Exhibit 10.1

 

EXECUTION COPY

 

STOCK PURCHASE AGREEMENT

 

by and among

 

HORIZON HEALTH HOSPITAL SERVICES, INC.

 

as Purchaser,

 

KIDS BEHAVIORAL HEALTH, LLC

 

as Shareholder

 

and

 

KIDS BEHAVIORAL HEALTH OF UTAH, INC.

 

Dated as of December 30, 2005

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TABLE OF CONTENTS

 

          Page No.

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ARTICLE 1    DEFINITIONS; SALE AND TRANSFER OF SHARES; CONSIDERATION; CLOSING   
1

1.1

   Definitions    1

1.2

   Agreement to Sell and Purchase    2

1.3

   Excluded Assets    3

1.4

   Retained Obligations    3

1.5

   Excluded Liabilities    4

1.6

   Purchase Price    5

1.7

   Closing Date    5

1.8

   Items to be Delivered by Shareholder at Closing    5

1.9

   Items to be Delivered by Purchaser at Closing    7

1.10

   Prorations and Utilities    8

1.11

   Escrow Deposit    8

1.12

   Net Assets Settlement    8 ARTICLE 2    REPRESENTATIONS AND WARRANTIES OF
SHAREHOLDER    9

2.1

   Authority    9

2.2

   Authorization/Execution    10

2.3

   Organization and Good Standing; No Subsidiaries; No Conflicts    10

2.4

   Title to Shares and Interests in KIDS Alaska    11

2.5

   Financial Statements; Changes    11

2.6

   Tax and Other Returns and Reports    12

2.7

   Contracts    14

2.8

   Real and Personal Property; Title to Property; Leases    15

2.9

   Assets    16

2.10

   Capitalization of the Company    17

2.11

   Intangible Property    18

2.12

   Legal Proceedings    18

2.13

   Accounting Records; Internal Controls    18

2.14

   Insurance    19

2.15

   Employees    19

2.16

   Employee Benefits    19

2.17

   Certain Interests    21

2.18

   Intercompany Transactions    21

2.19

   Inventory    21

2.20

   Receivables    21

2.21

   Third Party Payors and Suppliers    21

2.22

   Worker Adjustment and Retraining Notification (WARN)    21

2.23

   Environmental Compliance    22

2.24

   Powers of Attorney    23

2.25

   Medicare and Medicaid; Third-Party Payors; Compliance with Health Care Laws
   23

2.26

   Compliance Program    25

 

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2.27

   HIPAA    25

2.28

   Restricted Grant and Loan Programs    26

2.29

   Experimental Procedures    26

2.30

   Medical Staff; Physician Relations    26

2.31

   Solvency    26

2.32

   No Brokers or Finders    26

2.33

   Improper Payments    26

2.34

   No Misrepresentations    26

2.35

   No Undisclosed Liabilities    27

2.36

   Conduct of Business    27

2.37

   Negative Assurances    27

2.38

   KIDS Alaska    28

2.39

   For KIDS Foundation Lock Box    28 ARTICLE 3    REPRESENTATIONS AND
WARRANTIES OF PURCHASER    28

3.1

   Authority    28

3.2

   Authorization/Execution    28

3.3

   Organization and Good Standing; No Violation    29

3.4

   Brokers and Finders    29 ARTICLE 4    CONDITIONS PRECEDENT TO OBLIGATIONS OF
SHAREHOLDER    29

4.1

   Accuracy of Representations and Warranties and Compliance with Obligations   
29

4.2

   Signing and Delivery of Instruments    30

4.3

   Unfavorable Action or Proceeding    30

4.4

   Governmental Authorizations    30 ARTICLE 5    CONDITIONS PRECEDENT TO
OBLIGATIONS OF PURCHASER    30

5.1

   Accuracy of Representations and Warranties and Compliance with Obligations   
30

5.2

   Governmental Authorizations    30

5.3

   Signing and Delivery of Instruments    31

5.4

   Unfavorable Action or Proceeding    31

5.5

   Opinion of Counsel    31

5.6

   No Material Adverse Change    31

5.7

   Required Consents    31

5.8

   Disclosure Schedules    31

5.9

   Vesting of 401(k) Account Balances    31

5.10

   Real Property Title Matters    31

5.11

   Repairs    31

5.12

   Employment    32

5.13

   Tail Insurance    32

5.14

   KIDS Alaska Lock Box; For KIDS Foundation Lock Box    32

5.15

   GE Capital Lock Boxes    32

5.16

   Environmental Testing    32 ARTICLE 6    POST-CLOSING MATTERS    33

6.1

   Preservation and Access to Records After the Closing    33

 

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6.2

   Provision of Benefits of Certain Contracts    33

6.3

   Misdirected Payments, Etc.    34

6.4

   Certain Employee Matters    34

6.5

   Termination Cost Reports    35

6.6

   S Corporation Status    35

6.7

   Removal of Information from Shareholder’s Web Site    35

6.8

   Non-Solicitation    35

6.9

   401(k) Matching Testing and Contributions    35

6.10

   Efforts to Collect Accounts Receivable    35

6.11

   Noncompetition    36

6.12

   Payroll Items    36

6.13

   Taxes    36 ARTICLE 7    SURVIVAL AND INDEMNIFICATION    36

7.1

   Survival    36

7.2

   Indemnification of Purchaser by Shareholder    37

7.3

   Indemnification of Shareholder by Purchaser    38

7.4

   Method of Asserting Claims    38 ARTICLE 8    TAX AND COST REPORT MATTERS   
41

8.1

   Tax Matters    41

8.2

   Cost Report Matters    42 ARTICLE 9    MISCELLANEOUS PROVISIONS    42

9.1

   Entire Agreement    42

9.2

   Further Assurances and Cooperation    42

9.3

   Successors and Assigns    43

9.4

   Governing Law    43

9.5

   Amendments    43

9.6

   Notices    43

9.7

   Headings    44

9.8

   Confidentiality and Publicity    44

9.9

   Third Party Beneficiary    44

9.10

   Expenses and Attorneys’ Fees    44

9.11

   No Waiver    44

9.12

   Severability    45

9.13

   Counterparts    45

[Remainder of Page Intentionally Left Blank]

   45

 

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LIST OF EXHIBITS

 

EXHIBIT

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DESCRIPTION

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A    Post-Closing Escrow Agreement B    Opinion of Counsel for Shareholder C   
Title Commitment D    Assignment and Assumption Agreement

 

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LIST OF SCHEDULES

 

SCHEDULE

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DESCRIPTION

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1.3(b)

  

Excluded Contracts

1.3(e)

  

Excluded Assets

1.4(e)

  

Other Obligations and Liabilities

1.12

  

Net Assets

2.3(c)

  

Consents/Conflicts

2.5

  

Financial Statement Matters

2.6

  

Tax 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

2.11

  

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

2.23

  

Environmental Matters

2.25

  

Medicare/Medicare Compliance

2.30

  

Medical Staff/Physician Relations

2.35

  

Indebtedness

2.36

  

Conduct of Business

2.37

  

Negative Assurances

5.11(a)

  

Repairs Needed for Certificate of Occupancy

5.11(b)

  

Corrective Action Plan for License

5.11(c)

  

Items to be Completed Before Closing

6.11

  

Noncompetition and Right of First Refusal Matters

7.2(a)(vii)

  

Indemnification by Shareholder

 

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TABLE OF DEFINED TERMS

 

Term

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

   Page

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Accounting Firm

   9

Accounts Receivable

   17

Affiliate

   2

Agency Settlements

   42

Agreement

   1

Assignment and Assumption Agreement

   6

Base Net Assets

   8

Claim Notice

   38

Closing

   5

Closing Date

   5

Closing Purchase Price Payment

   5

COBRA Coverage

   34

Code

   13

Commonly Controlled Entity

   20

Company

   1

Contract

   15

Contract and Lease Consents

   6

Control

   2

Cost Reports

   35

Damages

   37

Disclosure Schedules

   2

Document Retention Period

   33

Effective Time

   5

Encumbrances

   3

Environmental Laws

   22

ERISA

   20

Escrow Agent

   5

Escrow Deposit

   8

Escrow Funds

   8

Estimated Net Assets

   8

Excluded Assets

   3

Excluded Contracts

   3

Excluded Liabilities

   4

Facility

   1

For KIDS Foundation Agreement

   7

For KIDS Foundation Lock Box

   32

GAAP

   1

GE Capital Lock Boxes

   32

Government Programs

   24

Governmental Approvals

   6

 

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HIPAA

   26

Indemnified Party

   38

Indemnifying Party

   38

Indemnity Notice

   40

Intangible Property

   18

Interim Balance Sheet Date

   11

Inventory

   17

JCAHO

   23

KIDS Alaska

   6

KIDS Alaska Lock Box

   32

Knowledge of Purchaser

   2

Knowledge of Shareholder

   2

Leases

   16

Licenses

   16

Lock Boxes

   17

Material Adverse Change

   2

Material Adverse Effect

   2

Net Assets

   8

Net Assets Payment

   8

Notice Period

   39

Party

   1

Permitted Encumbrances

   15

Person

   2

Personal Property

   16

Plan

   20

Post-Closing Escrow Agreement

   5

Prepaids

   17

Purchase Price

   5

Purchaser

   1

Real Property

   16

Relevant Claim

   37

Retained Employees

   34

Retained Obligations

   3

Shareholder

   1

Shares

   1

Superseded Agreements

   42

Tail Insurance Coverage

   32

Tax

   14

Tax Claims

   37

Third Party Claim

   38

Title Commitment

   15

Utah Agency

   23

WARN Act

   22

 

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STOCK PURCHASE AGREEMENT

 

This STOCK PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of
the 30th day of December, 2005, by and among KIDS BEHAVIORAL HEALTH, LLC, a
Nevada limited liability company (“Shareholder”), HORIZON HEALTH HOSPITAL
SERVICES, INC., a Delaware corporation (“Purchaser”), and KIDS BEHAVIORAL HEALTH
OF UTAH, INC., a Utah corporation (the “Company”). Shareholder, Purchaser and
the Company are sometimes collectively referred to herein as the “Parties” and
individually referred to herein as a “Party.”

 

RECITALS:

 

A. The Company owns and operates Copper Hills Youth Center, a 126-bed adolescent
residential treatment center located at 5899 West Rivendell Drive, West Jordan,
Utah 84088 (the “Facility”); and

 

B. Shareholder owns One Thousand (1,000) shares of no par value Common Stock of
the Company (collectively, the “Shares”), and the Shares constitute all the
issued and outstanding capital stock of the Company; and

 

C. Purchaser desires to purchase the Shares from Shareholder, and Shareholder
desires to sell the Shares to Purchaser for the consideration and upon the terms
and conditions contained in this Agreement.

 

AGREEMENT:

 

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 SHARES;

CONSIDERATION; CLOSING

 

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

 

(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.

 

STOCK PURCHASE AGREEMENT – Page 1

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(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 Company.

 

(i) “Knowledge of Shareholder,” and similar variations thereof, shall mean the
actual knowledge, as of the relevant date, of Shareholder after reasonable
inquiry of all employees of the Company or Shareholder responsible for the
relevant matters.

 

(j) “Material Adverse Change” or “Material Adverse Effect”, when used with
respect to the Company or the Facility, shall mean any material adverse change
in or effect on the Company taken as a whole or the Facility, 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.

 

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 Shareholder shall sell to Purchaser, and
Purchaser shall purchase from Shareholder, the Shares, 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”).

 

STOCK PURCHASE AGREEMENT – Page 2

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

 

(a) all cash and cash equivalents;

 

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

 

(c) all Company 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 Facility, (ii) the assets of the Company which are not
Excluded Assets, or (iii) the Retained Obligations, as well as all records which
by law Shareholder is required to maintain in its possession;

 

(d) any reserves or prepaid expenses to the extent related to Excluded Assets
and Excluded Liabilities;

 

(e) any other assets of the Company identified in Schedule 1.3(e).

 

1.4 Retained Obligations. Notwithstanding the fact that the transactions
contemplated by this Agreement are structured as a stock purchase, the only
liabilities of the Company that the Company shall retain after the Closing Date
are the Retained Obligations. All of the Company’s obligations and liabilities
except for the Retained Obligations shall be assigned to and assumed by
Shareholder at the Closing. The Company shall retain and agree to discharge on
and after the Effective Time, only the following liabilities and obligations of
the Company (collectively, the “Retained Obligations”):

 

(a) the Contracts, but only to the extent of the obligations either arising
thereunder with respect to events or periods after the Effective Time or
included in the calculation of Net Assets;

 

(b) the Leases but only to the extent of the obligations either arising
thereunder with respect to events or periods after the Effective Time or
included in the calculation of Net Assets;

 

(c) the Company’s accounts payable and other current liabilities, but only to
the extent included in the calculation of Net Assets;

 

(d) the Company’s obligations and liabilities as of the Closing Date in respect
of salaries, wages, benefits, accrued, unpaid vacation and sick pay of the
Retained Employees, and related taxes, but only to the extent included in the
calculation of Net Assets; and

 

(e) any other obligations and liabilities identified in Schedule 1.4(e), but
only to the extent included in the calculation of Net Assets.

 

STOCK PURCHASE AGREEMENT – Page 3

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1.5 Excluded Liabilities. Notwithstanding anything to the contrary in
Section 1.4, the Company shall not retain or remain responsible for any of the
Company’s duties, obligations or liabilities that are not expressly retained by
Purchaser pursuant to the terms of this Agreement, and Shareholder shall fully
assume and become fully and solely responsible for all Excluded Liabilities. The
Excluded Liabilities shall include (the “Excluded Liabilities”):

 

(a) any liabilities of the Company incurred prior to the Effective Time which
are not otherwise specifically included in the Retained Obligations;

 

(b) all liabilities of the Company arising out of or relating to any act,
omission, event or occurrence connected with the use, ownership or operation by
the Company or any of its assets prior to the Effective Time, other than as
specifically included in the Retained Obligations;

 

(c) all obligations and liabilities of the Company to the Company’s employees,
including salary, wages, benefits, accrued unpaid vacation and sick pay, except
to the extent retained in Section 1.4(d);

 

(d) all liabilities of the Company in connection with claims of professional
malpractice to the extent arising out of or relating to acts, omissions, events
or occurrences prior to the Effective Time;

 

(e) all liabilities of the Company for matching contributions for eligible
beneficiaries’ 401(k) plans, Section 125 plans and other Plans and all
administrative costs associated with such welfare benefit plans other than as
specifically included in the Retained Obligations;

 

(f) all liabilities of the Company for Taxes attributable to (i) any Tax period
(or portion thereof) ending on or before the Effective Time and (ii) the sale of
the Shares pursuant to this Agreement;

 

(g) all liabilities of the Company relating to Cost Reports with respect to
periods ending prior to the Effective Time and all liabilities of the Company
with respect to refund, recoupment, set-off and other liabilities arising out of
the billings to third party payors, including Medicare and Medicaid, for
services rendered to patients of the Facility prior to the Effective Time;

 

(h) all liabilities of the Company for violations of any law, regulation or rule
to the extent arising from acts or omissions prior to the Effective Time,
including those pertaining to Medicare and Medicaid fraud or abuse;

 

(i) all liabilities of the Company under the Excluded Contracts;

 

(j) all liabilities of the Company for commissions or fees owed to any finder or
broker in connection with the transactions contemplated hereunder; and

 

(k) all other liabilities or obligations of the Company and/or the Facility
which are not Retained Obligations.

 

STOCK PURCHASE AGREEMENT – Page 4

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1.6 Purchase Price. Subject to the terms and conditions of this Agreement, the
aggregate purchase price to be paid by Purchaser to Shareholder for the purchase
of the Shares (the “Purchase Price”) shall consist of:

 

(a) Eight Million Nine Hundred Fifty Thousand and 00/100 Dollars ($8,950,000.00)
(the “Closing Purchase Price Payment”) which shall be payable in cash at the
Closing;

 

(b) Four Hundred Fifty Thousand and 00/100 Dollars ($450,000.00) which shall be
deposited by Purchaser in an escrow account with First American Title Insurance
Company (the “Escrow Agent”), as described in Section 1.11 and

 

(c) the Net Assets Payment which shall be the payment determined as set forth in
Section 1.12(b) and shall be paid by Purchaser or Shareholder in accordance with
the terms of Section 1.12.

 

1.7 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 Shares, shall be deemed to have occurred and to be effective as between the
Parties as of 12:01 a.m., Mountain Standard Time, on January 1, 2006 (the
“Effective Time”).

 

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

 

(a) The original certificate(s) representing the Shares, duly endorsed for
immediate transfer, and appropriate stock powers with respect thereto, duly
endorsed in blank by Shareholder;

 

(b) Post-Closing Escrow Agreement in the form of Exhibit A attached hereto (the
“Post-Closing Escrow Agreement”);

 

(c) original certificates of existence and good standing, or comparable status,
of the Company, issued by the State of Utah, dated no earlier than a date which
is forty-five (45) calendar days prior to the Closing Date;

 

(d) an opinion of counsel for Shareholder in substantially the form attached
hereto as Exhibit B;

 

(e) a certificate of Shareholder, executed by the President of Shareholder,
certifying to Purchaser (i) that all the representations and warranties of
Shareholder and the Company 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

 

STOCK PURCHASE AGREEMENT – Page 5

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earlier date, in which case such representations and warranties are true on and
as of such earlier date, (ii) that Shareholder and the Company have in all
material respects performed or complied with the covenants and agreements
required of Shareholder and the Company 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
Shareholder;

 

(f) certificates of the corporate Secretaries of Shareholder and the Company
certifying to Purchaser (i) the incumbency of the officers of Shareholder and
the appropriate officers, managers or members of the Company 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 members and managers of
Shareholder and the directors of the Company, authorizing the execution,
delivery and performance of this Agreement and all ancillary documents and
instruments by Shareholder and the Company, and that such resolutions have not
been amended or rescinded and remain in full force and effect on the Closing
Date;

 

(g) 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 Company;

 

(h) Assignment and Assumption Agreement, in the form of Exhibit D attached
hereto (the “Assignment and Assumption Agreement”);

 

(i) resignation of all directors and officers of KIDS Behavioral Health of
Alaska, Inc., an Alaska taxable non-profit corporation (“KIDS Alaska”) and the
appointment by such resigning KIDS Alaska directors of Purchaser’s designees to
the Board of Directors of KIDS Alaska;

 

(j) Notice of Change of Officers or Directors form to be filed in order to
evidence change of directors and officers of KIDS Alaska;

 

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

 

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

 

(m) evidence of the Tail Insurance Coverage reasonably satisfactory to
Purchaser;

 

(n) complete assignment and assumption agreement between Shareholder and the
Company of that certain Agreement to Provide Mental Health Services dated
March 25, 2004, by and between Shareholder and For KIDS Foundation, a Nevada
corporation (the “For KIDS Foundation Agreement”); and

 

STOCK PURCHASE AGREEMENT – Page 6

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(o) 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.

 

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

 

(a) payment of the Closing Purchase Price Payment (plus or minus the Net Assets
Payment pursuant to Section 1.12(b)) on the Closing Date by wire transfer of
immediately available funds to Shareholder to the account specified by
Shareholder, which account Shareholder shall specify to Purchaser not less than
three (3) business days prior to the Closing Date in writing;

 

(b) payment of the Escrow Deposit on the Closing Date by wire transfer of
immediately-available funds to the Escrow Agent;

 

(c) a certificate of Purchaser, executed by the President or any Vice President
of Purchaser, certifying to Shareholder (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;

 

(d) a certificate of the corporate Secretary of Purchaser certifying to
Shareholder (i) the incumbency of the officers 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 directors 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;

 

(e) 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
forty-five (45) calendar days prior to the Closing Date;

 

(f) the Post-Closing Escrow Agreement;

 

(g) the Assignment and Assumption Agreement; and

 

(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.

 

STOCK PURCHASE AGREEMENT – Page 7

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1.10 Prorations and Utilities. To the extent not included in the calculation of
Net Assets or otherwise prorated pursuant to this Agreement, Purchaser and
Shareholder shall prorate (as of the Effective Time), to the extent applicable
to the Company, real estate and personal property lease payments, real estate
and personal property taxes, assessments and other similar charges against real
estate, and utility charges. If accurate allocations as to such matters cannot
be made at Closing because current bills are not obtainable, the Parties shall
allocate such income or expense at Closing on the best available information,
subject to adjustment upon receipt of the final bill or other evidence of the
applicable item of income or expense.

 

1.11 Escrow Deposit. At Closing, Purchaser shall deposit Four Hundred Fifty
Thousand and 00/100 Dollars ($450,000.00) with the Escrow Agent, by wire
transfer of immediately-available funds to the account of the Escrow Agent (the
“Escrow Deposit,” and, together with all earnings thereon, the “Escrow Funds”).
The Escrow Funds shall be held, invested and disbursed by the Escrow Agent as
specified in and pursuant to the terms and conditions of the Post-Closing Escrow
Agreement in the form of Exhibit A attached hereto.

 

1.12 Net Assets Settlement.

 

(a) As used herein, the term “Net Assets” shall mean the aggregate current
assets of the Company (excluding those Excluded Assets which would otherwise be
included in current assets) less the aggregate current liabilities of the
Company (excluding those Excluded Liabilities which would otherwise be included
in current liabilities) as of the Effective Time, all as determined in
accordance with GAAP. Prepaids, inventory and deposits shall only be included in
Net Assets to the extent that Purchaser determines that the Company will receive
the economic benefit of such prepaid expense, inventory or deposit. As used
herein, the term “Base Net Assets” means $1,441,794.57.

 

(b) At least fourteen (14) days prior to Closing, Shareholder shall in good
faith deliver to Purchaser a reasonable estimate of Net Assets as of October 31,
2005 (“Estimated Net Assets”) and containing reasonable detail and supporting
documents showing the derivation of such estimate. The principles,
specifications and methodologies for determining Estimated Net Assets shall be
as specified in Schedule 1.12. The “Net Assets Payment” shall equal the
difference between the Estimated Net Assets and Base Net Assets. If Estimated
Net Assets exceeds Base Net Assets, the Net Assets Payment shall be added to the
Closing Purchase Price Payment. If Estimated Net Assets is less than Base Net
Assets, the Closing Purchase Price Payment shall be reduced by the amount of the
Net Assets Payment.

 

(c) Within one hundred ninety (190) days after the Effective Time, Purchaser
shall deliver to Shareholder a determination of the Net Assets as of the
Effective Time (following the same principles, specifications and methodologies
used to determine the Estimated Net Assets as set forth in Schedule 1.12;
provided, however, that any Accounts Receivable outstanding as of the Effective
Time that remain uncollected one hundred eighty-one (181) days after the
Effective Time shall not be considered a current asset as of the Effective Time
and shall be disregarded for such determination of the Net Assets, and as
described in Section 6.10, the Company shall promptly transfer all such
uncollected Accounts Receivable to Shareholder) containing reasonable detail and
supporting documents showing the derivation of such estimate. Each Party shall
have full access to the financial books and records of the

 

STOCK PURCHASE AGREEMENT – Page 8

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Company to confirm or audit Net Assets computations. Should Shareholder disagree
with Purchaser’s determination of Net Assets, Shareholder shall notify Purchaser
in writing within ten (10) days after Purchaser’s delivery of its determination
of Net Assets and state the basis for its disagreement. If Shareholder and
Purchaser fail to agree within thirty (30) days after Shareholder’s delivery of
notice of disagreement on the amount of Net Assets, such disagreement shall be
resolved in accordance with the procedures set forth in Section 1.12(d) which
shall be the sole and exclusive remedy for resolving disputes relative to the
determination of Net Assets. The Purchase Price shall be increased or decreased
based on the difference between the actual Net Assets as of the Effective Time
and the Estimated Net Assets calculated at the Closing, and within ten (10) days
after the final agreement or determination of Net Assets, any excess of actual
Net Assets over Estimated Net Assets shall be paid in cash by Purchaser to
Shareholder by wire transfer of immediately-available funds, and any deficiency
in actual Net Assets versus Estimated Net Assets shall be paid in cash to
Purchaser pursuant to the Post-Closing Escrow Agreement to the extent the funds
held under the Post-Closing Escrow Agreement are sufficient to fund such
deficiency and if not, the amount of the remaining deficiency shall be paid in
cash by Shareholder to Purchaser by wire transfer of immediately-available
funds, together with interest on such amount at the rate of ten percent
(10%) per annum accruing from the Effective Time until the date when such
payment is made.

 

(d) Dispute of Adjustments. In the event that Shareholder and Purchaser are not
able to agree on the actual Net Assets within thirty (30) days after
Shareholder’s delivery of notice of disagreement, Shareholder and Purchaser
shall each have the right to require that such disputed determination be
submitted to Ernst & Young LLP, or if Ernst & Young LLP is not available for any
reason or does not maintain its independent status, such other independent
certified public accounting firm as Shareholder and Purchaser may then promptly
mutually agree upon in writing (the “Accounting Firm”) for computation or
verification in accordance with the provisions of this Agreement. The Accounting
Firm shall review the matters in dispute and, acting as arbitrators, shall
promptly decide the proper amounts of such disputed entries (which decision
shall also include a final calculation of Net Assets). The submission of the
disputed matter to the Accounting Firm shall be the exclusive remedy for
resolving disputes relative to the determination of Net Assets. The Accounting
Firm’s determination shall be binding upon Shareholder and Purchaser. The
Accounting Firm’s fees and expenses shall be borne equally by Shareholder and
Purchaser.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SHAREHOLDER

 

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

 

2.1 Authority.

 

(a) Shareholder has full limited liability company power and authority to enter
into this Agreement and all documents required to be delivered hereunder and
full limited

 

STOCK PURCHASE AGREEMENT – Page 9

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liability company power and authority to carry out and perform the transactions
contemplated herein.

 

(b) The Company 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.

 

2.2 Authorization/Execution. All corporate, limited liability company and other
actions required to be taken by Shareholder and the Company to authorize the
execution, delivery and performance of this Agreement, all agreements to be
executed and delivered by Shareholder and/or the Company pursuant to this
Agreement, all documents executed by Shareholder and the Company which are
necessary to give effect to this Agreement, and all transactions contemplated
hereby have been duly and properly taken or obtained by Shareholder and the
Company. No other corporate, limited liability company or other action on the
part of Shareholder or the Company is necessary to authorize the execution,
delivery and performance of this Agreement, all agreements to be executed and
delivered by Shareholder and/or the Company 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 Shareholder and the Company and,
assuming due and valid execution by, and enforceability against, Purchaser, this
Agreement and all documents delivered hereunder constitute valid and binding
obligations of Shareholder and the Company, 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 and Good Standing; No Subsidiaries; No Conflicts.

 

(a) (i) the Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Utah. The Company has full power
and authority to own, operate and lease its properties and to carry on its
business as now conducted. Shareholder is a limited liability company duly
organized, validly existing and in good standing under the laws of the State of
Nevada; and (ii) KIDS Alaska is a non-profit non-membership corporation duly
organized, validly existing and in good standing under the laws of the State of
Alaska. KIDS Alaska has full power and authority to own, operate and lease its
properties and to carry on its business as now conducted.

 

(b) The Company has no subsidiaries, whether direct or indirect. The Company 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 Shareholder and the Company 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 Shareholder, the Company or

 

STOCK PURCHASE AGREEMENT – Page 10

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KIDS Alaska; (ii) violate any law, rule or regulation applicable to Shareholder,
the Company or KIDS Alaska; (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
Company or KIDS Alaska or the Shares under, any contract, lease, sales order,
purchase order, indenture, mortgage, note, bond, instrument, license or other
agreement to which the Company, Shareholder or KIDS Alaska is a Party, or by
which the Company, Shareholder or KIDS Alaska 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 Company, Shareholder or KIDS Alaska; or
(vi) violate or conflict with any provision of the Articles of Incorporation or
Bylaws of the Company or KIDS Alaska or the Articles of Organization or
Operating Agreement of Shareholder.

 

2.4 Title to Shares and Interests in KIDS Alaska.

 

(a) Shareholder is the unconditional sole legal, beneficial, record and
equitable owner of the Shares, free and clear of any and all Encumbrances.
Shareholder 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 Shares. At the Closing, Shareholder will convey to Purchaser
good and valid title to the Shares, free and clear of any and all Encumbrances.

 

(b) Neither the Company nor KIDS Alaska have granted or are a party to any
agreement granting control, preemptive rights, rights of first refusal or any
similar or comparable rights with respect to KIDS Alaska. No Person has any
right to direct, control, elect or remove the Board of Directors of KIDS Alaska
except for the current directors of KIDS Alaska.

 

2.5 Financial Statements; Changes.

 

(a) Shareholder has delivered to Purchaser the audited balance sheets for the
Company at June 30, 2004, 2003 and 2002, and the reviewed balance sheet for the
Company at December 31, 2004, and the related statements of operations for the
periods then ended. All such financial statements have been prepared in
conformity with GAAP applied on a consistent basis throughout such periods. Such
statements of operations present fairly in all material respects the results of
operations of the Company for the respective periods covered, and the balance
sheets present fairly in all material respects the financial condition of the
Company as of their respective dates. Since December 31, 2004, there has been no
change in any of the significant accounting policies, practices or procedures of
the Company.

 

(b) Shareholder has delivered to Purchaser an unaudited balance sheet for the
Company at November 30, 2005 (the “Interim Balance Sheet Date”) and the related
statement of operations for the eleven (11) month period then ended. Such
interim financial statements have been prepared in conformity with GAAP. The
interim statement of operations presents fairly in all material respects the
results of the operations of the Company for the period covered, and the interim
balance sheet presents fairly in all material respects the financial condition
of the Company at the Interim Balance Sheet Date. Such interim financial
statements reflect all adjustments necessary for a fair presentation of the
financial information contained therein other

 

STOCK PURCHASE AGREEMENT – Page 11

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than normal year-end adjustments which are not material in amount in the
aggregate. At the Interim Balance Sheet Date, the Company 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 interim
balance sheet but was not.

 

(c) Except as set forth in Schedule 2.5, since the Interim 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 Company, Shareholder or KIDS Alaska,
that has had or would reasonably be expected to have a Material Adverse Effect;
or

 

(ii) any strike or other labor dispute; or

 

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

 

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 and Schedule 2.6, with respect to matters pertaining to this
Section 2.6, the term “Company” shall include the Company and all entities
currently or previously owned, directly or indirectly, by the Company and KIDS
Alaska.

 

(b) Tax Returns and Audits.

 

(i) The Company 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 Company (whether or not shown on any Tax return) that have become due and
payable have been paid. The Company 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 Company does not file Tax
returns that it is or may be subject to taxation by that jurisdiction.

 

(ii) The Company 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 Company and Shareholder have made available (or will make available
through the date of Closing) to Purchaser (i) correct and complete copies of all
Tax returns of the Company and (ii) any examination reports, statements of
deficiencies and assessments by any governmental authority against or agreed to
by the Company since the

 

STOCK PURCHASE AGREEMENT – Page 12

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Company’s formation. The Company 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 Company claimed,
threatened or otherwise raised by any authority. The Company 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 Company 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 Company financial statements in accordance with GAAP or (B) with
respect to material unpaid Taxes that may have accrued since the Interim Balance
Sheet Date in connection with the operation of the business of the Company have
been recorded on the books of the Company in the ordinary course.

 

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

 

(vi) The Company 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 Company. No property of the Company
is “tax-exempt use property” within the meaning of Section 168(h) of the Code.
The Company is not a party to any lease made pursuant to former
Section 168(f)(8) of the Internal Revenue Code of 1954.

 

(vii) The Company 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 Company 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 Company 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
Company 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 Company) 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 Company has not been a party to any
Tax allocation or sharing agreement. The Company 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.

 

(viii) The Company 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.

 

STOCK PURCHASE AGREEMENT – Page 13

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(ix) Neither the Company 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 Company 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 Company is not a partner in any entity classified as a partnership for
federal income Tax purposes.

 

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

 

(xiii) The Company 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).

 

(xiv) Since July 1, 2004, the Company has been a validly electing S corporation
within the meaning of Sections 1361 and 1362 of the Code. The Company has no
unpaid liability for any Tax on passive income under Code Section 1375, or for
any Tax on built-in gains under Section 1375.

 

(xv) At all times since July 1, 2004, all of the ownership interests of
Shareholder have been owned exclusively by Bill R. Vickers, and none of
Shareholder or any of its Affiliates have taken any action to cause Shareholder
to be treated as other than a disregarded entity for federal or state income tax
purposes or any action inconsistent with Shareholder’s status as a disregarded
entity for federal or state income tax purposes.

 

(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 Company or KIDS Alaska is a party or to which any of
their respective properties are subject or by which any thereof is bound except
for the Excluded Contracts (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 Company, including all
amendments and supplements, have been made available to Purchaser. Each Contract
is valid and subsisting;

 

STOCK PURCHASE AGREEMENT – Page 14

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except as set forth in Schedule 2.7, each of the Company and KIDS Alaska, as
applicable, 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 breach or default thereunder by the Company or KIDS Alaska (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. Neither the Company
nor KIDS Alaska has received notices of termination of any Contract. Neither the
Company nor Shareholder nor KIDS Alaska 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. There are no agreements or arrangements among
Shareholder and any of its Affiliates by which any current patient at the
Facility or any patient of the Facility since January 1, 2004, were referred to
the Facility except for agreements included in the Contracts.

 

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

 

(a) The Company has good and valid title, free of encumbrances in and to the
Real Property, the Personal Property and the other assets of the Company, except
for those exceptions and other matters set forth in Schedule B, Section 2 of the
title commitment attached hereto as Exhibit C (the “Title Commitment”). Such
exceptions and other matters shall be referred to herein as the “Permitted
Encumbrances”. Except as shown in Schedule 2.8, all material tangible properties
of the Company 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 by the Company and all real property used in the conduct of the business
of the Facility.

 

(c) Shareholder 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) At Closing, the Company will hold good and valid title to the Real Property
and all its other assets and a valid leasehold interest in all of the Company’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) The Leases constitute all of the agreements to which the Company is a Party
with respect to the properties which are demised pursuant thereto and pertain to
all real and personal property leased by the Company and used in the conduct of
the business of the Facility.

 

(f) As of the date hereof, 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 Shareholder or, to the knowledge of the
Company, the other Party thereunder.

 

STOCK PURCHASE AGREEMENT – Page 15

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(g) Shareholder has no Knowledge of, and, during the past three (3) years, the
Company has not received any written notice of, non-compliance with law, zoning
ordinance or other restriction with respect to any Real Property.

 

(h) Except as shown in Schedule 5.11(a), there is no pending or, to the
Knowledge of Shareholder, threatened action that would materially interfere with
the ownership, use or quiet enjoyment of any Real Property by the Company.

 

(i) Shareholder has no Knowledge of, and, during the past three (3) years, the
Company 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 Company to operate the Facility after the Effective Time in the same
manner as the Company operates the Facility as of the date hereof.

 

2.9 Assets. On the Closing Date, the Company 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 Company as of the Effective Time, and all of such assets
shall remain assets of the Company free and clear of all liens after the
Effective Time. Except as described in Schedule 2.9, all of the Company’s assets
are in operating condition and in a good state of maintenance and repair. The
Company’s assets as of the Effective Time include:

 

(a) all of the real property owned by the Company, 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 Company, 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 Company’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 Company with respect to the
operation of the Facility (the “Licenses”);

 

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

 

(e) all of the Company’s and KIDS Alaska’s respective interests in the
Contracts;

 

(f) all accounts, notes, interest and other receivables of the Company and KIDS
Alaska, 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 Facility, billed and

 

STOCK PURCHASE AGREEMENT – Page 16

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unbilled, recorded and unrecorded, for services provided by the Company (the
“Accounts Receivable”);

 

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

 

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

 

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

 

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

 

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

 

(l) the name, symbols, telephone numbers, facsimile numbers, domain names,
trademarks, trade names, service marks and copyrights used with respect to the
operation of the Facility, including the names “Copper Hills Youth Center” and
all variants thereof and all common law trademark rights associated therewith
and “KIDS Behavioral Health of Utah, Inc.”;

 

(m) all of the Shareholder’s, the Company’s and each of their respective
Affiliates’ interests, direct and indirect, in KIDS Alaska;

 

(n) all of the Company’s rights with respect to its Medicare, Medicaid and other
third-party provider numbers; and

 

(o) the exclusive ownership and control of the KIDS Alaska Lock Box, the For
KIDS Foundation Lock Box and the GE Capital Lock Boxes (collectively, the “Lock
Boxes”) and the exclusive ownership and control of all amounts received and
deposited into the Lock Boxes after the Effective Time;

 

provided, however, that the assets do not include the Excluded Assets.

 

2.10 Capitalization of the Company. The authorized capital stock of the Company
consists of One Thousand (1,000) shares of no par value Common Stock of which
One Thousand (1,000) shares are validly issued and outstanding. All such
outstanding shares of capital stock of the Company are fully paid and
nonassessable. All of the issued and outstanding shares of capital stock of the
Company are owned of record and beneficially by Shareholder. The Company has
provided to Purchaser a correct and complete copy of the stock registry and
stock transfer records of the Company listing all Shareholders of the Company
and the outstanding share certificates and total number of shares issued to each
shareholder of the Company since its inception. The Company has no other capital
stock authorized for issuance and has no treasury

 

STOCK PURCHASE AGREEMENT – Page 17

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shares. The Company has not purchased any shares of its capital stock from any
shareholder within the three (3) year period prior to the Closing Date. There
are no outstanding options, warrants, convertible instruments, or other rights,
agreements, or commitments to issue or acquire any shares of common stock of the
Company or any other security constituting, or convertible or exchangeable into,
capital stock of the Company. The Company 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 capital stock
or any capital stock of the Company to be issued in the future. The Company is
not bound by any exclusive agency or indemnity agreement applicable to the
issuance of shares of its capital stock after the Closing Date.

 

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
Company has an interest and the nature of such interest (the “Intangible
Property”). Except as shown in Schedule 2.11, the Company 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 in connection with its business 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 Company 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 of the Company is fully assignable free and clear of any
encumbrances. The Company has in all material respects performed all obligations
required to be performed by, and the Company is not in default in any material
respect under, any contract relating to any of the foregoing. The Company has
not received any notice to the effect that such intangible property or any use
thereof by the Company conflicts with or infringes (or allegedly conflicts with
or infringes upon) the rights of any Person. The Company currently holds the
proper number and types of valid computer software licenses for each of the
Company’s users at the Facility 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 pending, or, to the Knowledge of Shareholder, threatened, against or
affecting the Company, or any of its respective properties or assets.
Schedule 2.12 lists each order and each action against, or that enjoins or seeks
to enjoin or excludes or seeks to exclude the conduct of any activity by, the
Company.

 

2.13 Accounting Records; Internal Controls.

 

(a) Accounting Records. The Company 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.

 

STOCK PURCHASE AGREEMENT – Page 18

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2.14 Insurance. Schedule 2.14 lists all insurance policies and bonds that are
maintained by the Company 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 (including applicable deductibles) for each such
insurance policy and bond. The Company is not in default under any insurance
policy or bond. The Company 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 Company 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 Company 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 Company 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
Company 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 Company. There are no agreements
or arrangements with any employee of the Company 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 Company. There is no unfair labor practice
complaint against the Company pending, or to the Knowledge of Shareholder
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 Shareholder threatened by or involving the
employees of the Company.

 

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 Company 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”). Shareholder and the
Company have made available to Purchaser true and complete copies of (i) each
Plan and (ii) the summary plan description, if any,

 

STOCK PURCHASE AGREEMENT – Page 19

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for each Plan. 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 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 Company 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 Shareholder’s or the Company’s Knowledge,
no other event or circumstance has occurred that would reasonably be expected to
materially and adversely affect its tax qualified status. To Shareholder’s or
the Company’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) There are no actions pending, or, to Shareholder’s or the Company’s
Knowledge, 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 Company 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 Company.

 

(c) Neither Shareholder, the Company nor any Commonly Controlled Entity
contributes to or has an obligation to contribute to, nor has Shareholder, the
Company 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. Shareholder and the Company have
performed timely and shall timely perform all obligations of Shareholder, the
Company 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 Shareholder or
the Company within the meaning of Section 414(b), (c), (m), or (o) of the Code
or Section 4001 of ERISA.

 

(d) Each employee, former employee and independent contractor of the Company has
been properly classified as such for all purposes under the Code and ERISA.

 

(e) The Company’s ceasing as of the Closing to be a member of a controlled group
of corporations and entities with Shareholder and its Affiliates under
Section 414(b) of the Code shall constitute a “severance from employment” of the
employees of the Company 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 Company
participate, and such severance from employment shall under the terms of any
such Plan entitle the employees of the Company to an immediate distribution of
all of their accounts or other benefits under the Plan.

 

STOCK PURCHASE AGREEMENT – Page 20

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2.17 Certain Interests. Except as shown on Schedule 2.17, no Affiliate of the
Company, nor any officer or director of any thereof, nor any associate of any
such individual, has any material interest in any property used in or pertaining
to the business of the Company; no such Person is indebted or otherwise
obligated to the Company; and the Company 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
Company 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 Facility which are
performed, in whole or in part, by any Affiliate of the Company. Except as shown
in Schedule 2.18, the Company has not engaged in any transaction with any
Affiliate of the Company. Except as shown in Schedule 2.18, the Company has no
liabilities or obligations to any Affiliate of the Company and no Affiliate of
the Company has any liabilities or obligations to the Company.

 

2.19 Inventory. All Inventory of the Company is of good merchantable quality,
reasonable in balance or currently usable in the ordinary course of business in
all material respects. The value at which any Inventory is carried reflects the
customary Inventory valuation policy of the Company for stating inventory in
accordance with GAAP consistently applied.

 

2.20 Receivables. The Accounts Receivable arose from bona fide commercial
transactions, and 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. The Company adequately records on
its financial statements in accordance with GAAP all estimates for future Cost
Report settlements for all years open to settlement. The Company 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 Company for the year ended December 31, 2004, 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 Company with respect to which alternative sources of
supply are not readily available on comparable terms and conditions.

 

2.22 Worker Adjustment and Retraining Notification (WARN). Shareholder and the
Company have complied with the Worker Adjustment and Retraining Notification
Act, 29 U.S.C.A. §2102, et seq., as amended (the “WARN Act”), insofar as
applicable to any acts or transactions with respect to and including the
transactions contemplated by this Agreement.

 

STOCK PURCHASE AGREEMENT – Page 21

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2.23 Environmental Compliance.

 

(a) The Company is 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 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 Company has obtained all permits required under applicable Environmental
Laws for the use, operation or ownership of the Real Property and business of
the Facility and the Company. The Company is in full compliance with each such
applicable permit. No federal, state or local governmental entity has notified
the Company 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) The Company has not 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 Company or the Facility 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 Shareholder,
threatened, under any applicable Environmental Law pursuant to which the Company
is or to the Knowledge of Shareholder could be reasonably expected to be named
as a party with respect to the Real Property or the business operations of the
Company or the Facility.

 

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

 

(f) Shareholder 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
Company’s possession, custody or control, relating to any past and present
(i) environmental conditions concerning the business of the Facility 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 Facility, and
(iii) activities relating to

 

STOCK PURCHASE AGREEMENT – Page 22

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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 Facility.
Shareholder has disclosed and made available to Purchaser any and all documents
that are in the Company’s possession, custody or control relating to projected
environmental expenditures for the business of the Facility 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.

 

(g) Except as set forth in Schedule 2.23, there is no soil or groundwater
contamination on, under, or about any Real Property except as disclosed in the
environmental reports described in Section 2.23(f) above.

 

(h) The Company 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.).

 

2.24 Powers of Attorney. The Company 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.

 

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

 

(a) The Facility is duly accredited by the Joint Commission on Accreditation of
Healthcare Organizations (“JCAHO”) as evidenced by the Facility’s most recent
JCAHO accreditation survey reports and is duly and unconditionally licensed by
the State of Utah Department of Human Services (“Utah Agency”) as an
Intermediate Secure Care Facility subject only to the Company’s completion of
the corrective action plan described in Schedule 5.11(b). Except as described in
Schedule 2.25, each of the Company and KIDS Alaska 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 its business as such are being conducted. In order to conduct its
business operations as presently conducted, neither the Company nor KIDS Alaska
is required to hold any licenses, permits and other governmental approvals or
authorizations except for the licenses currently held by the Company and/or KIDS
Alaska as set forth in Schedule 2.25. The Licenses listed in Schedule 2.25 are
in full force and effect, and each of the Company and KIDS Alaska is in full
compliance in all material respects with all requirements of each license that
it holds. Each of the Company and KIDS Alaska 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
Company or KIDS Alaska is bound or to which the Company or KIDS Alaska is
subject. The Company has not received nor, to the Knowledge of Shareholder, is
the Company or KIDS Alaska 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, the applicable facilities,
equipment, staffing and operations of the business of the Facility satisfy in
all material respects

 

STOCK PURCHASE AGREEMENT – Page 23

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the accreditation standards of JCAHO, and Shareholder has previously delivered
to Purchaser true, correct and complete copies of (i) the Facility’s most recent
JCAHO accreditation survey report, a list of deficiencies, if any, and, if
applicable, a plan of correction; (ii) the Facility’s most recent Utah Agency
surveys, lists of deficiencies, if any, and, if applicable, plans of correction;
(iii) the Facility’s fire marshal’s surveys for the past two (2) years and lists
of deficiencies, if any; and (iv) the Facility’s boiler inspection reports for
the past two (2) years and lists of deficiencies, if any. The Company has taken
all reasonable steps to correct all such deficiencies and a description of any
uncorrected deficiency is set forth in Schedule 2.25.

 

(c) The Company 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 Company are listed in Schedule 2.25 by facility
to the extent applicable. Except as set forth in Schedule 2.25, the Company is
in compliance in all material respects with the conditions of participation for
the Government Programs.

 

(d) The Company 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 2.25, all such reports are or
when filed shall be complete and accurate in all material respects. Except as
disclosed in Schedule 2.25, the Company is and has been in material compliance
with filing requirements with respect to cost reports of the Company, and such
reports do not claim, and the Company 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
Company, 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 2.25 and except for claims, actions and appeals in the ordinary course
of business, the Company 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 Company, on or before the date of this Agreement.
Schedule 2.25 indicates which of such cost reports have been audited by the
fiscal intermediary and finally settled.

 

(e) No validation review or program integrity review related to the Company, 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 Shareholder, no such
reviews are scheduled, pending or threatened against or affecting the Company or
the consummation of the transactions contemplated by this Agreement.

 

STOCK PURCHASE AGREEMENT – Page 24

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(f) All billing practices of the Company and KIDS Alaska 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 Company nor KIDS Alaska has billed or received any payment or reimbursement
in excess of amounts allowed by law.

 

(g) The Company 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 Human Services and based upon such review and except as listed in
Schedule 2.25, (i) no employee or independent contractor of the Company or any
physician currently on the medical staff at the Facility is listed as having
been, and to the Knowledge of the Company 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 Facility, or the
Company or the Company’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) In the five (5) year period immediately preceding the Closing Date, none of
Shareholder, the Company or any of the Company’s employees has 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.

 

2.26 Compliance Program. Shareholder has made available to Purchaser (i) a copy
of the Facility’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 Facility or the Company have violated any health care
fraud law or regulation, including the Anti-Kickback Laws and the Stark Laws.
The Company (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) 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 Company).

 

2.27 HIPAA. The Company and KIDS Alaska are in compliance 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.

 

STOCK PURCHASE AGREEMENT – Page 25

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2.28 Restricted Grant and Loan Programs. The transactions contemplated by this
Agreement will not result in any obligation on the Company 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 Company or the
Facility.

 

2.29 Experimental Procedures. The Company has not performed or authorized the
performance of any experimental or research procedures or studies involving
patients of the Facility that require the prior approval of any governmental
entity that has not been obtained.

 

2.30 Medical Staff; Physician Relations. The Company 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 Facility. Schedule 2.30
sets forth (a) the name, age and status on the medical staff of each member of
the medical staff of the Facility 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 2.30, there are no pending or, to Shareholder’s
Knowledge, threatened disputes with the Facility 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.

 

2.31 Solvency. The Company is not insolvent and will not be rendered insolvent
as a result of any of the transactions contemplated by this Agreement. For
purposes hereof, the term “solvency” means that: (a) the fair salable value of
the Company’s tangible assets is in excess of the total amount of its
liabilities (including for purposes of this definition all liabilities, whether
or not reflected on a balance sheet prepared in accordance with GAAP, and
whether direct or indirect, fixed or contingent, secured or unsecured, and
disputed or undisputed); (b) the Company is able to pay its debts or obligations
in the ordinary course as they mature; and (c) the Company has capital
sufficient to carry on its businesses and all businesses which it is about to
engage.

 

2.32 No Brokers or Finders. No agent, broker, finder, or investment or
commercial banker, or other Person or firm engaged by or acting on behalf of
Shareholder or the Company, 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 Shareholder shall have full responsibility and, with respect to such fees
or commissions, Purchaser shall not have any liability.

 

2.33 Improper Payments. None of the Company, KIDS Alaska, Shareholder or any
director, officer, employee or agent of the Company or KIDS Alaska has 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 Company or KIDS Alaska and has not proposed or offered to make or receive
any such illegal payments.

 

2.34 No Misrepresentations. The representations, warranties and statements made
by the Company and Shareholder in this Agreement (including any Schedule,
Exhibit or certificate

 

STOCK PURCHASE AGREEMENT – Page 26

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furnished by Shareholder or the Company 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.

 

2.35 No Undisclosed Liabilities. True and correct copies of all notes,
agreements or other documents evidencing outstanding liabilities of the Company
and KIDS Alaska have been delivered or made available to Purchaser by the
Company. Except as reflected in Schedule 2.35, neither the Company nor KIDS
Alaska has any indebtedness or other liabilities, whether accrued, absolute,
contingent or otherwise, and whether due or to become due. Schedule 2.35 hereto
sets forth each liability of the Company and KIDS Alaska.

 

2.36 Conduct of Business. Except as stated in Schedule 2.36, Shareholder
represents and warrants that since October 31, 2005, the Company has:

 

(a) carried on the Company’s and KIDS Alaska’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;

 

(b) maintained the assets of the Company 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 the Company’s
and KIDS Alaska’s business organization intact, retained all of its employees
and maintained its relationships with physicians, suppliers, customers and
others having business relationships with the Company or KIDS Alaska.

 

2.37 Negative Assurances. Except as stated in Schedule 2.37, Shareholder
represents and warrants that since October 31, 2005, the Company has not and
KIDS Alaska 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;

 

(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;

 

(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
Company;

 

STOCK PURCHASE AGREEMENT – Page 27

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(d) 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; or

 

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

 

2.38 KIDS Alaska. KIDS Alaska owns no assets and has no liabilities except for
its ownership of the KIDS Alaska Lock Box and its rights and obligations under
its Agreement for Provision of Mental Health Outpatient Services with County of
Orange, California and its Agreement to Provide Mental Health Services with the
Company. KIDS Alaska has never had employees and has never had any other
operations other than the items described in this Section 2.38. No Party has the
right to appoint or remove the Board of Directors of KIDS Alaska or to otherwise
control, directly or indirectly, KIDS Alaska.

 

2.39 For KIDS Foundation Lock Box. Shareholder has the exclusive right to own
and control the For KIDS Foundation Lock Box. The For KIDS Foundation Lock Box
is used solely to collect funds which become receivable under the For KIDS
Foundation Agreement and certain other Contracts between the Company and certain
California governmental agencies. Shareholder has duly assigned this agreement
to the Company and, therefore, the Company is entitled to all amounts received
under this Agreement including all funds deposited in the For KIDS Foundation
Lock Box.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

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

 

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

 

3.2 Authorization/Execution. All corporate 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 corporate 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 Company and Shareholder, 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)

 

STOCK PURCHASE AGREEMENT – Page 28

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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 corporation 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 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 Articles of Incorporation or Bylaws of
Purchaser.

 

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, Shareholder shall
not have any liability.

 

ARTICLE 4

CONDITIONS PRECEDENT TO OBLIGATIONS OF SHAREHOLDER

 

Shareholder’s obligations to sell the Shares 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 Shareholder 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.

 

STOCK PURCHASE AGREEMENT – Page 29

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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.

 

4.4 Governmental Authorizations. Shareholder, the Company 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. Shareholder, the Company and Purchaser shall have obtained all
Governmental Approvals. All consents, waivers, and estoppels of third parties
which are reasonably necessary, in the opinion of Shareholder, to complete
effectively the transactions herein contemplated shall have been obtained in
form and substance reasonably satisfactory to Shareholder.

 

ARTICLE 5

CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

 

Purchaser’s obligation to purchase the Shares 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 Shareholder and the Company 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. Shareholder and the
Company 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, Shareholder and the Company 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 Facility by Purchaser after the Closing.
Purchaser, Shareholder and the Company 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.

 

STOCK PURCHASE AGREEMENT – Page 30

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5.3 Signing and Delivery of Instruments. Shareholder and the Company 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.

 

5.5 Opinion of Counsel. Purchaser shall have received the favorable opinion of
Shareholder’s counsel dated the Closing Date, in substantially the form attached
hereto as Exhibit B.

 

5.6 No Material Adverse Change. There shall not have been any Material Adverse
Change in or affecting the Shares or the business of the Company since
October 31, 2005.

 

5.7 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.

 

5.8 Disclosure Schedules. Shareholder and the Company shall have promptly and
fully completed the Disclosure Schedules hereto.

 

5.9 Vesting of 401(k) Account Balances. Shareholder shall have taken all action
necessary to make all of the Retained Employees 100% vested in their accounts in
any Plan that is a 401(k) or other retirement plan qualified under
Section 401(a) of the Code in which the Retained Employees participate.

 

5.10 Real Property Title Matters.

 

(a) Purchaser shall have received an A.L.T.A. extended Owner’s Title Policy with
respect to each parcel of the Real Property issued to Purchaser 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.

 

(b) Shareholder shall have delivered full and complete releases in recordable
form of all liens on the Real Property, and Shareholder shall have complied with
all of the requirements set forth in Schedule B, Section 1 of the Title
Commitment which are identified to be complied with by Shareholder or the
Company and shall have removed all of the exceptions set forth in Schedule B,
Section 2 of the Title Commitment which are identified as to be removed by
Shareholder.

 

5.11 Repairs. The Company has fully obtained and has properly received (a) a
temporary certificate of occupancy for the Facility from all appropriate
governmental authorities which shall become a full certificate of occupancy upon
completion of the items set forth on

 

STOCK PURCHASE AGREEMENT – Page 31

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Schedule 5.11(a), and (b) an unconditional license from the Utah Agency to
operate the Facility as an intermediate-secured residential treatment facility
which is subject to the satisfactory completion of the corrective action plan
contained in Schedule 5.11(b). Shareholder shall have caused the Company to have
completed the actions described in Schedule 5.11(c) before Closing and such
actions have been approved by the applicable licensing agency before Closing.

 

5.12 Employment. Purchaser has entered into agreements with Kendall Payne
regarding his employment with the Company after the Effective Time.

 

5.13 Tail Insurance. Shareholder has purchased and prepaid all premiums due or
which may become due on behalf of the Company for Tail Insurance Coverage for a
period of three (3) years from the Closing Date. Shareholder shall deliver to
Purchaser at the Closing a certificate of insurance evidencing the Tail
Insurance Coverage. The “Tail Insurance Coverage” shall be health care services
professional liability coverage with its current insurers or a financially sound
and reputable insurance company selected by Shareholder (and approved by
Purchaser) with limits of liability of Two Million and 00/100 Dollars
($2,000,000.00) per loss and Four Million and 00/100 Dollars ($4,000,000.00)
annual aggregate, naming the Company as an insured and covering the health care
services professional liability risks arising out of the Company’s operation of
the Facility before the Effective Time.

 

5.14 KIDS Alaska Lock Box; For KIDS Foundation Lock Box.

 

(a) Shareholder shall take all actions necessary for Purchaser and the Company
to obtain full and exclusive access and ownership to all funds relating to and
lock boxes used in the business of the Company with respect to its relationship
with KIDS Alaska (the “KIDS Alaska Lock Box”), and Shareholder shall deliver to
Purchaser all necessary executed documents and consents to accomplish and
evidence such exclusive ownership and access.

 

(b) Shareholder shall take all actions necessary for Purchaser and the Company
to obtain full and exclusive access and ownership to all funds relating to and
lock boxes used in the Shareholder’s and the Company’s business with For KIDS
Foundation (the “For KIDS Foundation Lock Box”), and Shareholder shall deliver
to Purchaser all necessary executed documents and consents to accomplish and
evidence such exclusive ownership and access.

 

5.15 GE Capital Lock Boxes. Shareholder shall take all actions necessary for
Purchaser and the Company to obtain full and exclusive access and ownership of
all lock boxes used in the business of the Company, including any lock boxes
held or used by the Company for the benefit of General Electric Capital
Corporation to collect the Accounts Receivable and other amounts (collectively,
the “GE Capital Lock Boxes”), and Shareholder shall deliver to Purchaser all
necessary executed documents and consents to accomplish and evidence such
exclusive ownership and access.

 

5.16 Environmental Testing. Shareholder shall deliver results of the soil sample
taken by Onyx Environmental Services at the Facility which show the complete
removal of and absence of stained soils in such sample to the reasonable
satisfaction of Purchaser.

 

STOCK PURCHASE AGREEMENT – Page 32

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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 Company 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 Company as of the Effective Time. The Company will
afford to the representatives of Shareholder, 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 Shareholder for business purposes.
Purchaser acknowledges that, as a result of entering into this Agreement and
owning the Shares of the Company, 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 Company intends to destroy or otherwise
dispose of any of the documents described in this Section 6.1(a), the Company
shall provide written notice to Shareholder of the Company’s intention no later
than forty-five (45) calendar days prior to the date of such intended
destruction or disposal. Shareholder shall have the right, at their sole cost,
to take possession of such documents during such forty-five (45) calendar day
period. If Shareholder does not take possession of such documents during such
forty-five (45) calendar day period, the Company shall be free to destroy or
otherwise dispose of such documentation upon the expiration of such forty-five
(45) calendar day period.

 

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

 

6.2 Provision of Benefits of Certain Contracts. If, as of the Effective Time,
Shareholder has not obtained a required consent to the change of control and
transfer of a Contract or Lease, or the Company 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, Shareholder shall provide
the Company the benefits of such Contract or Lease and cooperate in any
reasonable and lawful arrangement designed to provide such benefits to the
Company 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 Company to use reasonable commercial efforts to perform, on
behalf of Shareholder, the obligations of the Company 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 Company had it received consent
to the transfer of such Contract or Lease or

 

STOCK PURCHASE AGREEMENT – Page 33

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had entered into a new third party contract on substantially similar terms as
the applicable Contract or Lease.

 

6.3 Misdirected Payments, Etc. Shareholder covenants and agrees to remit, with
reasonable promptness, to the Company any payments received, which payments are
on or in respect of accounts or notes receivable owned by (or are otherwise
payable to) the Company. In addition, and without limitation, in the event of a
determination by any governmental or third-party payor that payments to
Shareholder or the Company resulted in an overpayment or other determination
that funds previously paid by any program or plan to Shareholder or the Company
must be repaid, Shareholder shall be responsible for repayment of said monies
(or defense of such actions) if such overpayment or other repayment
determination was for services rendered prior to the Effective Time and the
Company 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. In the event that, following the Effective
Time, the Company suffers any offsets against reimbursement under any
third-party payor or reimbursement programs due to the Company, relating to
amounts owing under any such programs by Shareholder or any of its Affiliates or
the Company, Shareholder shall promptly upon demand from the Company pay to the
Company the amounts so billed or offset.

 

6.4 Certain Employee Matters.

 

(a) Purchaser shall be entitled to cause the Company to retain any or all of the
employees of the Company after the Effective Time. Any of the Company’s
employees who remain employed by the Company as of or after the Effective Time
shall be referred to in this Agreement as the “Retained Employees.”

 

(b) Shareholder shall be responsible to provide continuation coverage pursuant
to the requirements of Code Section 4980B and Treasury regulations thereunder
and Part 6 of Title I of ERISA (“COBRA Coverage”) to any qualified beneficiaries
under any Plan required to provide COBRA Coverage. Purchaser shall be
responsible in accordance with the requirements of Code Section 4980B and
Treasury regulations thereunder and Article 6 of Title I of ERISA to provide
COBRA Coverage with respect to each of the Hired Employees (and their
dependents) whose qualifying event occurs on or after the date on which the
Facility’s employees become Hired Employees and who become qualified
beneficiaries of a Purchaser health plan subject to COBRA Coverage.

 

(c) Shareholder and Purchaser shall cooperate to enable any Retained Employees
who have an outstanding nondelinquent participant loan from any Plan that is a
401(k) or other retirement plan qualified under Section 401(a) of the Code in
which the Retained Employee participated to transfer his or her Plan account,
including the participant loan, directly to a plan of Purchaser or one of its
Affiliates that is a 401(k) or other retirement plan qualified under
Section 401(a) of the Code in which the Retained Employee will participate after
the Closing, so that such Retained Employee’s repayment obligation with respect
to any participant loan is not accelerated merely on account of the Retained
Employee’s having a “severance from employment” within the meaning of
Section 401(k)(2)(B)(i)(I) of the Code.

 

STOCK PURCHASE AGREEMENT – Page 34

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6.5 Termination Cost Reports. Shareholder shall file with Government Programs
and third-party payors any cost reports relating to the Company’s operations in
periods ending on or before the Effective Time or required to be filed as a
result of the consummation of (a) the transfer of the Shares to Purchaser and
(b) the transactions contemplated by this Agreement (the “Cost Reports”). All
such Cost Reports shall be filed by Shareholder in a manner that is consistent
with current laws, rules and regulations. Shareholder shall provide Purchaser
with a reasonable opportunity to review such reports before filing.

 

6.6 S Corporation Status. The Company and Shareholder shall not revoke the
Company’s election to be taxed as an S corporation within the meaning of Code
Sections 1361 and 1362. The Company and Shareholder shall not take or allow any
action (other than the sale of the Shares pursuant to this Agreement) that would
result in the termination of the Company’s status as a validly electing S
corporation within the meaning of Code Sections 1361 and 1362.

 

6.7 Removal of Information from Shareholder’s Web Site. Within five (5) days
after Closing, Shareholder shall remove all links and references to the Facility
from the web sites of Shareholder and all of its Affiliates.

 

6.8 Non-Solicitation. In exchange for the Purchase Price and other consideration
provided for in this Agreement, Shareholder hereby agrees on behalf of itself
and each of its Affiliates that for a period of two (2) years after Closing,
none of Shareholder nor any of its Affiliates, directly or indirectly, shall:

 

(a) solicit or encourage any employee of the Company after the Effective Time to
work for any Person other than the Company; or

 

(b) employ or otherwise engage Kendall Payne or any other Person who was
employed by the Company as of October 31, 2005, or at any time after such date.

 

6.9 401(k) Matching Testing and Contributions. Before April 15, 2006,
Shareholder shall perform all legally required discrimination testing on
Shareholder’s 401(k) Plan and shall immediately notify Purchaser and the Company
of the results of such testing, and unless such items are included in the
calculation of the Net Assets Payment, Shareholder shall promptly make all
appropriate matching contributions due to the Retained Employees under
Shareholder’s 401(k) Plan as a result of the Retained Employees being employees
of the Company as of December 31, 2005. To the extent such amounts are included
in the calculation of the Net Assets Payment, Purchaser shall cause the Company
to promptly make such matching contributions after such notification. To the
extent any additional amounts are duly paid by the Company for matching
contributions which were not included in the calculation of the Net Assets
Payment, such amounts shall be included in the final determination of Net
Assets.

 

6.10 Efforts to Collect Accounts Receivable. Purchaser shall cause the Company
to use commercially reasonable efforts to collect the Accounts Receivable for
one hundred eighty-one (181) days following the Effective Date. Purchaser shall
cause the Company to assign any uncollected Accounts Receivable as of June 30,
2006, to Shareholder and shall provide Shareholder with a listing of such
uncollected Accounts Receivable, along with the Company’s files relating to such
uncollected Accounts Receivable.

 

STOCK PURCHASE AGREEMENT – Page 35

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6.11 Noncompetition. In exchange for the Purchase Price and other consideration
provided for in this Agreement, Shareholder hereby agrees on behalf of itself
and each of its Affiliates that for a period of two (2) years after Closing,
none of Shareholder nor any of its Affiliates, directly or indirectly, shall:

 

(a) take any action to divert any patient referrals away from the Facility or
that in accordance with past practices would have been made to the Facility
except as described in Schedule 6.11;

 

(b) own or operate a behavioral health facility in the State of Utah; or

 

(c) use any confidential information of the Company or the Facility to the
detriment of the Company or the Facility.

 

6.12 Payroll Items. To the extent such amounts are included in the calculation
of the Net Assets Payment, Purchaser shall be responsible for and, consistent
with past practices, shall pay all amounts related to payroll to the Retained
Employees of the Company and Kendall Payne for the period ended December 31,
2005, and shall make such payments to these employees on or before January 6,
2006. Purchaser shall also cause the Company to pay all bonuses related to such
Persons’ performance in 2005 due to the Retained Employees and Kendall Payne on
the normally-scheduled dates such bonuses are paid to the extent such amounts
are included or should have been included in the calculation of the Net Assets
Payment. To the extent any additional amounts are duly paid for bonuses which
were not included in the calculation of the Net Assets Payment, such amounts
shall be included in the final determination of Net Assets.

 

6.13 Taxes. In accordance with Section 8.1, Shareholder shall timely file and
make all payments due under all Tax returns required to be filed by the Company
relating to all periods before the Effective Time.

 

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, Shareholder and the Company, 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 Shareholder,
respectively. All representations and warranties of Purchaser, Shareholder and
the Company 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, 2.4, 2.6, 2.8, 2.23 and 2.25,
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.

 

STOCK PURCHASE AGREEMENT – Page 36

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7.2 Indemnification of Purchaser by Shareholder.

 

(a) Indemnification. Shareholder shall keep and save Purchaser and Purchaser’s
officers, directors, employees, agents and other representatives and the Company
and the Company’s officers, directors, employees, agents and other
representatives forever harmless from and shall indemnify and defend Purchaser
and the Company 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 Shareholder or the Company under
this Agreement or any documents delivered pursuant hereto, (ii) any breach or
default by Shareholder or the Company of any covenant or agreement of
Shareholder or the Company under this Agreement or any documents delivered
pursuant hereto, (iii) all Taxes of the Company or KIDS Alaska attributable to
any Tax period (or portion thereof) ending on or prior to the Effective Time
(referred to herein as “Tax Claims”), (iv) any professional liability claim
arising out of the business operations of the Company or the Facility prior to
the Effective Time, (v) any claim by a third party with respect to any act or
omission, which claim has accrued, arisen, or come into existence at any time
prior to the Effective Time, and (vi) any matter disclosed in Schedule
7.2(a)(vii). No provision in this Agreement shall prevent Shareholder from
pursuing any of its legal rights or remedies that may be granted to Shareholder
by law against any Person other than Purchaser.

 

(b) Indemnification Limitations. Notwithstanding any provision to the contrary
contained in this Agreement, except for items relating to any Tax Claims,
Shareholder shall be under no liability to indemnify Purchaser or the Company
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
Shareholder in the manner provided in Section 7.4, unless failure to provide
such notice in a timely manner does not materially impair Shareholder’s ability
to defend their respective rights, mitigate damages, seek indemnification from a
third party or otherwise protect its interests;

 

(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 Shareholder 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 Shareholder’s or the Company’s breach of any covenant
required to be performed or satisfied at or prior to Closing, or accrue to
Purchaser unless the liability of Shareholder or the Company in respect of any
single claim or multiple claims in the aggregate exceeds Twenty Thousand Dollars
($20,000) (a “Relevant Claim”) in which event Purchaser shall be entitled to
seek indemnification for the total amount of the Relevant Claim(s).

 

STOCK PURCHASE AGREEMENT – Page 37

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7.3 Indemnification of Shareholder by Purchaser.

 

(a) Indemnification. Purchaser shall keep and save Shareholder forever harmless
from and shall indemnify and defend Shareholder 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 professional liability claim arising out of the business operations of
the Company on and after the Effective Time, and (iv) any claim by a third party
with respect to any act or omission of Purchaser in connection with the
operation of the Company, which claim has accrued, arisen or come into existence
at any time after the Effective Time. 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
Shareholder.

 

(b) Indemnification Limitations. Notwithstanding any provision to the contrary
contained in this Agreement, Purchaser shall be under no liability to indemnify
Shareholder 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 Shareholder
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

 

(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 Shareholder 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 Shareholder 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 Shareholder, 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)

 

STOCK PURCHASE AGREEMENT – Page 38

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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 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

 

STOCK PURCHASE AGREEMENT – Page 39

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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 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

 

STOCK PURCHASE AGREEMENT – Page 40

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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 Company and/or KIDS Alaska for 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) Shareholder shall prepare or cause to be prepared and file or cause to be
filed on a timely basis all Tax returns for the Company and KIDS Alaska for all
periods ending on or prior to the Closing Date that are filed after the Closing
Date. Shareholder 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, Shareholder 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 Company to Shareholder for
such periods.

 

(c) The Parties agree that (A) all Taxes with respect to the Company and KIDS
Alaska attributable to any Tax period (or portion thereof) ending on or prior to
the Effective Time and any Taxes attributable to the sale of the Shares pursuant
to this Agreement

 

STOCK PURCHASE AGREEMENT – Page 41

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shall be borne by, shall be the responsibility of and shall be paid by
Shareholder and (B) all other Taxes with respect to the Company and KIDS Alaska
shall be borne by, shall be the responsibility of and shall be paid by the
Company and KIDS Alaska as required by applicable law.

 

8.2 Cost Report Matters.

 

(a) Purchaser shall forward to Shareholder any and all correspondence relating
to the Cost Reports or rights to settlements and retroactive adjustments on Cost
Reports (“Agency Settlements”) within five (5) business days of receipt by
Purchaser. Purchaser shall not reply to any such correspondence without
Shareholder’s written approval. Purchaser shall remit any receipts relating to
the Cost Reports or the Agency Settlements within five (5) business days after
receipt by Purchaser and will forward any demand for payments within five
(5) business days. Purchaser (and its successors-in-interest, assigns and
Affiliates) shall have neither the right to offset amounts payable to
Shareholder under this Section 8.2 against, nor the right to contest its
obligation to transfer, assign and convey to Shareholder because of, outstanding
claims, liabilities or obligations asserted by Purchaser against Shareholder
including pursuant to the indemnification provisions of Section 7.2. Shareholder
shall retain all rights to Cost Reports including, without limitation, any
payables resulting therefrom or receivables relating thereto and the right to
appeal any Medicare determinations relating to the Agency Settlements and Cost
Reports.

 

(b) Upon reasonable notice and during normal business office hours, Purchaser
will cooperate with Shareholder in regard to the preparation, filing, handling,
and appeals of Cost Reports. Upon reasonable notice and during normal business
office hours, Purchaser will cooperate with Shareholder in connection with any
cost report disputes and/or other claim adjudication matters relative to
governmental program reimbursement. Such cooperation shall include the providing
of statistics and obtaining files at the Facility and the coordination with
Shareholder pursuant to adequate notice of Medicare and Medicaid exit
conferences or meetings.

 

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. Shareholder 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 Company. After consummation of the transactions contemplated in
this Agreement,

 

STOCK PURCHASE AGREEMENT – Page 42

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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.

 

9.4 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Utah as applied to
contracts made and to be performed entirely within the State of Utah. 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 Shareholder:      KIDS Behavioral Health, LLC
9436 Double R Boulevard, Suite A
Reno, Nevada 89509
Attention: President
Facsimile No.: (775) 825-5596 If to Purchaser or the Company:     

Horizon Health Hospital Services, Inc.

c/o Horizon Health Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75057
Attention: President
Facsimile No.: (972) 420-4060

With copies to:      Horizon Health Corporation
1500 Waters Ridge Drive
Lewisville, Texas 75057
Attention: General Counsel
Facsimile No.: (972) 420-7789

 

STOCK PURCHASE AGREEMENT – Page 43

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       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.

 

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 Shareholder 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 Shareholder 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. Except as otherwise provided in this
Agreement, each Party shall bear and pay its own costs and expenses relating to
the preparation of this Agreement and to the transactions contemplated by, or
the performance of or compliance with any condition or covenant set forth in,
this Agreement, including without limitation, the disbursements and fees of
their respective attorneys, accountants, advisors, agents and other
representatives, incidental to the preparation and carrying out of this
Agreement, whether or not the transactions contemplated hereby are consummated.
Shareholder 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 Shares 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

 

STOCK PURCHASE AGREEMENT – Page 44

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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.

 

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.

 

[Remainder of Page Intentionally Left Blank]

 

STOCK PURCHASE AGREEMENT – Page 45

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

 

PURCHASER:

HORIZON HEALTH HOSPITAL SERVICES, INC.,

a Delaware corporation

By:   /s/    DAVID K. WHITE        

Name:

  David K. White

Title:

  President SHAREHOLDER:

KIDS BEHAVIORAL HEALTH, LLC,

a Nevada limited liability company

By:   /s/    BILL VICKERS        

Name:

  Bill Vickers

Title:

  President COMPANY:

KIDS BEHAVIORAL HEALTH OF UTAH, INC.,

a Utah corporation

By:   /s/    BILL VICKERS        

Name:

  Bill Vickers

Title:

  President

 

STOCK PURCHASE AGREEMENT – Page 46