor, by contract, or otherwise. The
Partnership has not been a party to any Tax allocation or sharing agreement. The
Partnership is not currently and has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 9

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(viii) The Partnership is and has been in full compliance with all terms and
conditions of any Tax exemptions, Tax holidays or other Tax reduction
agreements. The consummation of the transactions contemplated herein will not
have any material adverse effect on the continued validity and effectiveness of
any such Tax exemption, Tax holiday or other Tax reduction agreement or order.

 

(ix) Neither the Partnership nor any of its Subsidiaries has constituted either
a “distribution corporation” or a “controlled corporation” in a distribution of
stock qualifying for tax-free treatment under Code Section 355 (a) in the two
year prior to the date of this Agreement or (b) in a distribution which could
otherwise constitute part of a “plan” or “series of related transactions”
(within the meaning of Code Section 355(c)).

 

(x) The Partnership has not, with respect to any open taxable period, applied
for and been granted permission to adopt a change in its method of accounting
requiring adjustments under Section 481 of the Code or comparable state or
foreign law.

 

(xi) The Partnership is not a partner in any entity classified as a partnership
for federal income Tax purposes.

 

(xii) The Partnership has not made an election under Treasury Regulations
Section 301.7701-3 with respect to any entity.

 

(xiii) The Partnership will not be required to include any item of income in, or
exclude any item of deduction from, taxable income for any taxable period (or
portion thereof) ending prior to, on, or after the Closing Date as a result of
any deferred intercompany gain or any excess loss account described in Treasury
Regulations under Code Section 1502 (or any corresponding or similar provision
of federal state, local or foreign income Tax law).

 

(c) “Tax” means any federal, state, local or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.

 

2.7 Contracts. Schedule 2.7 lists each formal and informal contract, agreement
or arrangement to which the Partnership is a party or to which any of its
properties are subject or by which any thereof is bound and/or which otherwise
relate to the business of the Hospital (each a “Contract“ and collectively, the
“Contracts”). Unless otherwise so noted in Schedule 2.7, each such Contract was
entered into in the ordinary course of business. True, correct and complete
copies of the Contracts and any other contracts of the Partnership or the
Hospital, including all amendments and supplements, have been made available to
Purchaser. Each Contract is valid and subsisting; except as set forth in
Schedule 2.7, the Partnership or the Hospital has duly performed in all material
respects all its obligations thereunder to the extent that such obligations to
perform have accrued; and, except as set forth in Schedule 2.7, no breach or
default, alleged breach or default, or event which would (with the passage of
time, notice or both) constitute a

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 10

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breach or default thereunder by the Partnership or the Hospital (or any other
party or obligor with respect thereto), has occurred or as a result of the
execution of this Agreement or its performance will occur. The Partnership has
received no notices of termination of any Contract. Neither the Partnership nor
Seller has been advised or has Knowledge that any party to any of the Contracts
intends to terminate or amend any Contract at any time in the future.

 

2.8 Real and Personal Property; Title to Property; Leases.

 

(a) To the Knowledge of Seller, the Partnership has valid title, free of
encumbrances in and to the Real Property and Other Property, except for those
exceptions and other matters set forth in Exhibit B. Such exceptions and other
matters shall be referred to herein as the “Permitted Encumbrances”. Except as
shown in Schedule 2.8, to the Knowledge of Seller, all material tangible
properties of the Partnership are in a good state of maintenance and repair
(except for ordinary wear and tear) and in operating condition.

 

(b) The Real Property listed in Schedule 2.9(a) consists of all real property
owned used in the conduct of the business of the Hospital.

 

(c) Seller has heretofore made available to Purchaser a true, correct and
complete copy of all of the Leases. Except as shown in Schedule 2.8, no consents
are required of third parties to the change of control of the Leases arising
from the transactions contemplated hereby.

 

(d) To the Knowledge of Seller, the Partnership holds good and indefeasible
title to the Real Property and all its other assets and a valid leasehold
interest in all of the Partnership’s leased property, subject to no mortgage,
lien, pledge, security interest, conditional sales agreement, right of first
refusal, option or encumbrance, except for Permitted Encumbrances and the rights
of any lessor or licensor of leased or licensed Personal Property.

 

(e) To the Knowledge of Seller, the Leases constitute all of the agreements to
which the Partnership is a Party with respect to the properties which are
demised pursuant thereto and pertain to all real and personal property leased by
the Partnership and used in the conduct of the business of the Hospital.

 

(f) As of the date hereof, to the Knowledge of Seller all conditions precedent
to the enforceability of each Lease have been satisfied and there exists no
breach or default, nor state of facts which, with the passage of time, notice,
or both, would result in a breach or default on the part of Seller or, to the
knowledge of the Partnership, the other Party thereunder.

 

(g) Seller has no Knowledge of, and the Partnership has not received any written
notice of, non-compliance with law, zoning ordinance or other restriction with
respect to any Real Property.

 

(h) There is no pending or, to the Knowledge of Seller, threatened action that
would materially interfere with the ownership, use or quiet enjoyment of any
Real Property by the Partnership.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 11

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(i) Seller has no Knowledge of, and the Partnership has not received any notice
of, any proposed special assessments, threatened condemnation or any proposed
material changes in property tax or land use laws affecting the Real Property.

 

(j) The assets described in Section 2.9 constitute all of the property necessary
for the Partnership to operate the Hospital after the Effective Time in the same
manner as the Partnership operates the Hospital as of the date hereof.

 

(k) To the Knowledge of Seller, all assessments and dues required under that
certain Declaration of Covenants, Conditions and Restrictions affecting the Real
Property recorded for record under Harris County Clerk’s File Number E702128 of
the Official Public Records of Harris County, Texas (the “Declaration”) are
paid.

 

(l) To the Knowledge of Seller, the plans and specifications for the
improvements (including curb cuts and driveways) on the Real Property comply
with the Declaration and were approved in writing by the Kingwood Place
Community Association, Inc.

 

(m) To the Knowledge of Seller, there are no outstanding maintenance
deficiencies per Section 10.01 of the Declaration.

 

2.9 Assets. On the Closing Date, to the Knowledge of Seller, the Partnership
owns the assets listed in this Section 2.9 free and clear of all liens, such
assets constitute all of the assets owned by the Partnership as of the Effective
Time, and all of such assets shall remain assets of the Partnership free and
clear of all liens after the Effective Time. Except as described in Schedule
2.9, to the Knowledge of Seller, the Hospital and its contents are in operating
condition and in a good state of repair. To the Knowledge of Seller, the
Partnership’s assets as of the Effective Time include:

 

(a) all of the real property owned by the Partnership or otherwise used in
connection with the business of the Hospital, including the real property
described in Schedule 2.9(a) (such description to include a legal description
and address), together with all buildings, improvements and fixtures located
thereupon and all construction in progress thereon (collectively, the “Real
Property”);

 

(b) all of the tangible personal property owned by the Partnership or otherwise
used in connection with the business of the Hospital, including all equipment,
furniture, fixtures, machinery, vehicles, office furnishings, and leasehold
improvements, including the items listed in Schedule 2.9(b) (the “Personal
Property”);

 

(c) all of the Partnership’s rights, to the extent assignable or transferable,
to all licenses, permits, approvals, certificates of need, certificates of
exemption, franchises, accreditations and registrations and other governmental
licenses, permits or approvals issued to the Partnership or any other Person
with respect to the operation of the Hospital (the “Licenses”);

 

(d) all of the Partnership’s or the Hospital’s interest in and to all real
property leases and personal property leases listed in Schedule 2.9(d)
(collectively, the “Leases”);

 

(e) all cash and cash equivalents of the Partnership and the Hospital;

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 12

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(f) all of the Partnership’s interests in the Contracts and all of the interests
of each other Person contracting on behalf of the Hospital in the Contracts;

 

(g) all accounts, notes, interest and other receivables of the Partnership or
otherwise related to the Hospital, and all claims, rights, interests and
proceeds related thereto, including all accounts and other receivables arising
from the rendering of services to patients at the Hospital, billed and unbilled,
recorded and unrecorded, for services provided by the Partnership (the “Accounts
Receivable”);

 

(h) all advance payments, prepayments, prepaid expenses, deposits and the like
which exist as of the Closing Date (the “Prepaids”);

 

(i) all inventories of supplies, drugs, food, janitorial and office supplies and
other disposables and consumables located or held for use at the Hospital (the
“Inventory”);

 

(j) all documents, records, policy and procedure manuals, compliance programs,
staff bylaws, operating manuals, files and computer software owned or used by
the Hospital and/or the Partnership, including all patient records, medical
records, employee records, financial records, equipment records, construction
plans and specifications, and medical and administrative libraries;

 

(k) all rights in all warranties of any manufacturer or vendor in connection
with the Personal Property;

 

(l) all goodwill and other intangible assets used or useful in connection with
the business of the Hospital; and

 

(m) the name, symbols, telephone numbers, facsimile numbers, domain names,
trademarks, trade names, service marks and copyrights used with respect to the
operation of the Hospital, including the names “Kingwood Pines Hospital” and all
variants thereof and all common law trademark rights associated therewith and
“SHC-KPH, LP”;

 

(n) all of the Partnership’s rights with respect to its Medicare, Medicaid and
other third-party provider numbers and all other Medicare, Medicaid and other
third-party provider numbers used by any Person in connection with the business
of the Hospital; and

 

(o) the exclusive ownership and control of the bank accounts and lock boxes
listed in Schedule 2.9(o) (collectively, the “Lock Boxes”) and the exclusive
ownership and control of all amounts received and deposited into the Lock Boxes
after the Effective Time.

 

2.10 Limited Partner Interest. The Limited Partner Interest is validly issued
and outstanding. The Limited Partner Interest is fully paid and nonassessable.
All of the issued and outstanding limited partner interests of the Partnership
are owned of record and beneficially by Seller. The Partnership has provided to
Purchaser a correct and complete copy of the ownership and interest records of
the Partnership listing all partners of the Partnership and the outstanding
total amount of limited partner interest issued to each general partner and
limited partner of the Partnership since its inception. There are no outstanding
options, warrants, convertible instruments, or other rights, agreements, or
commitments to issue or acquire any general partner

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 13

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interest or limited partner interest of the Partnership or any other security
constituting, or convertible or exchangeable into, interests of the Partnership.
The Partnership has not granted and is not a party to any agreement granting
preemptive rights, rights of first refusal, or registration rights with respect
to its outstanding or authorized partnership interests or any partnership
interests of the Partnership to be issued in the future.

 

2.11 Intangible Property. Schedule 2.11 lists any and all computer software
programs and licenses, all other licenses and sublicenses, all intellectual
property, all marks and other material items of intangible property in which the
Partnership or, the Hospital has an interest and the nature of such interest
(the “Intangible Property”). Except as shown in Schedule 2.11, the Partnership
owns all right, title and interest in and to, or has valid and enforceable
licenses to use, all the Intangible Property owned, used or held by it or the
Hospital in connection with the business of the Hospital as now conducted. The
Intangible Property represents all intellectual property rights necessary for
the operation of its business as now conducted. Except as disclosed in
Schedule 2.11, the Hospital does not use any Intangible Property by consent of
any other person and is not required to and does not make any payments to others
with respect thereto. Except as shown in Schedule 2.11, the Intangible Property
is fully assignable free and clear of any encumbrances. The Partnership has in
all material respects performed all obligations required to be performed by, and
neither the Partnership nor any other Person is in default in any material
respect under, any contract relating to any of the foregoing. Neither the
Partnership nor any other Person has received any notice to the effect that such
intangible property or any use thereof by the Hospital conflicts with or
infringes (or allegedly conflicts with or infringes upon) the rights of any
Person. To the Knowledge of Seller, the Partnership currently holds the proper
number and types of valid computer software licenses for each of the Hospital’s
users and other locations which are required under the Contracts covering such
licenses.

 

2.12 Legal Proceedings. Except as set forth in Schedule 2.12, there is no order
or action or claim pending, or, to the Knowledge of Seller, threatened, against
or affecting the Partnership or the Hospital, or any of their respective
properties or assets. Schedule 2.12 lists each order and each action or claim
against, or that enjoins or seeks to enjoin or excludes or seeks to exclude the
conduct of any activity by, the Partnership.

 

2.13 Accounting Records; Internal Controls.

 

(a) Accounting Records. The Partnership has records that accurately and validly
reflect its respective transactions, and accounting controls sufficient to
insure that such transactions are (i) executed in accordance with management’s
general or specific authorization and (ii) recorded in conformity with GAAP so
as to maintain accountability for assets.

 

(b) Data Processing; Access. Such records, to the extent they contain important
information that is not easily and readily available elsewhere, have been
duplicated, and such duplicates are stored safely and securely pursuant to
procedures and techniques utilized by companies of comparable size in similar
lines of business.

 

2.14 Insurance. Schedule 2.14 lists all insurance policies and bonds that are
maintained by the Partnership and indicates the type of insurance, policy
number, term, identity of insurer, premiums and coverage amounts for the
previous four (4) years and basic coverages

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 14

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(including applicable deductibles) for each such insurance policy and bond. The
Partnership is not in default under any insurance policy or bond. The
Partnership has timely filed claims with its respective insurers with respect to
all matters and occurrences for which it believes it has coverage. Schedule 2.14
lists all claims in excess of $10,000 which have been made by the Partnership in
the last two (2) years under any insurance policy and bond. Except as set forth
in Schedule 2.14, all insurance policies and bonds are in full force and effect.
Except as shown in Schedule 2.14, the Partnership has not received notice from
any insurer or agent of any intent to cancel or not to renew any of such
insurance policies and bonds. There are no outstanding requirements or
recommendations by any insurance company that issued a policy with respect to
any of the properties and assets of the Partnership or by any Board of Fire
Underwriters or other body exercising similar functions or by any governmental
entity requiring or recommending any action which has not been taken.

 

2.15 Employees.

 

(a) Schedule 2.15 sets forth a complete list (as of the date set forth therein)
of names, positions and current annual salaries or wage rates, bonus and other
compensation and/or benefit arrangements, accrued vacation, accrued paid time
off and sick leave, the paid time off pay and period of service credited for
vesting as of the date thereof of all full-time and part-time employees of the
Partnership and/or the Hospital and indicating whether such employee is a
part-time or full-time employee. Except as shown in Schedule 2.15, there are no
employment agreements or severance agreements with employees of the Partnership
or the Hospital. There are no agreements or arrangements with any employee of
the Partnership or, the Hospital requiring the payment of a bonus or other
compensation as a result of the consummation of the transaction contemplated by
this Agreement.

 

(b) There are no labor union or collective bargaining agreements in effect with
respect to the employees of the Partnership or, the Hospital. There is no unfair
labor practice complaint against the Partnership or the Hospital pending, or to
the Knowledge of Seller threatened, before the National Labor Relations Board.
There is no labor strike, arbitration, dispute, slowdown or stoppage, and no
union organizing campaign, pending, or to the Knowledge of Seller threatened by
or involving the employees of the Partnership or the Hospital.

 

2.16 Employee Benefits.

 

(a) Schedule 2.16 contains a list of each pension, retirement, savings, deferred
compensation, and profit-sharing plan and each bonus or other incentive plan,
severance plan, health, group insurance or other welfare plan, or other similar
plan and any “employee plan” within the meaning of Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”), under which any
employee, former employee or independent contractor (or beneficiary of any
employee, former employee or independent contractor) of the Partnership or, the
Hospital has or may have any current or future right to benefits (the term
“plan” shall include any contract, agreement, policy or understanding, each such
plan being hereinafter referred to in this Agreement individually as a “Plan”).
Seller and the Partnership have made available to Purchaser true and complete
copies of (i) each Plan and (ii) the summary plan description, if any, for each
Plan. To the Knowledge of Seller, each Plan intended to be tax qualified under
Sections 401(a) and 501(a) of the Code either has received a favorable
determination letter from

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 15

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the IRS or is a prototype or volume submitter plan as to which the prototype
sponsor has received a favorable GUST opinion or advisory letter as described in
IRS Announcement 2001-6 on which the Partnership is entitled to reliance on all
qualification issues under IRS Announcement 2001-77, and no amendment to or
failure to amend any such Plan and, to Seller’s or the Partnership’s Knowledge,
no other event or circumstance has occurred that would reasonably be expected to
materially and adversely affect its tax qualified status. To Seller’s or the
Partnership’s Knowledge, there has been no prohibited transaction within the
meaning of Section 4975 of the Code and Section 406 of Title I of ERISA with
respect to any Plan as to which there is no statutory or administrative
exemption. Each Plan is in full compliance with all requirements of ERISA and
the Code.

 

(b) To the Knowledge of Seller, there are no actions pending, threatened, with
respect to any Plan or the assets of any Plan, other than claims for benefits in
the ordinary course. Each Plan has been administered in all material respects in
accordance with its terms and with all applicable laws (including ERISA).
Neither the Partnership nor any of its employees has committed or participated
in any breach of any fiduciary duty under ERISA that could result in material
liability to the Partnership.

 

(c) Neither Seller, the Partnership nor any Commonly Controlled Entity
contributes to or has an obligation to contribute to, nor has Seller, the
Partnership or any Commonly Controlled Entity at any time within six (6) years
prior to the Closing contributed to or had an obligation to contribute to,
either (i) a multiemployer plan within the meaning of Section 3(37) of ERISA, or
(ii) any plan subject to Title IV of ERISA. Seller and the Partnership have
performed timely and shall timely perform all obligations of Seller, the
Partnership and each Commonly Controlled Entity, whether arising by operation of
law or by contract, required to be performed under Section 4980B of the Code (or
similar state law), including, but not limited to, such obligations that may
arise by virtue of the transactions contemplated by this Agreement. For the
purposes of this Section 2.13, “Commonly Controlled Entity”) means any
corporation, trade, business, or entity under common control with Seller or the
Partnership within the meaning of Section 414(b), (c), (m), or (o) of the Code
or Section 4001 of ERISA.

 

(d) To the Knowledge of Seller, each employee, former employee and independent
contractor of the Partnership has been properly classified as such for all
purposes under the Code and ERISA. All employees that work at the Hospital are
employees of the Partnership.

 

(e) The Partnership’s ceasing as of the Closing to be a member of a controlled
group of corporations and entities with Seller and its Affiliates under
Section 414(b) of the Code shall constitute a “severance from employment” of the
employees of the Partnership within the meaning of Section 401(k)(2)(B)(i)(I) of
the Code with respect to any Plan that is a 401(k) or other retirement plan
qualified under Section 401(a) of the Code in which the employees of the
Partnership participate, and such severance from employment shall under the
terms of any such Plan entitle the employees of the Partnership to an immediate
distribution of all of their accounts or other benefits under the Plan.

 

2.17 Certain Interests. Except as shown on Schedule 2.17, no Affiliate of the
Partnership, nor any officer or director of any thereof, nor any associate of
any such individual,

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 16

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has any material interest in any property used in or pertaining to the business
of the Partnership; no such Person is indebted or otherwise obligated to the
Partnership; and the Partnership is not indebted or otherwise obligated to any
such Person, except for amounts due under normal arrangements applicable to all
employees generally as to salary, or reimbursement of ordinary business expenses
not unusual in amount or significance. The consummation of the transactions
contemplated by this Agreement will not (either alone, or upon the occurrence of
any act or event, or with the lapse of time, or both) result in any benefit or
payment (severance or other) arising or becoming due from the Partnership or the
successor or assign of any thereof to any Person.

 

2.18 Intercompany Transactions. Schedule 2.18 contains a complete and accurate
listing of all business functions and activities of the Hospital which are
performed, in whole or in part, by any Affiliate of the Partnership. Except as
shown in Schedule 2.18, the Partnership has not engaged in any transaction with
any Affiliate of the Partnership. Except as shown in Schedule 2.18, the
Partnership has no liabilities or obligations to any Affiliate of the
Partnership and no Affiliate of the Partnership has any liabilities or
obligations to the Partnership.

 

2.19 Inventory. All Inventory of the Hospital is exclusively owned by the
Partnership. The Inventory is being transferred “as is” without any warranty of
fitness for intended purpose, merchantability or other warranty whatsoever.

 

2.20 Receivables. The Accounts Receivable arose from bona fide commercial
transactions, and, to the Knowledge of Seller, the financial statements referred
to in Section 2.5 include all material refunds, discounts or setoffs payable or
assessable with respect to such Accounts Receivable, taken as a whole. To the
Knowledge of Seller, the Partnership adequately records on its financial
statements in accordance with GAAP all estimates for future Cost Report
settlements for all years open to settlement. The Partnership records Government
Program recoupments on its financial statements as they occur in accordance with
GAAP.

 

2.21 Third Party Payors and Suppliers. Schedule 2.21 lists the names of and
describes all Contracts with and the respective percentage of the revenues of
the business of the Hospital for the year ended December 31, 2005, attributable
to the ten largest third party payors and any sole-source suppliers of
significant goods or services (other than electricity, gas, telephone or water)
to the business of the Hospital with respect to which alternative sources of
supply are not readily available on comparable terms and conditions.

 

2.22 Environmental Compliance. Except as disclosed in that certain Environmental
Site Assessment dated August 7, 2002, on the Real Property prepared by
Comprehensive Building Analysis, Inc. which was provided to Purchaser and to the
Knowledge of Seller:

 

(a) The Partnership and the Hospital are each in full compliance with all
applicable Environmental Laws. As used herein, “Environmental Laws” shall mean
all applicable federal, state or local laws relating to pollution or protection
of the environment (including, without limitation, ambient air, surface water,
ground water, land or surface or subsurface strata), including all federal,
state or local laws relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants, chemicals or industrial, toxic or
hazardous substances or wastes into the environment and all federal, state or
local laws relating

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 17

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to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of any of the foregoing, including the Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et
seq., the Resource Conservation and Recovery Act, 42 U.S.C. § 6901, et. seq.,
and the rules and regulations promulgated thereunder.

 

(b) The Partnership has obtained all permits required under applicable
Environmental Laws for the use, operation or ownership of the Real Property and
business of the Hospital and the Partnership. The Partnership is in full
compliance with each such applicable permit. No federal, state or local
governmental entity has notified the Partnership that any such permits may or
will be suspended, cancelled, revoked or materially modified, or cannot be
renewed in the ordinary course of business.

 

(c) Neither the Partnership nor the Hospital has received from any federal,
state or local governmental entity or other Person any order, directive,
information request, notice of violation, notice of alleged violation, notice of
noncompliance, notice of liability or potential liability, regarding compliance
with, or liability or potential liability under, applicable Environmental Laws
concerning any of the Real Property or the business of the Partnership or the
Hospital or any off-site disposal of a hazardous substance (including any letter
or request for information under Section 104 of the Comprehensive Environmental
Response, Compensation, and Liability Act (42 U.S.C. § 9604) or any comparable
state law).

 

(d) No judicial proceeding, action, claim, suit, or governmental or
administrative action is pending or, to the Knowledge of Seller, threatened,
under any applicable Environmental Law pursuant to which the Partnership or the
Hospital is or to the Knowledge of Seller could be reasonably expected to be
named as a party with respect to the Real Property or the business operations of
the Partnership or the Hospital.

 

(e) The Partnership has not entered into any agreement with any federal, state
or local governmental entity or any other Person pursuant to which the
Partnership assumed responsibility for the investigation or remediation of any
condition resulting from the release, treatment, storage or disposal of
hazardous substances.

 

(f) Seller has disclosed and made available to Purchaser all relevant
information, including all studies, site assessments, compliance audits and
similar environmental reports, analyses, and test results that are in the
Partnership’s possession, custody or control, relating to any past and present
(i) environmental conditions concerning the business of the Hospital or on,
under or about the Real Property, (ii) use or operation of the Real Property
used in or held for use in connection with the business of the Hospital, and
(iii) activities relating to hazardous substances on, or any off-site disposal
of a hazardous substance from, the Real Property or used in connection with the
business of the Hospital. Seller has disclosed and made available to Purchaser
any and all documents that are in the Partnership’s possession, custody or
control relating to projected environmental expenditures for the business of the
Hospital and the Real Property, including capital and operating budgets and
reports prepared by independent auditors or accountants and prepared by
personnel, and including reports, studies or documents relating to the costs
(including, anticipated capital costs and annual expenses) of compliance with
Environmental Laws.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 18

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(g) There is no soil or groundwater contamination on, under, or about any Real
Property.

 

(h) The Partnership does not hold and is not required to hold a permit for the
generation, treatment, storage, or disposal of hazardous waste in accordance
with the Resource Conservation and Recovery Act (42 U.S.C. § 6901, et seq.).

 

2.23 Powers of Attorney. The Partnership has not given any power of attorney
(irrevocable or otherwise) to any Person for any purpose, other than powers of
attorney given to regulatory authorities in connection with routine
qualifications to do business.

 

2.24 Medicare and Medicaid; Third-Party Payors; Compliance with Health Care
Laws.

 

(a) The Hospital is duly accredited by the Joint Commission on Accreditation of
Healthcare Organizations (“JCAHO”) as evidenced by the Hospital’s most recent
JCAHO accreditation survey reports and is duly and unconditionally licensed by
the State of Texas Department of State Health Services (“Texas Agency”) as a
Private Mental Hospital and a Private Psychiatric Hospital. To the Knowledge of
Seller, except as described in Schedule 2.24, the Partnership has the lawful
authority and all federal, state or local governmental authorizations,
certificates of authority, certificates of need, licenses or permits necessary
for or required to conduct the Hospital’s business as such are being conducted.
In order to conduct its and the Hospital’s business operations as presently
conducted, the Partnership is not required to hold any licenses, permits and
other governmental approvals or authorizations except for the licenses currently
held by the Partnership as set forth in Schedule 2.24. The Licenses listed in
Schedule 2.24 are in full force and effect, and the Partnership and the Hospital
are in full compliance in all material respects with all requirements of each
license. The Partnership has made all material filings with governmental
agencies required for the conduct of its business operations. There are no
judgments, consent decrees or injunctions of any court or any governmental
department, commission, agency or instrumentality by which the Partnership is
bound or to which the Partnership is subject. The Partnership has not received
nor, to the Knowledge of Seller, is the Partnership subject to any notice,
subpoena, demand letter, administrative inquiry or formal or informal complaint
or claim from any governmental department, commission, agency or
instrumentality.

 

(b) Without limiting the generality of the foregoing, to the Knowledge of
Seller, the applicable facilities, equipment, staffing and operations of the
business of the Hospital satisfy in all material respects the accreditation
standards of JCAHO, and Seller has previously delivered to Purchaser true,
correct and complete copies of (i) the Hospital’s most recent JCAHO
accreditation survey report, a list of deficiencies, if any, and, if applicable,
a plan of correction; (ii) the Hospital’s most recent Texas Agency surveys,
lists of deficiencies, if any, and, if applicable, plans of correction;
(iii) the Hospital’s fire marshal’s surveys for the past two (2) years and lists
of deficiencies, if any; and (iv) the Hospital’s boiler inspection reports for
the past two (2) years and lists of deficiencies, if any. The Partnership has
taken all reasonable steps to correct all such deficiencies and a description of
any uncorrected deficiency is set forth in Schedule 2.24.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 19

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(c) The Partnership receives payment without restriction under Medicare and
Medicaid and has a valid and current provider agreement and one or more properly
issued provider numbers with each service relating to any Federal Health Care
Program as such term is defined in 42 U.S.C. § 1320a-7b(f) (the “Government
Programs”). All such provider numbers of the Partnership and the Hospital are
listed in Schedule 2.24. Except as set forth in Schedule 2.24, the Partnership
and the Hospital are each in compliance in all material respects with the
conditions of participation for the Government Programs.

 

(d) The Partnership has timely filed in accordance with instructions from the
Centers for Medicare & Medicaid Services or the applicable payor or shall cause
to be timely filed in accordance with instructions from the Centers for
Medicare & Medicaid Services or the applicable payor all cost reports and other
reports that are required by third-party payors to have been filed or made on or
before the Closing Date, including Government Programs and other insurance
carriers, and, except as disclosed in Schedule 2.24, all such reports are or
when filed shall be complete and accurate in all material respects. Except as
disclosed in Schedule 2.24, the Partnership is and has been in material
compliance with filing requirements with respect to cost reports of the
Partnership, and such reports do not claim, and the Partnership has not
received, payment or reimbursement in excess of the amount provided or allowed
by applicable law or any applicable agreement, except where excess reimbursement
was noted on the cost report. True and correct copies in electronic format of
all such reports for the three (3) most recent fiscal years for which cost
reports have been filed by the Partnership, and any other cost report for which
a final settlement has not been issued, have been made available to Purchaser.
Except as disclosed in Schedule 2.24 and except for claims, actions and appeals
in the ordinary course of business, the Partnership has neither initiated nor
received written notice of any material claims, actions or appeals pending
before any commission, board or agency, including any fiscal intermediary or
carrier, governmental entity, or the Administrator of the Center for Medicare &
Medicaid Services, with respect to any Government Program cost reports or claims
filed with any Government Program on behalf of the Partnership, on or before the
date of this Agreement. Schedule 2.24 indicates which of such cost reports have
been audited by the fiscal intermediary and finally settled.

 

(e) To the Knowledge of Seller, no validation review or program integrity review
related to the Partnership, or the consummation of the transactions contemplated
by this Agreement, has been conducted by any commission, board, agency or
government entity in connection with the Government Programs, and to the best
Knowledge of Seller, no such reviews are scheduled, pending or threatened
against or affecting the Partnership or the consummation of the transactions
contemplated by this Agreement.

 

(f) To the Knowledge of Seller, all billing practices of the Partnership and the
Hospital to all third-party payors, including the Government Programs and
private insurance companies, are and have been in compliance with all applicable
laws and policies of such third-party payors and Government Programs in all
material respects, and neither the Partnership nor the Hospital has billed or
received any payment or reimbursement in excess of amounts allowed by law.

 

(g) The Partnership has performed through third party contractors a review of
the website of the Office of Inspector General of the United States Department
of Health and

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 20

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Human Services and based upon such review and except as listed in Schedule 2.24,
to the Knowledge of Seller, (i) no employee or independent contractor of the
Partnership or any physician currently on the medical staff at the Hospital is
listed as having been, and to the Knowledge of the Partnership is not, excluded
from participating in Medicare or any other federal health care program (as that
term is defined in 42 U.S.C. § 1320a-7b(f)), and (ii) none of the business of
the Hospital, or the Partnership or the Partnership’s officers, directors,
agents or management employees (as that term is defined in 42 U.S.C.
§ 1320a-5(b)), has been excluded from participating in Medicare or any other
federal health care program (as that term is defined in 42 U.S.C. § 1320a-7b(f)
or has been subject to sanction pursuant to 42 U.S.C. § 1320a-7a or 1320a-8 or
has been convicted of a criminal offense under the Anti-Kickback Laws.

 

(h) Since February 8, 2005, none of Seller, the Partnership, or to the Knowledge
of Seller, any of their respective employees have committed a violation of
federal or state laws regulating health care fraud, including the Anti-Kickback
Laws, the Stark Laws and the False Claims Act which violation relates in any
respect.

 

2.25 Compliance Program. Seller has made available to Purchaser (i) a copy of
the Hospital’s current compliance program materials, including all program
descriptions, compliance officer and committee descriptions, ethics and risk
area policy materials, training and education materials, auditing and monitoring
- protocols, reporting mechanisms, and disciplinary policies and (ii) copies of
any written complaints received in the previous five (5) years from the date
hereof from employees, independent contractors, vendors, physicians or any other
Person asserting that the Hospital or the Partnership have violated any health
care fraud law or regulation, including the Anti-Kickback Laws and the Stark
Laws. The Partnership (a) is not a party to a Corporate Integrity Agreement with
the Office of Inspector General of the United States Department of Health and
Human Services, (b) has no reporting obligations pursuant to any settlement
agreement entered into with any Governmental Program, (c) to the Knowledge of
Seller, has not been the subject of any Government Program investigation
conducted by any federal or state enforcement agency during the past five
(5) years, (d) has not been a defendant in any qui tam/False Claims Act
litigation during the past five (5) years, or (e) has not been served with or
received any written search warrant, subpoena, civil investigative demand or
contact letter from any federal or state enforcement agency (except in
connection with medical services provided to, or medical supplies purchased
from, third parties who may be defendants or the subject of investigation into
conduct unrelated to the operation of the health care businesses conducted by
the Partnership).

 

2.26 HIPAA. To the Knowledge of Seller, the Partnership and the Hospital are
each in compliance in all material respects with the administrative
simplification provisions of the Health Insurance Portability and Accountability
Act of 1996 (“HIPAA”), and the rules and regulations promulgated thereunder as
of the applicable effective dates for such requirements.

 

2.27 Restricted Grant and Loan Programs. The transactions contemplated by this
Agreement will not result in any obligation on the Partnership or, to the
Knowledge of Seller, the Hospital to repay any loans, grants or loan guarantees
or provide uncompensated care in consideration thereof pursuant to the Hill
Burton Program or any similar statute or program with respect to the ownership
or operation of the business of the Partnership or the Hospital.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 21

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2.28 Experimental Procedures. Neither the Partnership nor, to the Knowledge of
Seller, the Hospital has performed or authorized the performance of any
experimental or research procedures or studies involving patients of the
Hospital that require the prior approval of any governmental entity that has not
been obtained.

 

2.29 Medical Staff; Physician Relations. The Partnership has delivered to
Purchaser complete and genuine copies of the bylaws and rules and regulations of
the medical staff and medical executive committees of the Hospital.
Schedule 2.29 sets forth (a) the name, age and status on the medical staff of
each member of the medical staff of the Hospital and (b) the degree (e.g., M.D.,
D.O.), title specialty and board certification, if any, of each such medical
staff member. Except as set forth in Schedule 2.29, there are no pending or, to
Seller’s Knowledge, threatened disputes with the Hospital medical staff members
or applicants or allied health professionals, and all appeal periods in respect
of any medical staff member or applicant against whom an adverse action has been
taken have expired.

 

2.30 No Brokers or Finders. Except for Marilyn Cochran’s fees under the Real
Property Purchase Contract, no agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Seller or the Partnership, or any of their respective Affiliates in connection
with the negotiation, execution or performance of this Agreement or the
transactions contemplated by this Agreement, is or will be entitled to any
brokerage or finder’s or similar fee or other commission as a result of this
Agreement or such transactions; except for such fees or other commissions as to
which Seller shall have full responsibility and, with respect to such fees or
commissions, Purchaser shall not have any liability.

 

2.31 Improper Payments. None of the Partnership or Seller or, to the Knowledge
of Seller, any of their respective directors, officers, employees, agents or
partners have made any bribes, kickbacks or other illegal payments to, or
received any such illegal payments from, customers, vendors, suppliers or other
persons contracting with the Partnership or the Hospital and has not proposed or
offered to make or receive any such illegal payments.

 

2.32 No Misrepresentations. The representations, warranties and statements made
by the Partnership and Seller in this Agreement (including any Schedule, Exhibit
or certificate furnished by Seller or the Partnership in accordance with the
terms of this Agreement) are true, complete and correct in all material respects
and do not contain any untrue statement of a material fact or omit to state any
material fact necessary to make any such representation, warranty or statement,
under the circumstances in which it is made, not misleading.

 

2.33 Liabilities. True and correct copies of all notes, agreements or other
documents evidencing outstanding liabilities of the Partnership have been
delivered or made available to Purchaser by the Partnership.

 

2.34 Conduct of Business. Except as stated in Schedule 2.34, Seller represents
and warrants that since November 30, 2005, the Partnership has:

 

(a) carried on the Partnership’s businesses in substantially the same manner as
conducted before such date and has not made any material change in personnel,
operations, finance, accounting policies, Tax elections or Tax returns or Real
Property or Personal Property;

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 22

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(b) maintained the assets of the Partnership in operating condition in a manner
consistent with past practices, ordinary wear and tear excepted;

 

(c) performed all of its material obligations under the Contracts, Leases and
all other agreements;

 

(d) kept in full force and effect all of its insurance policies or other
comparable self-insurance; and

 

(e) used commercially reasonable efforts to maintain and preserve both the
Partnership’s and the Hospital’s business organizations intact, retained all of
the Partnership’s and the Hospital’s employees and maintained their respective
relationships with physicians, suppliers, customers and others having business
relationships with the Partnership or the Hospital.

 

2.35 Negative Assurances. Except as stated in Schedule 2.35, Seller represents
and warrants that since November 30, 2005, the Partnership has not:

 

(a) amended or terminated any of the Contracts or Leases, entered into any new
contract or commitment, or incurred or agreed to incur any liability (other than
the Promissory Note and Deed of Trust entered into by the Partnership with
Purchaser in order to enable the Partnership to acquire the Real Property and
Other Assets);

 

(b) increased compensation payable or to become payable or made any bonus
payment to or otherwise entered into one or more bonus agreements with any
employee of the Partnership or the Hospital;

 

(c) created, assumed or permitted to exist any new debt, mortgage, deed of
trust, pledge or other lien or encumbrance upon any of the assets of the
Partnership or the Hospital (other than the Promissory Note and Deed of Trust
entered into by the Partnership with Purchaser in order to enable the
Partnership to acquire the Real Property and Other Assets);

 

(d) except for the Partnership’s acquisition of the Real Property and other
related assets on the date hereof under the Real Property Purchase Contract,
acquired (whether by purchase or lease) or sold, assigned, leased, or otherwise
transferred or disposed of any property, plant or equipment, except in the
ordinary course of business with comparable replacement thereof;

 

(e) purchased capital assets or incurred costs in respect of construction in
progress;

 

(f) taken any action outside the ordinary course of business;

 

(g) reduced Inventory except in the ordinary course of business;

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 23

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(h) made any distribution of any Partnership assets to any partner or any of
their respective Affiliates;

 

(i) except for the Partnership Agreement Amendment, amended the Limited
Partnership Agreement in any manner; or

 

(j) had any material change in the working capital of the Partnership.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

As an inducement to Seller to enter into this Agreement and to consummate the
transactions contemplated by this Agreement, Purchaser hereby represents,
warrants and covenants to Seller as to the following matters as of the Closing
Date:

 

3.1 Authority. Purchaser has full limited liability company power and authority
to enter into this Agreement and to carry out the transactions contemplated
hereby.

 

3.2 Authorization/Execution. All limited liability company and other actions
required to be taken by Purchaser to authorize the execution, delivery and
performance of this Agreement, all documents executed by Purchaser which are
necessary to give effect to this Agreement, and all transactions contemplated
hereby, have been duly and properly taken or obtained by Purchaser. No other
limited liability company or other action on the part of Purchaser is necessary
to authorize the execution, delivery and performance of this Agreement, all
documents necessary to give effect to this Agreement and all transactions
contemplated hereby. This Agreement and all documents delivered hereunder have
been duly and validly executed and delivered by Purchaser and, assuming due and
valid execution by, and enforceability against, the Partnership and Seller, this
Agreement and all documents delivered hereunder constitute the valid and binding
obligations of Purchaser enforceable in accordance with their respective terms
subject to (a) applicable bankruptcy, reorganization, insolvency, moratorium and
other laws affecting creditors’ rights generally from time to time in effect and
(b) limitations on the enforcement of equitable remedies.

 

3.3 Organization and Good Standing; No Violation.

 

(a) Purchaser is a limited liability company duly organized, validly existing
and in good standing under the laws of the State of Delaware, and has full power
and authority to own, operate and lease its properties and to carry on its
business as now conducted.

 

(b) The execution and delivery of this Agreement and the performance of the
transactions contemplated by this Agreement and all other instruments,
agreements, certificates and documents contemplated hereby to which Purchaser is
or will be a party do not (i) violate any decree or judgment of any court or
governmental authority which may be applicable to or bind Purchaser;
(ii) violate any law, rule or regulation applicable to Purchaser which would
have a material adverse effect on Purchaser; (iii) violate or conflict with, or
result in a breach of, or constitute a default (or an event which, with or
without notice or lapse of time or both, would constitute a default) under, or
permit cancellation of, any material contract, lease, sales order, purchase
order, indenture, mortgage, note, bond, instrument, license or other agreement
to which

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 24

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Purchaser is a party, or by which Purchaser is bound; (iv) permit the
acceleration of the maturity of any indebtedness of Purchaser; or (v) violate or
conflict with any provision of the Certificate of Formation or Operating
Agreement of Purchaser.

 

(c) Purchaser and its Affiliates (a) are not a party to a Corporate Integrity
Agreement with the Office of Inspector General of the United States Department
of Health and Human Services, (b) have no reporting obligations pursuant to any
settlement agreement entered into with any Governmental Program, (c) to the
Knowledge of Purchaser are not the subject of any Government Program
investigation presently being conducted by any federal or state enforcement
agency, or (d) have not been a defendant in any qui tam/False Claims Act
litigation during the past five (5) years except as disclosed in Horizon Health
Corporation’s Annual Report on Form 10-K filed with the SEC for the year ended
August 31, 2005.

 

3.4 Brokers and Finders. No agent, broker, finder, or investment or commercial
banker, or other Person or firm engaged by or acting on behalf of Purchaser, or
any of their respective Affiliates in connection with the negotiation, execution
or performance of this Agreement or the transactions contemplated by this
Agreement, is or will be entitled to any brokerage or finder’s or similar fee or
other commission as a result of this Agreement or such transactions; except for
such fees and other commissions as to which Purchaser shall have full
responsibility and, with respect to such fees or commissions, Seller shall not
have any liability.

 

ARTICLE 4

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER

 

Seller’s obligations to sell the Limited Partner Interest and to close the
transactions as contemplated by this Agreement shall be subject to the
satisfaction of each of the following conditions on or prior to the Closing Date
unless specifically waived in writing by Seller in whole or in part at or prior
to the Closing:

 

4.1 Accuracy of Representations and Warranties and Compliance with Obligations.
The representations and warranties of Purchaser contained in this Agreement
shall have been true and correct at the date of this Agreement, and they shall
be true and correct in all respects as of the Closing with the same force and
effect as though made at and as of the Closing. Purchaser shall have performed
and complied with all of its obligations required by this Agreement to be
performed or complied with at or prior to the Closing.

 

4.2 Signing and Delivery of Instruments. Purchaser shall have executed and
delivered all documents, instruments and certificates required to be executed
and delivered by it pursuant to the provisions of this Agreement.

 

4.3 Unfavorable Action or Proceeding. On the Closing Date, no orders, decrees,
judgments or injunctions of any court or governmental body shall be in effect,
and no claims, actions, suits, proceedings, arbitrations or investigations shall
be pending or threatened, which challenge or seek to challenge, or which could
reasonably be expected to prevent or cause the rescission of, the consummation
of the transactions contemplated in this Agreement.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 25

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4.4 Governmental Authorizations. Seller, the Partnership and Purchaser shall
have obtained all material licenses, permits, approvals, certificates of need
and authorizations from governmental agencies or governmental bodies that are
necessary or required for the completion of the transactions contemplated by
this Agreement. Seller, the Partnership and Purchaser shall have obtained all
Governmental Approvals. All consents, waivers, and estoppels of third parties
which are reasonably necessary, in the opinion of Seller, to complete
effectively the transactions herein contemplated shall have been obtained in
form and substance reasonably satisfactory to Seller.

 

ARTICLE 5

CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

 

Purchaser’s obligation to purchase the Limited Partner Interest and to close the
transactions contemplated by this Agreement shall be subject to the satisfaction
of each of the following conditions on or prior to the Closing Date unless
specifically waived in writing by Purchaser in whole or in part at or prior to
the Closing.

 

5.1 Accuracy of Representations and Warranties and Compliance with Obligations.
The representations and warranties of Seller and the Partnership in this
Agreement shall have been true and correct on the date of this Agreement, and
they shall be true and correct in all respects as of the Closing with the same
force and effect as though made at and as of the Closing. Seller and the
Partnership shall have performed and complied with all of their respective
obligations required by this Agreement to be performed or complied with at or
prior to the Closing.

 

5.2 Governmental Authorizations. Purchaser, Seller and the Partnership shall
have obtained all material licenses, permits, approvals, certificates of need
and authorizations from governmental agencies or governmental bodies that are
necessary or required for Purchaser to complete the transactions contemplated by
this Agreement and the operation of the Hospital by Purchaser after the Closing.
Purchaser, Seller and the Partnership shall have obtained all material licenses,
permits, approvals and authorizations from governmental agencies or governmental
bodies that are necessary or required for completion of the transactions
contemplated by this Agreement. All consents, waivers and estoppels of third
parties which are reasonably necessary, in the opinion of Purchaser, to complete
effectively the transactions herein contemplated shall have been obtained in
form and substance reasonably satisfactory to Purchaser.

 

5.3 Signing and Delivery of Instruments. Seller and the Partnership shall have
executed and delivered all documents, instruments and certificates required to
be executed and delivered pursuant to all of the provisions of this Agreement.

 

5.4 Unfavorable Action or Proceeding. On the Closing Date, no orders, decrees,
judgments or injunctions of any court or governmental body shall be in effect,
and no claims, actions, suits, proceedings, arbitrations or investigations shall
be pending or threatened, which challenge or seek to challenge, or which could
reasonably be expected to prevent or cause the rescission of the consummation of
the transactions contemplated in this Agreement.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 26

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5.5 No Material Adverse Change. There shall not have been any Material Adverse
Change in or affecting the Limited Partner Interest or the business of the
Partnership since October 31, 2005.

 

5.6 Required Consents. The Contract and Lease Consents shall have been received
or obtained on or prior to the Closing Date without the imposition of any
burdens or conditions materially adverse to the Party or Parties entitled to the
benefit thereof.

 

5.7 Disclosure Schedules. Seller and the Partnership shall have promptly and
fully completed the Disclosure Schedules hereto.

 

5.8 Real Property Title Matters. The Partnership shall have received an Owner’s
Title Policy with respect to each parcel of the Real Property issued to the
Partnership covering the Real Property in the amount of the full insurable value
of such parcel of the Real Property, and which contains such endorsements as are
customary in the counties where such parcel of the Real Property is located and
no exceptions other than the Permitted Encumbrances, and which is reasonably
satisfactory to Purchaser in all respects.

 

5.9 Lock Boxes. Seller has taken all actions necessary for Purchaser and the
Partnership to obtain full and exclusive access and ownership to all funds
relating to and the Lock Boxes used in the business of the Hospital, and Seller
shall deliver to Purchaser all necessary executed documents and consents to
accomplish and evidence such exclusive ownership and access.

 

ARTICLE 6

POST-CLOSING MATTERS

 

6.1 Preservation and Access to Records After the Closing.

 

(a) From the Closing Date until seven (7) years after the Closing Date or such
longer period as required by law (the “Document Retention Period”), Purchaser
shall cause the Partnership to keep and preserve all medical records, patient
records, medical staff records and other required books and records which are
among the assets of the Partnership as of the Effective Time. The Partnership
will afford to the representatives of Seller, including their counsel and
accountants, full and complete access to, and copies (including, without
limitation, color laser copies) of, such records with respect to time periods
prior to the Effective Time during normal business hours after the Effective
Time, to the extent reasonably needed by Seller for business purposes. Purchaser
acknowledges that, as a result of entering into this Agreement and owning the
Limited Partner Interest of the Partnership, it will gain access to patient
records and other information which are subject to rules and regulations
concerning confidentiality. Purchaser shall abide by any such rules and
regulations relating to the confidential information it acquires. After the
expiration of the Document Retention Period, if the Partnership intends to
destroy or otherwise dispose of any of the documents described in this
Section 6.1(a), the Partnership shall provide written notice to Seller of the
Partnership’s intention no later than forty-five (45) calendar days prior to the
date of such intended destruction or disposal. Seller shall have the right, at
their sole cost, to take possession of such documents during such forty-five
(45) calendar day period. If Seller does not take possession of such documents
during such forty-five (45) calendar day period, the Partnership shall be free
to destroy or otherwise dispose of such documentation upon the expiration of
such forty-five (45) calendar day period.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 27

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(b) Purchaser, the Partnership and their respective representatives shall be
given access by Seller during normal business hours to the extent reasonably
needed by Purchaser or the Partnership for business purposes to all documents,
records, correspondence, work papers and other documents retained by Seller
pertaining to any of the Limited Partner Interest or with respect to the
operation of the Partnership prior to the Effective Time.

 

6.2 Provision of Benefits of Certain Contracts. If, as of the Effective Time,
Seller has not obtained a required consent to the change of control and transfer
of a Contract or Lease, or the Partnership is unable to enter into a new third
party contract with respect to such Contract or Lease, until such consent is
obtained or a new third party contract is obtained, Seller shall provide the
Partnership the benefits of such Contract or Lease and cooperate in any
reasonable and lawful arrangement designed to provide such benefits to the
Partnership and shall indemnify and hold harmless Purchaser and its Affiliates
for and against any and all damages as a result, directly or indirectly, of the
failure to obtain any such approval or consent if any such Contract or Lease
states that it is not transferable without such Party’s consent. Purchaser
agrees to cause the Partnership to use reasonable commercial efforts to perform,
on behalf of Seller, the obligations of the Partnership under such Contract or
Lease or in connection therewith, but only to the extent that such action would
not result in a material default under the applicable Contract or Lease and such
obligation would have been an obligation of the Partnership had it received
consent to the transfer of such Contract or Lease or had entered into a new
third party contract on substantially similar terms as the applicable Contract
or Lease.

 

6.3 Misdirected Payments, Etc. Seller covenants and agrees to remit, with
reasonable promptness, to the Partnership any payments received, which payments
are on or in respect of accounts or notes receivable owned by (or are otherwise
payable to) the Partnership or the Hospital. In the event of a determination by
any governmental or third-party payor that payments to Seller, the Hospital or
the Partnership resulted in an overpayment or other determination that funds
previously paid by any program or plan to Seller, the Hospital or the
Partnership must be repaid, Seller shall not be responsible for repayment of
said monies (or defense of such actions) even if such overpayment or other
repayment determination was for services rendered prior to the Effective Time
and the Partnership shall be responsible for repayment of said monies (or
defense of such actions) if such overpayment or other repayment determination
was for services rendered after the Effective Time.

 

6.4 Insurance. Purchaser shall, for a period of two (2) years after the
Effective Time, maintain insurance coverage with Purchaser’s current insurers or
a financially sound and reputable insurance company selected by Purchaser naming
Seller and Jerry G. Browder as additional insureds and covering the health care
services general and professional liability risks arising out of the
Partnership’s operation of the Hospital from February 8, 2005 until the
Effective Time. This insurance coverage shall cover the General Partner in its
capacity as general partner of the Partnership as an insured.

 

6.5 Processing of Payroll. From the Effective Time until February 28, 2006, or
such earlier date as the Parties mutually may agree, Seller agrees that it will
continue to process the payroll for the Partnership’s employees in the same
manner and on the same schedule such payroll was processed before the Effective
Time.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 28

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ARTICLE 7

SURVIVAL AND INDEMNIFICATION

 

7.1 Survival. Except as expressly set forth in this Agreement to the contrary,
all representations, warranties, covenants, agreements and indemnifications of
Purchaser, Seller and the Partnership, respectively, contained in this Agreement
or in any document delivered pursuant hereto shall be deemed to be material and
to have been relied upon by Purchaser and Seller, respectively. All
representations and warranties of Purchaser, Seller and the Partnership shall
continue to be fully effective and enforceable following the Effective Time for
two (2) years and shall thereafter be of no further force and effect; provided,
however, that, if there is at the end of such two (2) year period an outstanding
notice of a claim made in compliance with the terms of Section 7.4, such
applicable period shall not end in respect of such claim until such claim is
resolved. Notwithstanding the above, the representations and warranties
contained in Sections 2.1, 2.2, 2.3, and 2.4, and the rights to indemnity set
forth in Section 7.2 hereof with respect to such representations and warranties
shall continue to be fully effective and enforceable indefinitely.

 

7.2 Indemnification of Purchaser by Seller.

 

(a) Indemnification. Seller shall keep and save Purchaser and Purchaser’s
members, managers, officers, directors, employees, agents and other
representatives and the Partnership and the Partnership’s partners (other than
the General Partner before the closing of the General Partner Purchase
Agreement), officers, directors, employees, agents and other representatives
forever harmless from and shall indemnify and defend Purchaser and the
Partnership against any and all obligations, judgments, liabilities, penalties,
violations, fees, fines, claims, losses, costs, demands, damages, liens,
encumbrances and expenses including reasonable attorneys’ fees (collectively,
“Damages”), to the extent arising or resulting from (i) any breach of any
representation or warranty of Seller or the Partnership under this Agreement or
any documents delivered pursuant hereto, and (ii) any breach or default by
Seller or the Partnership of any covenant or agreement of Seller or the
Partnership under this Agreement or any documents delivered pursuant hereto. No
provision in this Agreement shall prevent Seller from pursuing any of its legal
rights or remedies that may be granted to Seller by law against any Person other
than Purchaser.

 

(b) Indemnification Limitations. Notwithstanding any provision to the contrary
contained in this Agreement, Seller shall be under no liability to indemnify
Purchaser or the Partnership under Sections 7.2(a)(i) and 7.2(a)(ii) and no
claim under Sections 7.2(a)(i) and 7.2(a)(ii) shall be made:

 

(i) unless notice thereof shall have been given by or on behalf of Purchaser to
Seller in the manner provided in Section 7.4, unless failure to provide such
notice in a timely manner does not materially impair Seller’s ability to defend
their respective rights, mitigate damages, seek indemnification from a third
party or otherwise protect its interests;

 

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(ii) to the extent that any loss may be recovered under a policy of insurance in
force on the date of loss; provided, however, that this Section 7.2(b)(ii) shall
not apply to the extent that coverage under the applicable policy of insurance
is denied by the applicable insurance carrier;

 

(iii) to the extent such claim relates to an obligation or liability for which
Purchaser has agreed to indemnify Seller pursuant to Section 7.3; or

 

(iv) to the extent related to a claim under Section 7.2(a)(i) or a claim under
Section 7.2(a)(ii) for Seller’s or the Partnership’s breach of any covenant
required to be performed or satisfied at or prior to Closing, or accrue to
Purchaser unless the liability of Seller or the Partnership in respect of any
single claim or multiple claims in the aggregate exceeds Ten Thousand Dollars
($10,000) (a “Relevant Claim”) in which event Purchaser shall be entitled to
seek indemnification for the total amount of the Relevant Claim(s).

 

(c) Damages Cap. The maximum aggregate liability of Seller to Purchaser under
Section 7.2(a)(i) of this Agreement shall not exceed the Purchase Price.

 

7.3 Indemnification of Seller by Purchaser.

 

(a) Indemnification. Purchaser shall keep and save Seller forever harmless from
and shall indemnify and defend Seller against any and all Damages, to the extent
arising or resulting from (i) any breach of any representation or warranty of
Purchaser under this Agreement, (ii) any breach or default by Purchaser under
any covenant or agreement of Purchaser under this Agreement, (iii) any liability
of the Partnership or the Hospital accruing after the Effective Time except for
liabilities for which Purchaser and/or the Partnership are indemnified under
this Agreement, and (iv) any liability claims arising out of acts or omissions
of the Partnership from and after February 8, 2005, except for liabilities for
which Purchaser and/or the Partnership are idemnified under this Agreement. No
provision in this Agreement shall prevent Purchaser from pursuing any of its
legal rights or remedies that may be granted to Purchaser by law against any
person or legal entity other than Seller.

 

(b) Indemnification Limitations. Notwithstanding any provision to the contrary
contained in this Agreement, Purchaser shall be under no liability to indemnify
Seller under Section 7.3(a)(i) or Section 7.3(a)(ii) and no claim under
Section 7.3(a)(i) or Section 7.3(a)(ii) shall be made:

 

(i) unless notice thereof shall have been given by or on behalf of Seller to
Purchaser in the manner provided in Section 7.4, unless failure to provide such
notice in a timely manner does not materially impair Purchaser’s ability to
defend its rights, mitigate damages, seek indemnification from a third party or
otherwise protect its interests;

 

(ii) to the extent that any Damages may be recovered under a policy of insurance
in force on the date of loss; provided, however, that this Section 7.3(b)(ii)
shall not apply to the extent that coverage under the applicable policy of
insurance is denied by the applicable insurance carrier; or

 

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(iii) to the extent related to a claim under Section 7.3(a)(i) or a claim under
Section 7.3(a)(ii) for Purchaser’s breach of any covenant required to be
performed or satisfied at or prior to Closing, or accrue to Seller unless and
only to the extent that the actual liability of Purchaser in respect of any
single claim or multiple claims in the aggregate exceeds the Relevant Claim
amount in which event Seller shall be entitled to seek indemnification for the
total amount of the Relevant Claim(s).

 

7.4 Method of Asserting Claims. All claims for indemnification under this
Article 7 by any Person entitled to indemnification (an “Indemnified Party”)
under this Article 7 will be asserted and resolved as follows:

 

(a) In the event any claim or demand, for which a Party hereto (an “Indemnifying
Party”) would be liable for the Damages to an Indemnified Party, is asserted
against or sought to be collected from an Indemnified Party by a Person other
than Seller, Purchaser or their Affiliates (a “Third Party Claim”), the
Indemnified Party shall give a notice of its claim (a “Claim Notice”) to the
Indemnifying Party within thirty (30) calendar days after the Indemnified Party
receives written notice of such Third Party Claim; provided, however, that
notice shall be given by the Indemnified Party to the Indemnifying Party within
fifteen (15) calendar days after receipt of a complaint, petition or institution
of other formal legal action against the Indemnified Party. If the Indemnified
Party fails to provide the Claim Notice within such applicable time period after
the Indemnified Party receives written notice of such Third Party Claim and
thereby materially impairs the Indemnifying Party’s ability to protect its
interests, the Indemnifying Party will not be obligated to indemnify the
Indemnified Party with respect to such Third Party Claim. The Indemnifying Party
will notify the Indemnified Party within thirty (30) calendar days after receipt
of the Claim Notice (the “Notice Period”) whether the Indemnifying Party
desires, at the sole cost and expense of the Indemnifying Party, to defend the
Indemnified Party against such Third Party Claim.

 

(i) If the Indemnifying Party notifies the Indemnified Party within the Notice
Period that the Indemnifying Party desires to defend the Indemnified Party with
respect to the Third Party Claim pursuant to this Section 7.4(a), then the
Indemnifying Party will have the right to defend, at its sole cost and expense,
such Third Party Claim by all appropriate proceedings, which proceedings will be
prosecuted by the Indemnifying Party to a final conclusion or will be settled at
the discretion of the Indemnifying Party. The Indemnifying Party will have full
control of such defense and proceedings, including any compromise or settlement
thereof. Notwithstanding the foregoing, the Indemnified Party may, at its sole
cost and expense, file during the Notice Period any motion, answer or other
pleadings that the Indemnified Party may deem necessary or appropriate to
protect its interests or those of the Indemnifying Party and which is not
prejudicial, in the reasonable judgment of the Indemnifying Party, to the
Indemnifying Party. Except as provided in Section 7.4(a)(ii) hereof, if an
Indemnified Party takes any such action that is prejudicial and causes a final
adjudication that is adverse to the Indemnifying Party, the Indemnifying Party
will be relieved of its obligations hereunder with respect to the portion of
such Third Party Claim prejudiced by the Indemnified Party’s action. If
requested by the Indemnifying Party, the Indemnified Party agrees, at the sole
cost and expense of the Indemnifying Party, to cooperate with the Indemnifying
Party and its counsel in contesting any Third Party Claim that the Indemnifying
Party elects to contest, or, if appropriate and related to the Third Party Claim
in question, in making any counterclaim against the Person asserting the

 

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Third Party Claim, or any cross-complaint against any Person (other than the
Indemnified Party or any of its Affiliates). The Indemnified Party may
participate in, but not control, any defense or settlement of any Third Party
Claim controlled by the Indemnifying Party pursuant to this Section 7.4(a)(i),
and except as specifically provided in this Section 7.4(a)(i), the Indemnified
Party will bear its own costs and expenses with respect to such participation.

 

(ii) If the Indemnifying Party fails to notify the Indemnified Party within the
Notice Period that the Indemnifying Party desires to defend the Indemnified
Party pursuant to this Section 7.4(a), or if the Indemnifying Party gives such
notice but fails to prosecute diligently or settle the Third Party Claim, or if
the Indemnifying Party fails to give any notice whatsoever within the Notice
Period, then the Indemnified Party will have the right to defend, at the sole
cost and expense of the Indemnifying Party, the Third Party Claim by all
appropriate proceedings, which proceedings will be promptly and reasonably
prosecuted by the Indemnified Party to a final conclusion or will be settled at
the discretion of the Indemnified Party. The Indemnified Party will have full
control of such defense and proceedings, including any compromise or settlement
thereof; provided, however, that if requested by the Indemnified Party, the
Indemnifying Party agrees, at the sole cost and expense of the Indemnifying
Party, to cooperate with the Indemnified Party and its counsel in contesting any
Third Party Claim which the Indemnified Party is contesting, or, if appropriate
and related to the Third Party Claim in question, in making any counterclaim
against the Person asserting the Third Party Claim, or any cross-complaint
against any Person (other than the Indemnifying Party or any of its Affiliates).
Notwithstanding the foregoing provisions of this Section 7.4(a)(ii), if the
Indemnifying Party has notified the Indemnified Party with reasonable promptness
that the Indemnifying Party disputes its liability to the Indemnified Party with
respect to such Third Party Claim and if such dispute is resolved in favor of
the Indemnifying Party, the Indemnifying Party will not be required to bear the
costs and expenses of the Indemnified Party’s defense pursuant to this
Section 7.4(a)(ii). Subject to the above terms of this Section 7.4(a)(ii), the
Indemnifying Party may participate in, but not control, any defense or
settlement controlled by the Indemnified Party pursuant to this
Section 7.4(a)(ii), and the Indemnifying Party will bear its own costs and
expenses with respect to such participation. The Indemnified Party shall give
sufficient prior notice to the Indemnifying Party of the initiation of any
discussions relating to the settlement of a Third Party Claim to allow the
Indemnifying Party to participate therein.

 

(b) In the event any Indemnified Party should have a claim against any
Indemnifying Party hereunder that does not involve a Third Party Claim being
asserted against or sought to be collected from the Indemnified Party, the
Indemnified Party shall deliver an Indemnity Notice to the Indemnifying Party.
(The term “Indemnity Notice” shall mean written notification of a claim for
indemnity under Article 7 hereof (which claim does not involve a Third Party
Claim or Tax Claim) by an Indemnified Party to an Indemnifying Party pursuant to
this Section 7.4, specifying the nature of and specific basis for such claim and
the amount or the estimated amount of such claim.) The failure by any
Indemnified Party to give the Indemnity Notice shall not impair such Party’s
rights hereunder except to the extent that an Indemnifying Party demonstrates
that it has been prejudiced thereby.

 

(c) If the Indemnifying Party does not notify the Indemnified Party within
thirty (30) calendar days following its receipt of a Claim Notice or an
Indemnity Notice that the Indemnifying Party disputes its liability to the
Indemnified Party hereunder, such claim specified

 

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by the Indemnified Party will be conclusively deemed a liability of the
Indemnifying Party hereunder and the Indemnifying Party shall pay the amount of
such liability to the Indemnified Party on demand, or on such later date (i) in
the case of a Third Party Claim, as the Indemnified Party suffers the Damages in
respect of such Third Party Claim, or (ii) in the case of an Indemnity Notice in
which the amount of the claim is estimated, when the amount of such claim
becomes finally determined. If the Indemnifying Party has timely disputed its
liability with respect to such claim, as provided above, the Indemnifying Party
and the Indemnified Party agree to proceed in good faith to negotiate a
resolution of such dispute, and if not resolved through negotiations, such
dispute will be resolved by adjudication by a court or similar tribunal.

 

(d) The Indemnified Party agrees to give the Indemnifying Party reasonable
access to the books and records and employees of the Indemnified Party in
connection with the matters for which indemnification is sought hereunder, to
the extent the Indemnifying Party reasonably deems necessary in connection with
its rights and obligations hereunder.

 

(e) The Indemnified Party shall assist and cooperate with the Indemnifying Party
in the conduct of litigation, the making of settlements and the enforcement of
any right of contribution to which the Indemnified Party may be entitled from
any Person in connection with the subject matter of any litigation subject to
indemnification hereunder. In addition, the Indemnified Party shall, upon
request by the Indemnifying Party or counsel selected by the Indemnifying Party
(without payment of any fees or expenses to the Indemnified Party or an employee
thereof), attend hearings and trials, assist in the securing and giving of
evidence, assist in obtaining the presence or cooperation of witnesses, and make
available its own personnel; and shall do whatever else is necessary and
appropriate in connection with such litigation. The Indemnified Party shall not
make any demand upon the Indemnifying Party or counsel for the Indemnifying
Party in connection with any litigation subject to indemnification hereunder,
except a general demand for indemnification as provided hereunder. If the
Indemnified Party shall fail to perform such obligations as Indemnified Party
hereunder or to cooperate fully with the Indemnifying Party in Indemnifying
Party’s defense of any suit or proceeding, such cooperation to include, without
limitation, attendance at all depositions and the provision of all documents
relevant to the defense of any claim, then, except where such failure does not
have an adverse effect on the Indemnifying Party’s defense of such claims, the
Indemnifying Party shall be released from all of its obligations under this
Agreement with respect to that suit or proceeding and any other claims which had
been raised in such suit or proceeding.

 

(f) Following indemnification as provided for hereunder, the Indemnifying Party
shall be subrogated to all rights of the Indemnified Party with respect to all
persons or entities relating to the matter for which indemnification has been
made.

 

ARTICLE 8

TAX AND COST REPORT MATTERS

 

8.1 Tax Matters.

 

(a) After the Closing Date, the Parties shall cooperate fully with each other
and shall make available to each other, as reasonably requested, all
information, records or documents relating to Tax liabilities or potential Tax
liabilities attributable to the Partnership for

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 33

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all periods prior to the Effective Time and shall preserve all such information,
records and documents at least until the expiration of any applicable statute of
limitations (including extensions thereof). The Parties shall also make
available to each other as reasonably required, and at the reasonable cost of
the requesting Party (for out-of-pocket costs and expenses only), personnel
responsible for preparing or maintaining information, records and documents in
connection with Tax matters.

 

(b) Seller shall prepare or cause to be prepared and file or cause to be filed
all Tax returns for the Partnership for all periods ending on or prior to the
Closing Date that are filed after the Closing Date. Seller shall permit
Purchaser to review and comment on each such Tax return described in the
preceding sentence prior to filing. To the extent permitted by applicable law,
Seller shall include any income, gain, loss, deduction or other tax items for
such periods on their Tax returns in a manner consistent with the tax
information furnished by the Partnership to Seller for such periods.

 

(c) The Parties agree that (A) all Federal and State income and franchise Taxes
attributable to any Tax period (or portion thereof) ending on or prior to the
Effective Time and any Federal and State Income and Franchise Taxes attributable
to the sale of the Limited Partner Interest pursuant to this Agreement shall be
borne by, shall be the responsibility of and shall be paid by Seller and (B) all
other Taxes with respect to the Partnership shall be borne by, shall be the
responsibility of and shall be paid by the Partnership as required by applicable
law.

 

ARTICLE 9

MISCELLANEOUS PROVISIONS

 

9.1 Entire Agreement. This Agreement, the Disclosure Schedules, the Exhibits and
the documents referred to in this Agreement contain the entire understanding
between the Parties with respect to the transactions contemplated hereby and
supersede all prior or contemporaneous agreements, understandings,
representations and statements, oral or written, between the Parties on the
subject matter hereof (the “Superseded Agreements”), which Superseded Agreements
shall be of no further force or effect.

 

9.2 Further Assurances and Cooperation. Seller shall execute, acknowledge and
deliver to Purchaser any and all other assignments, consents, approvals,
conveyances, assurances, documents and instruments reasonably requested by
Purchaser at any time and shall take any and all other actions reasonably
requested by Purchaser at any time for the purpose of more effectively
assigning, transferring, granting, conveying and confirming to Purchaser, the
assets of the Partnership. After consummation of the transactions contemplated
in this Agreement, the Parties agree to cooperate with each other and take such
further actions as may be necessary or appropriate to effectuate, carry out and
comply with all of the terms of this Agreement, the documents referred to in
this Agreement and the transactions contemplated hereby.

 

9.3 Successors and Assigns. All of the terms and provisions of this Agreement
shall be binding upon and shall inure to the benefit of and be enforceable by
the respective successors and assigns of the Parties hereto; provided, however,
that no Party hereto may assign any of its rights or delegate any of its duties
under this Agreement without the prior written consent of the other Parties,
except that Purchaser may assign any of its rights or delegate any of its duties
under this Agreement to any Affiliate.

 

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9.4 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas as applied to
contracts made and to be performed entirely within the State of Texas. The
Parties hereby waive their right to assert in any proceeding involving this
Agreement that the law of any other jurisdiction shall apply to such dispute;
and the Parties hereby covenant that they shall assert no such claim in any
dispute arising under this Agreement.

 

9.5 Amendments. This Agreement may not be amended other than by a written
instrument signed by the Parties hereto.

 

9.6 Notices. Any notice, demand or communication required, permitted, or desired
to be given hereunder shall be deemed effectively given when personally
delivered, when received by facsimile or overnight courier, or five (5) calendar
days after being deposited in the United States mail, with postage prepaid
thereon, certified or registered mail, return receipt requested, addressed as
follows:

 

If to Seller:        Signet Health Corporation          504 Seville Road, Suite
201          Denton, Texas 76205          Attention: Jerry G. Browder, President
         Facsimile No.: (940) 380-0697 If to Purchaser        HHC Kingwood
Investment, LLC or the Partnership:        103 Foulk Road, Suite 202     
    Wilmington, Delaware 19803          Attention: Harold F. Kalbach, Jr.,
Manager          Facsimile No.: (302) 652-8667 With copies to:        Horizon
Health Corporation          1500 Waters Ridge Drive          Lewisville, Texas
75057          Attention: General Counsel          Facsimile No.: (972) 219-1710
         Strasburger & Price, L.L.P.          901 Main Street, Suite 4300     
    Dallas, Texas 75202          Attention: Thomas W. Burton, Esq.     
    Facsimile No.: (214) 651-4330

 

or at such other address for a Party as such Party may designate by notice
hereunder to the other Parties.

 

9.7 Headings. The section and other headings contained in this Agreement, the
Disclosure Schedules, and the Exhibits to this Agreement are included for the
purpose of convenient reference only and shall not restrict, amplify, modify or
otherwise affect in any way the meaning or interpretation of this Agreement, the
Disclosure Schedules and Exhibits hereto.

 

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9.8 Confidentiality and Publicity. The Parties hereto shall hold in confidence
the information contained in this Agreement, and all information related to this
Agreement, which is not otherwise known to the public, shall be held by each
Party hereto as confidential and proprietary information and shall not be
disclosed without the prior written consent of the other Parties; provided,
however, each Party shall be permitted to provide a copy of this Agreement to
any applicable governmental or administrative authorities as reasonably required
or necessary. Accordingly, Purchaser and Seller shall not discuss with, or
provide nonpublic information to, any third party (except for such party’s
attorneys, accountants, directors, officers and employees, the directors,
officers and employees of any Affiliate of any Party hereto will agree to be
bound by the confidentiality provisions of this Agreement, and other consultants
and professional advisors) concerning this transaction prior to the Effective
Time, except: (a) as required in governmental filings or judicial,
administrative or arbitration proceedings; (b) pursuant to public announcements
made with the prior written approval of Seller and Purchaser; or (c) as
otherwise required by applicable law.

 

9.9 Third Party Beneficiary. None of the provisions contained in this Agreement
are intended by the Parties, nor shall they be deemed, to confer any benefit on
any person not a Party to this Agreement.

 

9.10 Expenses and Attorneys’ Fees. Upon the occurrence of the Closing Purchaser
(i) shall bear all reasonable fees and expenses of the Seller up to a cumulative
maximum of $45,000 relating to the preparation of this Agreement, the Membership
Interest Purchase Agreement and the Real Property Purchase Contract and to the
transactions contemplated thereby, and the performance of or compliance with any
condition or covenant set forth in this Agreement, the Membership Interest
Purchase Agreement and/or the Real Property Purchase Contract; and (ii) pay or
cause the Partnership to pay all fees and expenses of MCC required to be paid or
borne by the Partnership pursuant to the Option and the Real Property
Purchase Contract. In the event the Closing does not occur, each Party shall
bear and pay its own costs and expenses. Seller shall bear and indemnify
Purchaser against and hold Purchaser harmless from all sales or transfer Taxes
and recording charges in connection with the conveyance of the Limited Partner
Interest to Purchaser. If any action is brought by any Party to enforce any
provision of this Agreement, the prevailing Party shall be entitled to recover
its court costs and reasonable attorneys’ fees.

 

9.11 No Waiver. Any term, covenant or condition of this Agreement may be waived
at any time by the Party which is entitled to the benefit thereof but only by a
written notice signed by the Party expressly waiving such term, covenant or
condition. The subsequent acceptance of performance hereunder by a Party shall
not be deemed to be a waiver of any preceding breach by any other Party of any
term, covenant or condition of this Agreement, other than the failure of such
other Party to perform the particular duties so accepted, regardless of the
accepting Party’s knowledge of such preceding breach at the time of acceptance
of such performance. The waiver of any term, covenant or condition shall not be
construed as a waiver of any other term, covenant or condition of this
Agreement.

 

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9.12 Severability. If any term, provision, condition or covenant of this
Agreement or the application thereof to any Party or circumstance shall be held
to be invalid or unenforceable to any extent in any jurisdiction, then the
remainder of this Agreement and the application of such term, provision,
condition or covenant in any other jurisdiction or to persons or circumstances
other than those as to whom or which it is held to be invalid or unenforceable,
shall not be affected thereby, and each term, provision, condition and covenant
of this Agreement shall be valid and enforceable to the fullest extent permitted
by law.

 

9.13 Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same Agreement, binding on all of the Parties hereto.

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 37

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IN WITNESS WHEREOF, this Limited Partner Interest Purchase Agreement has been
executed and delivered as of the day and year first above written.

 

PURCHASER:

HHC KINGWOOD INVESTMENT, LLC,

a Delaware limited liability company

By:  

/s/ Harold F. Kalbach, Jr.

--------------------------------------------------------------------------------

    Harold F. Kalbach, Jr., Manager SELLER:

SIGNET HEALTH CORPORATION,

a Texas corporation

By:  

/s/ Jerry G. Browder

--------------------------------------------------------------------------------

    Jerry G. Browder, President THE PARTNERSHIP:

SHC-KPH, LP,

a Texas limited partnership

By:   KINGWOOD PINES HOSPITAL, LLC,     its sole general partner     By:  

/s/ Jerry G. Browder

--------------------------------------------------------------------------------

        Jerry G. Browder, Sole Member

 

LIMITED PARTNER INTEREST PURCHASE AGREEMENT – Page 38