Exhibit 10.1

 

Execution Copy

 

AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT (FOCUS)

 

by and among

 

FOCUS HEALTHCARE, LLC

and the other Sellers named herein,

 

as Sellers,

 

and

 

HORIZON HEALTH CORPORATION,

 

as Purchaser

 

Dated as of January 30, 2006

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TABLE OF CONTENTS

 

          Page No.

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ARTICLE1  DEFINITIONS; SALE AND TRANSFER OF ASSETS; CONSIDERATION; CLOSING;
OTHER MATTERS

   2

1.1

  

Definitions

   2

1.2

  

Transfer of Seller Assets

   6

1.3

  

Excluded Assets

   8

1.4

  

Assumed Liabilities

   9

1.5

  

Excluded Liabilities

   9

1.6

  

Actions Taken on Execution Date

   11

1.7

  

Purchase Price

   12

1.8

  

Closing Date

   13

1.9

  

Items to be Delivered by Sellers at Closing

   14

1.10

  

Items to be Delivered by Purchaser at Closing

   15

1.11

  

Prorations and Utilities

   17

1.12

  

Net Assets Adjustment

   17

1.13

  

Risk of Loss

   19

1.14

  

Seller Representative

   21

ARTICLE 2    REPRESENTATIONS AND WARRANTIES OF SELLERS

   23

2.1

  

Authority

   23

2.2

  

Authorization/Execution

   23

2.3

  

Organization and Good Standing; No Subsidiaries; No Conflicts

   23

2.4

  

Financial Statements; Changes; Related Matters

   24

2.5

  

Taxes

   25

2.6

  

Material Contracts

   27

2.7

  

Real and Personal Property; Title to Property; Leases

   27

2.8

  

Intangible Property

   29

2.9

  

Legal Proceedings

   29

2.10

  

[Reserved]

   30

2.11

  

Insurance

   30

2.12

  

Employees

   30

2.13

  

Employee Benefits

   30

2.14

  

Certain Interests

   31

2.15

  

Inventory

   31

2.16

  

Receivables

   32

2.17

  

Third-Party Payors and Suppliers

   32

2.18

  

Worker Adjustment and Retraining Notification (WARN)

   32

2.19

  

Environmental Compliance

   32

2.20

  

Powers of Attorney

   33

2.21

  

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

   34

2.22

  

Compliance Program

   36

2.23

  

HIPAA

   36

2.24

  

Restricted Grant and Loan Programs

   36

 

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2.25

  

Experimental Procedures

   36

2.26

  

Medical Staff; Physician Relations

   36

2.27

  

Solvency

   37

2.28

  

No Brokers or Finders

   37

2.29

  

Improper Payments

   37

2.30

  

No Misrepresentations

   37

ARTICLE 3    REPRESENTATIONS AND WARRANTIES OF PURCHASER

   37

3.1

  

Authority

   37

3.2

  

Authorization/Execution

   37

3.3

  

Organization and Good Standing; No Violation

   38

3.4

  

Brokers and Finders

   38

3.5

  

Due Diligence

   38

3.6

  

Financial Ability

   38

3.7

  

No Misrepresentations

   38

ARTICLE 4    COVENANTS OF SELLERS

   38

4.1

  

Access and Information; Inspection Period

   38

4.2

  

Conduct of Business

   39

4.3

  

Negative Covenants

   40

4.4

  

Consents

   41

4.5

  

Additional Financial Information

   41

4.6

  

No-Shop

   41

4.7

  

Sellers’ Efforts to Close

   41

4.8

  

Notification; Updating of Disclosure Schedules

   41

4.9

  

Facility Repairs

   42

4.10

  

DE Facility Remediation

   42

4.11

  

Payment of Taxes

   42

4.12

  

[Reserved]

   42

4.13

  

Required Approvals; Other Actions

   42

4.14

  

HUD Loan

   43

ARTICLE 5    COVENANTS OF PURCHASER

   43

5.1

  

Purchaser’s Efforts to Close

   43

5.2

  

Confidentiality

   43

5.3

  

Waiver of Bulk Sales Law Compliance

   44

5.4

  

Required Approvals; Other Actions

   44

5.5

  

Financing

   45

ARTICLE 6    CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS

   45

6.1

  

Accuracy of Representations and Warranties

   45

6.2

  

Purchaser’s Performance

   45

6.3

  

Governmental Authorizations

   45

6.4

  

Other Consents

   45

6.5

  

Unfavorable Action or Proceeding

   45

6.6

  

Signing and Delivery of Instruments

   46

6.7

  

Simultaneous Closing Under Lighthouse Purchase Agreement

   46

 

- ii -

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ARTICLE 7    CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

   46

7.1

  

Accuracy of Representations and Warranties

   46

7.2

  

Seller’s Performance

   46

7.3

  

Governmental Authorizations

   46

7.4

  

Unfavorable Action or Proceeding

   46

7.5

  

Required Consents

   46

7.6

  

No Material Adverse Change

   47

7.7

  

Disclosure Schedules

   47

7.8

  

Real Property Title Matters

   47

7.9

  

Milestones Program Agreement

   47

7.10

  

Facility Repairs

   47

7.11

  

[Reserved]

   47

7.12

  

APE Contracts

   47

7.13

  

Signing and Delivery of Instruments

   48

7.14

  

Simultaneous Closing Under Lighthouse Purchase Agreement

   48

ARTICLE 8    TERMINATION

   48

8.1

  

Termination

   48

8.2

  

Effect of Termination; Other Matters

   49

ARTICLE 9    POST-CLOSING MATTERS

   50

9.1

  

Excluded Assets and Excluded Liabilities

   50

9.2

  

Preservation and Access to Records After the Closing

   50

9.3

  

Provision of Benefits of Contracts and Leases

   51

9.4

  

Misdirected Payments, Etc

   52

9.5

  

Collection of Receivables

   52

9.6

  

Termination Cost Reports

   53

9.7

  

Change of Sellers’ Name

   53

9.8

  

Other Actions

   53

9.9

  

Certain Excluded Assets

   54

ARTICLE 10    SURVIVAL AND INDEMNIFICATION

   55

10.1

  

Survival

   55

10.2

  

Indemnification and Reimbursement by Sellers

   55

10.3

  

Indemnification and Reimbursement by Purchaser

   56

10.4

  

Limitations On Amount

   57

10.5

  

Limitations

   57

10.6

  

Escrow

   59

10.7

  

Third-Party Claims

   59

10.8

  

Other Claims

   61

ARTICLE 11    TAX AND COST REPORT MATTERS

   61

11.1

  

Tax Matters; Allocation of Aggregate Purchase Price

   61

11.2

  

Cost Report Matters

   62

ARTICLE 12    MISCELLANEOUS PROVISIONS

   62

12.1

  

Entire Agreement

   62

 

- iii -

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12.2

  

Further Assurances

   63

12.3

  

Assignments, Successors and No Third Party Rights

   63

12.4

  

Governing Law

   64

12.5

  

Amendments

   64

12.6

  

Notices

   64

12.7

  

Headings

   65

12.8

  

Confidentiality and Publicity

   65

12.9

  

Expenses and Attorneys’ Fees

   65

12.10

  

Severability

   66

12.11

  

Execution of Agreements

   66

12.12

  

Seller Obligations

   66

12.13

  

Enforcement

   66

12.14

  

Waiver; Remedies Cumulative

   67

12.15

  

Waiver of Jury Trial

   67

 

- iv -

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LIST OF EXHIBITS

 

EXHIBIT

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

  

DESCRIPTION

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

AA    Agreement and Plan of Merger and Asset Purchase Agreement A    Closing
Date Escrow Agreement B-1 and B-2    Forms of Bills of Sale C    Opinion of
Counsel for Sellers D    Form of Limited Powers of Attorney E    Opinion of
Counsel for Purchaser F-1, F-2 and F-3    Title Commitments

 

- i -

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LIST OF SCHEDULES

 

SCHEDULE

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

  

DESCRIPTION

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

1.2(a)

  

Real Property

1.2(b)

  

Personal Property

1.2(d)

  

Leases

1.2(e)

  

Contracts

1.2(m)

  

Intangible Property

1.3(b)

  

Excluded Contracts

1.3(m)

  

Excluded Assets

1.4(f)

  

Other Assumed Liabilities

1.12

  

Net Assets

2.3(a)

  

Organization and Good Standing

2.3(b)

  

Subsidiaries

2.3(c)

  

Seller Consents/Conflicts

2.4(a)

  

Financial Statements

2.4(b)

  

Interim Financial Statements

2.4(e)

  

Financial Statement Matters; Changes Affecting Business

2.4(f)

  

Financial Statement Matters; Current Liabilities

2.5(b)

  

Tax Matters

2.6

  

Material Contracts

2.7(a)

  

Title Matters; Condition of Property

2.7(c)

  

Real Property Leases

2.7(d)

  

Title Matters; Leases

2.7(g)

  

Lease Defaults

2.8

  

Intangible Property

2.9

  

Legal Proceedings

2.11

  

Insurance/Claims

2.12(a)

  

Employees

2.14

  

Affiliate Transactions

2.17

  

Payor Contracts

2.19

  

Environmental Matters

2.21(a)

  

Accreditation

2.21(b)

  

Uncorrected Deficiencies

2.21(c)

  

Facility Provider and Supplier Numbers

2.21(d)

  

Cost/Other Report Matters

2.21(e)

  

Facility Reviews

2.26

  

Medical Staff Matters

4.9

  

Facility Repairs

6.4

  

Other Consents

7.5

  

Required Consents

7.8(b)

  

Real Property Title Matters

 

- i -

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TABLE OF DEFINED TERMS

 

Term

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

   Page

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

Accounting Firm

   18

Accounts Receivable

   7

Additional Closing Purchase Price Payment

   13

Affiliate

   3

Agency Settlements

   62

Aggregate Damage

   19

Aggregate Purchase Price

   12

Agreement

   1

Agreement and Plan of Merger

   2

Allocation Schedule

   61

Anti-Kickback Law

   3

Antitrust Laws

   3

APE

   30

Assets

   6

Assignments of Leases

   15

Assumed Liabilities

   9

Base Net Assets

   17

Bills of Sale

   14

Check Payment

   53

Closing

   13

Closing Date

   14

Closing Date Escrow Agreement

   13

Closing Date Escrow Deposit

   13

Closing Date Net Assets

   17

Closing Date Net Assets Calculation

   18

Closing Dates

   3

Closing Purchase Price Payment

   12

Closings

   3

Code

   25

Commonly Controlled Entity

   31

Confidential Information

   44

Contract and Lease Consents

   15

Contracts

   7

Control

   3

Controlled By

   3

Controlling

   3

Cooper City Prime Lease

   15

Cooper City Sublease

   15

Current Assets

   17

Current Liabilities

   17

Damages

   55

DE Closing

   12

DE Facility

   1

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

DE Lease

   15

Delaware Remediation

   42

Deposit Account

   53

Designee

   64

DIA

   2

Disclosure Schedules

   3

Document Retention Period

   51

DOJ

   43

Effective Time

   14

Effective Times

   3

Environmental Laws

   32

ERISA

   31

Escrow Agent

   12

Escrow Agreement

   3

Estimated Net Assets

   17

Excluded Assets

   8

Excluded Contracts

   7

Excluded Government Receivables

   55

Excluded Liabilities

   10

Execution Date

   1

Execution Date Escrow Agreement

   12

Execution Date Escrow Deposit

   12

Extension Escrow Deposit

   49

Facilities

   1

Facility Repairs

   42

Facility Worker

   4

False Claims Act

   4

Final Net Assets Settlement Amount

   18

Final Net Assets Settlement Date

   18

Focus DE

   2

Focus DE Assets

   2

Focus FL

   6

Focus FL Apartment Leases

   28

FTC

   43

Funds Transfer

   53

GAAP

   4

Government Programs

   4

Governmental Approvals

   4

HHC Delaware

   2

Highpoint LLC

   6

HSR Act

   3

HUD

   2

HUD Approval

   2

HUD Escrow Funds

   13

HUD Lender

   4

HUD Loan

   4

immediate family member

   4

 

- 2 -

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Indemnified Person

   59

Indemnifying Person

   59

Independent Consultant

   20

Intangible Property

   29

Interim Balance Sheet Date

   24

Interim Balance Sheets

   24

Inventory

   7

JCAHO

   34

Knowledge of Sellers

   4

Leases

   7

Legal Requirement

   4

Letter of Intent

   4

Licenses

   6

Liens

   15

Lighthouse Entities

   2

Lighthouse Purchase Agreement

   2

LOI Deposit

   13

Material Adverse Change

   4

Material Adverse Effect

   4

Material Contract

   27

Material Interest

   5

Members

   2

Merger

   2

Merger Sub

   2

Net Assets

   17

Net Assets Adjustment Amount

   17

Noncompetition Agreements

   12

Original Purchase Agreement

   1

Owner

   5

Parties

   1

Party

   1

Payments

   53

Permitted Encumbrances

   28

Person

   5

Personal Property

   6

Plan

   31

Powers of Attorney

   15

Prepaids

   7

Proceeding

   5

Purchaser

   1

Purchaser Indemnified Person

   56

Purchaser Indemnified Persons

   55

Real Property

   6

Real Property Leases

   28

Related Person

   5

Restatement Execution Date

   1

Right of First Refusal Agreements

   12

 

- 3 -

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Seller APE Leases

   30

Seller Cost Reports

   53

Seller Representative

   21

Sellers

   6

Specified Representations

   6

Stark Law

   6

Submittal Date

   20

Tax

   25

Tax Return

   25

Taxes

   25

Third-Party Claim

   6

Title Commitments

   28

Title Policies

   47

Under Common Control With

   3

WARN Act

   32

 

- 4 -

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AMENDED AND RESTATED

ASSET PURCHASE AGREEMENT (FOCUS)

 

This AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) (this “agreement”) is
made and entered into as of the 30th day of January, 2006 (the “Restatement
Execution Date”), by and among FOCUS HEALTHCARE, LLC, a California limited
liability company, the other SELLERS (as defined herein) and HORIZON HEALTH
CORPORATION, a Delaware corporation whose chief executive office is located in
Lewisville, Texas (“Purchaser”). Sellers AND Purchaser are sometimes
collectively referred to herein as the “Parties” and individually referred to
herein as a “Party.”

 

R E C I T A L S:

 

A. Sellers own and operate the following behavioral health facilities (the
“Facilities”):

 

  (i) Focus Healthcare of Delaware d/b/a Meadowood Behavioral Health System, a
fifty-three (53) licensed bed freestanding behavioral health facility located in
New Castle, Delaware (“DE Facility”);

 

  (ii) Focus Healthcare of Florida, a licensed freestanding behavioral health
facility consisting of sixty-two (62) licensed beds located at a location owned
and operated by Sellers in Cooper City, Florida and twenty-two (22) licensed
beds that are leased and operated by Sellers at a separate location in Cooper
City, Florida;

 

  (iii) Focus Healthcare of Georgia d/b/a Focus-by-the-Sea, a one hundred one
(101) licensed bed freestanding behavioral health facility located on St. Simons
Island, Georgia; and

 

  (iv) Focus Healthcare of Ohio, a forty-two (42) licensed bed behavioral health
facility located in Maumee, Ohio.

 

B. Sellers and Purchaser previously entered into an Asset Purchase Agreement
(Focus) (the “Original Purchase Agreement“) dated December 9, 2005 (the
“Execution Date“) under which Purchaser expressed its desire to purchase from
Sellers, and Sellers expressed their desire to sell and transfer to Purchaser,
all of the real property and other assets owned by any Seller, other than
certain excluded assets specified therein, for the consideration and upon the
terms and conditions contained in the Original Purchase Agreement.

 

C. The Parties to the Original Purchase Agreement desire to enter into this
Agreement to amend and restate the Original Asset Purchase Agreement to, among
other amendments, provide that (i) instead of Purchaser acquiring the assets
owned by Delaware Investment Associates, LLC, a Delaware limited liability
company (“DIA“), it is in the best interests of the Parties that (A) HHC Realty
Investments, LLC, a Delaware limited liability company that is an indirect,
wholly-owned subsidiary of Purchaser (the “Merger Sub“), merge

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 1

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with and into DIA (the “Merger“), (B) DIA survive such Merger (DIA, as the
survivor of the Merger, the “Surviving Company”), (C) the members of DIA (the
“Members“) receive the consideration payable in the Merger, and (D) upon
consummation of the Merger, HHC Delaware, Inc., a Delaware corporation that is
an indirect, wholly-owned subsidiary of Purchaser (“HHC Delaware“), shall be the
sole member of the Surviving Company, (ii) instead of Purchaser acquiring the
assets of Focus Healthcare of Delaware, LLC, a Delaware limited liability
company (“Focus DE“), HHC Delaware acquire Assets of Focus DE (the “Focus DE
Assets”), in exchange for the Focus DE Asset Purchase Price provided for in the
Agreement and Plan of Merger referred to below, and (iii) in each case, to
condition the closing of such transactions upon receipt of all necessary
approvals and consents (the “HUD Approval“) from the U.S. Department of Housing
and Urban Development (“HUD“) or upon prepayment in full of the HUD Loan in
accordance with Section 4.14 of this Agreement, all as described in that certain
Agreement and Plan of Merger and Asset Purchase Agreement among Purchaser, HHC
Delaware, Merger Sub, DIA and Focus DE substantially in the form attached hereto
as Exhibit AA (the “Agreement and Plan of Merger“). The Agreement and Plan of
Merger is being executed simultaneously with the execution of this Agreement.

 

D. Simultaneous with the execution and delivery of the Original Purchase
Agreement by the Parties, Lighthouse Care Centers, LLC and certain entities
related to it, as sellers (Lighthouse Care Centers, LLC and such other entities,
collectively, the “Lighthouse Entities”), and Purchaser, as purchaser, executed
and delivered an Asset Purchase Agreement (Lighthouse) (as amended or restated
from time to time, the “Lighthouse Purchase Agreement”) providing for the sale
to Purchaser by the Lighthouse Entities of certain assets of the Lighthouse
Entities simultaneously with the consummation of the Closing under this
Agreement.

 

A G R E E M E N T:

 

NOW, THEREFORE, in consideration of the foregoing premises and the mutual
promises and covenants contained in this Agreement, the Parties, intending to be
legally bound, agree as follows:

 

ARTICLE 1

DEFINITIONS; SALE AND TRANSFER OF ASSETS;

CONSIDERATION; CLOSING; OTHER MATTERS

 

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

 

(a) the terms used in this Agreement include the plural as well as the singular;

 

(b) all accounting terms used but not otherwise defined herein shall be
interpreted and all accounting determinations hereunder shall be made in
accordance with 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 main body of this Agreement;

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 2

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

(d) pronouns of either gender or neuter include, as appropriate, the other
pronoun forms;

 

(e) the words “including” and “include” are deemed to be followed by the words
“without limitation”;

 

(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) “or” is used in the inclusive sense of “and/or”;

 

(h) “Affiliate” of a specified Person means any other Person directly or
indirectly controlling, controlled by or under common control with the specified
Person. The term “control” (including the terms “controlling,” “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;

 

(i) “Anti-Kickback Law” means 42 U.S.C. § 1320a-7b(b) and any rules or
regulations promulgated thereunder;

 

(j) “Antitrust Laws” means the Sherman Act, as amended, the Clayton Act, as
amended, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended
(the “HSR Act“), the Federal Trade Commission Act, as amended, and all other
laws, rules, regulations and other legal requirements that are designed or
intended to prohibit, restrict or regulate actions having the purpose or effect
of monopolization or restraint of trade;

 

(k) “Closings” means the Closing under this Agreement and the DE Closing under
the Agreement and Plan of Merger;

 

(l) “Closing Dates” means the Closing Date under this Agreement and the DE
Closing Date under the Agreement and Plan of Merger;

 

(m) “Disclosure Schedules” means the Schedules that are identified on the cover
page thereof as “Sellers Disclosure Schedule” and attached to this Agreement;

 

(n) “Effective Times” means the Effective Time under this Agreement and the DE
Effective Time under the Agreement and Plan of Merger;

 

(o) “Escrow Agreement” means the Execution Date Escrow Agreement or the Closing
Date Escrow Agreement;

 

(p) “Facility Worker” means any individual who provides services to any Seller
at or in connection with the operation of any Facility pursuant to an employee
leasing agreement between the employer of such individual and any Seller;

 

(q) “False Claims Act” means 31 U.S.C. § 3729 et. seq. and any rules or
regulations promulgated thereunder;

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 3

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(r) “GAAP” means United States generally accepted accounting principles, as
applied on a basis consistent with past practice;

 

(s) “Governmental Approvals” means all consents, approvals, authorizations,
clearances, certificates of need, licenses and permits required to be obtained
from governmental or regulatory agencies, authorities or bodies that are
required for the consummation of the transactions contemplated by this Agreement
or the Agreement and Plan of Merger;

 

(t) “Government Programs” means the Medicare, Medicaid and TRICARE programs and
any other Federal health care programs as defined in 42 U.S.C. § 1320a-7b(f);

 

(u) “HUD Loan” means that certain Mortgage Note dated September 6, 2001, in the
original principal amount of $7,284,500 from DIA, as maker, payable to the order
of AMI Capital, Inc., a Delaware corporation (the “HUD Lender“), as payee, which
is insured by HUD and secured by the Mortgage between DIA and HUD Lender, dated
September 6, 2001, and recorded on September 6, 2001 in the Office of the
Recorder of Deeds in and for New Castle County, State of Delaware, in Instrument
No. 20010906-0073583;

 

(v) “immediate family member” has the meaning given to such term in 42 C.F.R.
§411.351;

 

(w) “Knowledge of Sellers”, and similar variations thereof (including any
reference to the “Knowledge” of any Seller), means the actual knowledge, as of
the relevant date, of Byron DeFoor, Chuck Jabaley, Nelson Bowers, Neil Campbell
or Mark Schneider after reasonable inquiry by them of Joe Hartl, Chief Financial
Officer of Focus Healthcare, LLC, and the administrator of each Facility;

 

(x) “Legal Requirement” means any federal, state, local or other constitution,
treaty, statute, code, ordinance, law, principle of common law, or written rule
or regulation;

 

(y) “Letter of Intent” means the amended and restated letter of intent dated
October 25, 2005, as amended by letter dated November 30, 2005 and by letter
dated December 7, 2005, among Purchaser, Focus Healthcare, LLC and Lighthouse
Care Centers, LLC, relating to the transactions contemplated by this Agreement
and the Lighthouse Purchase Agreement;

 

(z) “Material Adverse Change” or “Material Adverse Effect”, when used with
respect to any Seller or Facility, or Sellers, means any material adverse change
in or effect on such Seller or Facility, or Sellers as a whole, as applicable,
other than changes or effects that are or result from occurrences relating to
the United States economy generally, the United States health care industry
generally or any usual and customary seasonal variations or fluctuations in the
occupancy rate of any Facility or the receivables of Sellers;

 

(aa) “Material Interest” means direct or indirect beneficial ownership (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended) of
voting securities or other voting interests representing at least ten percent
(10%) of the outstanding voting power of a Person or equity securities or other
equity interests representing at least ten percent (10%) of the outstanding
equity securities or equity interests in a Person;

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 4

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(bb) “Owner” means (i) each Seller, (ii) each Lighthouse Entity, (iii) each
party to a Right of First Refusal Agreement, other than Purchaser, and (iv) each
Person that directly, or indirectly through one or more intermediaries, owns an
equity security or other equity interest in any Person listed in any of the
preceding clauses (i), (ii) or (iii);

 

(cc) “Person” means any natural person, partnership, corporation, limited
liability company, association, government, governmental agency, governmental
authority, governmental body, governmental or political subdivision, trust or
other legal entity;

 

(dd) “Proceeding” means any action, arbitration, audit, hearing, investigation,
litigation or suit (whether civil, criminal, administrative, judicial or
investigative, whether formal or informal, whether public or private) commenced,
brought, conducted or heard by or before, or otherwise involving, any
government, governmental agency, governmental authority or body, court or
arbitrator;

 

(ee) “Related Person” means:

 

With respect to a particular individual:

 

(i) each immediate family member of such individual;

 

(ii) any Person that is directly or indirectly controlled by such individual or
any one or more immediate family members of such individual;

 

(iii) any Person in which such individual or any one or more immediate family
members of such individual holds (individually or in the aggregate) a Material
Interest; and

 

(iv) any Person with respect to which such individual or any one or more
immediate family members of such individual serves as a manager, director,
executive officer, partner, executor or trustee (or in a similar capacity).

 

With respect to a specified Person other than an individual:

 

(v) any Person that is an Affiliate of such specified Person;

 

(vi) any Person that holds a Material Interest in such specified Person;

 

(vii) each Person that serves as a manager, director, executive officer,
partner, executor or trustee of such specified Person (or in a similar
capacity);

 

(viii) any Person in which such specified Person holds a Material Interest; and

 

(ix) any Person with respect to which such specified Person serves as a manager,
general partner or trustee (or in a similar capacity).

 

(ff) “Sellers” means, collectively, (i) Focus Healthcare, LLC, a California
limited liability company, (ii) except where expressly excluded as a Seller,
Focus DE, (iii) Focus

 

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Healthcare of Florida, LLC, a Delaware limited liability company (“Focus FL”),
(iv) Focus Healthcare of Georgia, LLC, a Georgia limited liability company,
(v) Focus Healthcare of Ohio, LLC, a Delaware limited liability company,
(vi) except where expressly excluded as a Seller, DIA, and (vii) Highpoint
Investment Associates, LLC, a Delaware limited liability company (“Highpoint
LLC“); “Seller” means any of the Sellers individually;

 

(gg) “Specified Representations“ means any representation or warranty in either
of Sections 2.5 or 2.21;

 

(hh) “Stark Law“ means 42 U.S.C. § 1395nn and the rules or regulations
promulgated thereunder; and

 

(ii) “Third-Party Claim“ means any claim against any Indemnified Person by a
Person that is not a Party, whether or not involving a Proceeding.

 

Other capitalized terms used in this Agreement have the respective meanings
assigned to such terms elsewhere in this Agreement. For ease of reference, the
page containing the definition of each such capitalized term is listed in the
table of defined terms included elsewhere as a part of this Agreement.

 

1.2 Transfer of Seller Assets. Subject to Section 12.3(b), at the Closing, but
effective as of the Effective Time, Sellers shall sell, assign, transfer, convey
and deliver to Purchaser, free and clear of any Liens other than Permitted
Encumbrances, and Purchaser shall acquire, all right, title and interest in and
to all assets and properties of Sellers, real, personal or mixed, tangible and
intangible, of every kind and description, wherever located, whether owned
collectively by one or more Sellers or individually by any Seller (collectively,
the “Assets”), including the following:

 

(a) all of the real property owned by any Seller, including the real property
described in Schedule 1.2(a), together with all buildings, improvements and
fixtures located thereon and all construction in progress thereon (collectively,
the “Real Property”);

 

(b) all equipment, furniture, fixtures, machinery, vehicles, office furnishings,
leasehold improvements, and other tangible personal property owned by any
Seller, including the items listed in Schedule 1.2(b) (the “Personal Property”);

 

(c) all rights of any Seller, 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 any Seller (the “Licenses”);

 

(d) subject to Section 9.3, the entire interest of each Seller in all leases
listed in Schedule 1.2(d) pursuant to which any Seller, as lessee, leases any
personal property, and all leases of personal property executed by any Seller on
or after the Execution Date which Purchaser hereafter agrees in writing to
accept (collectively, the “Leases”);

 

(e) subject to Section 9.3, the entire interest of each Seller in and to all
contracts and agreements listed in Schedule 1.2(e) and all contracts and
agreements executed by any Seller on or after the Execution Date which Purchaser
hereafter agrees in writing to accept

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 6

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(the “Contracts”); provided, however, the term “Contracts” as used in this
Agreement shall exclude all other contracts and agreements of any Seller (the
“Excluded Contracts”), including contracts listed in Schedule 1.3(b);

 

(f) all accounts, notes, interest and other receivables of any Seller, billed
and unbilled, recorded and unrecorded, and all claims, rights, interests and
proceeds related thereto, including all accounts and other receivables arising
from the rendering of services or the provision of medicine, drugs or supplies
to patients at any Facility, and including all accounts or receivables arising
or payable under any Government Program (the “Accounts Receivable”);

 

(g) all advance payments, prepayments, prepaid expenses, deposits and the like
of any Seller 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 of any Seller (the “Inventory”);

 

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

 

(j) to the extent assignable, all rights in all warranties of any builder,
manufacturer or other Person in favor of any Seller;

 

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

 

(l) subject to the provisions of Section 1.13, all insurance proceeds arising in
connection with property damage to or destruction of any assets of any Seller
occurring after the Execution Date and prior to the Effective Time, to the
extent not expended on the repair, restoration or replacement of such assets
that are transferred to Purchaser at the Closing hereunder;

 

(m) all of Sellers’ rights in (i) all names, symbols, telephone numbers (and
related listings and advertisements), facsimile numbers, domain names,
trademarks, trade names, service marks and copyrights used with respect to the
operation of any Facility, (ii) the items listed in Schedule 1.2(m), (iii) all
variants of any items referred to in the preceding clauses (i) or (ii), (iv) the
internet websites www.focushealthcare.com and www.focushighpoint.com maintained
by any Seller and all content and information included thereon, and (v) all
rights to the use of, and all common law trademark and other rights and all
goodwill associated with, any item referred to in the preceding clauses (i),
(ii), (iii) or (iv);

 

(n) to the extent transferable, all rights of any Seller with respect to any
Medicare, Medicaid and other third-party provider or supplier numbers; and

 

(o) all other assets of any Seller;

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 7

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provided, however, that notwithstanding anything to the contrary in this
Agreement, (i) the Assets shall not include the Excluded Assets or, in the case
of DIA and Focus DE, the DIA Excluded Assets and the Focus DE Excluded Assets
(each as defined in the Agreement and Plan of Merger), respectively, and
(ii) for purposes of this Section 1.2, despite that DIA and Focus DE are each
listed as a Seller and their respective assets are listed as Assets herein, not
any of the Assets of DIA or any of the Assets of Focus DE will be conveyed to
Purchaser pursuant to this Agreement (other than any such Assets conveyed
pursuant to the Bills of Sale executed at the Closing relating to Facilities
other than the DE Facility) but shall be acquired by Purchaser pursuant to the
terms of the Agreement and Plan of Merger.

 

1.3 Excluded Assets. Notwithstanding anything to the contrary in Section 1.2,
the following assets (collectively, the “Excluded Assets”) are not part of the
sale and purchase contemplated hereunder, are excluded from the Assets and shall
remain the property of Sellers after the Closing:

 

(a) all cash and cash equivalents of any Seller;

 

(b) the Excluded Contracts other than the Leases, including those Excluded
Contracts listed in Schedule 1.3(b);

 

(c) [Reserved];

 

(d) all documents, records, correspondence, work papers and other documents
relating to the Seller Cost Reports or Agency Settlements;

 

(e) all records of any Seller relating to the Excluded Assets or the Excluded
Liabilities to the extent that Purchaser does not need the same in connection
with the ongoing activities of the Facilities, the Assets, or the Assumed
Liabilities, as well as all records which by law any Seller is required to
maintain in its possession;

 

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

 

(g) all limited liability company minute books of any Seller;

 

(h) all limited liability company membership interests or other equity interests
in any Seller;

 

(i) all claims, rights, causes of action and chooses in action relating to the
Excluded Assets or the Excluded Liabilities;

 

(j) all rights of any Seller under or pursuant to this Agreement;

 

(k) all assets located at or used exclusively in connection with the behavioral
health facilities subject to the Right of First Refusal Agreements or located at
the Sellers’ corporate headquarters in Chattanooga, Tennessee, except for any
computer servers or software servicing any of the Facilities;

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 8

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(l) all retrospective adjustment payments received from third-party payors,
including Medicare and Medicaid, for services rendered to patients of the
Facilities at or prior to the Effective Time, except to the extent included as a
Current Asset in the Closing Date Net Assets Calculation; and

 

(m) all other assets specifically listed in Schedule 1.3(m);

 

provided, however, that for purposes of this Section 1.3, the term “Seller” or
“Sellers” shall exclude DIA and Focus DE.

 

1.4 Assumed Liabilities. Subject to the terms and conditions of this Agreement,
including Section 9.3, at the Closing, but effective as of the Effective Time,
Purchaser shall assume and agree to discharge, pay or perform only the following
liabilities and obligations of Sellers (collectively, the “Assumed
Liabilities”):

 

(a) liabilities and obligations of any Seller under the Contracts, but only to
the extent such liabilities and obligations either (i) arise after the Effective
Time, or (ii) are specifically included as Current Liabilities in the Closing
Date Net Assets Calculation; provided, however, that the Assumed Liabilities do
not include any liability or obligation arising out of or relating to any breach
or default by any Seller that occurred at or prior to the Effective Time;

 

(b) liabilities and obligations of any Seller under the Leases, but only to the
extent such liabilities and obligations either (i) arise after the Effective
Time, or (ii) are specifically included as Current Liabilities in the Closing
Date Net Assets Calculation; provided, however, that the Assumed Liabilities do
not include any liability or obligation arising out of or relating to any breach
or default by any Seller that occurred at or prior to the Effective Time;

 

(c) Sellers’ accounts payable and other current liabilities, but only to the
extent specifically included as Current Liabilities in the Closing Date Net
Assets Calculation;

 

(d) Sellers’ obligations and liabilities as of the Closing Date in respect of
accrued, unpaid vacation and sick pay of all Facility Workers who are leased to
Purchaser by APE as of the Closing Date, and related taxes, but only to the
extent specifically included as Current Liabilities in the Closing Date Net
Assets Calculation;

 

(e) [Reserved]; and

 

(f) any other obligations and liabilities of Sellers identified in
Schedule 1.4(f), but only to the extent specifically included as Current
Liabilities in the Closing Date Net Assets Calculation;

 

provided, however, that notwithstanding anything to the contrary in this
Agreement, (i) for purposes of this Section 1.4, the term “Seller” or “Sellers”
shall exclude DIA and Focus DE, and (ii) the term “Assumed Liabilities” shall
not include any liabilities or obligations of DIA or Focus DE, or any
liabilities or obligations of any Seller relating to the HUD Loan.

 

1.5 Excluded Liabilities. Notwithstanding anything to the contrary in
Section 1.4, Purchaser shall not assume or become responsible for any
liabilities or obligations of any Seller other than the Assumed Liabilities (the
“Excluded Liabilities”), and the Excluded Liabilities

 

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shall be retained, paid, performed and discharged solely by Sellers. The
Excluded Liabilities shall include:

 

(a) all liabilities and obligations of any Seller which are not specifically
included in the Assumed Liabilities;

 

(b) all liabilities and obligations of any Seller arising out of or relating to
any act, omission, event or occurrence connected with the use, ownership or
operation of the Facilities or any of the Assets prior to the Effective Time,
which are not specifically included in the Assumed Liabilities;

 

(c) all liabilities and obligations of any Seller to any employee of any Seller
or any Facility Worker, including salary, wages, benefits, accrued unpaid
vacation and sick pay and related Taxes, which are not specifically included in
the Assumed Liabilities;

 

(d) all liabilities and obligations of any Seller arising under or in connection
with or relating to payroll, vacation, sick leave, workers’ compensation,
unemployment benefits, pension benefits, employee stock option or profit-sharing
plans, health care plans or benefits, or any other employee plans or benefits or
Plans of any kind for any Seller’s employees or former employees, or any
Facility Workers or former Facility Workers, including all liabilities and
obligations of any Seller for matching contributions for eligible beneficiaries’
401(k) plans, Section 125 plans and other Plans, and all administrative costs
associated with any such Plans; in each case which are not specifically included
in the Assumed Liabilities;

 

(e) all liabilities and obligations of any Seller under any employment,
severance, retention or termination agreement with any present or former
employee of any Owner or any Related Person of any Owner or with any present or
former Facility Worker;

 

(f) all liabilities and obligations of any Seller arising out of or relating to
any employee or Facility Worker grievance to the extent arising out of any facts
or circumstances occurring at or prior to the Effective Time, whether or not the
affected employees or Facility Workers are hired by or leased to Purchaser;

 

(g) all liabilities and obligations of any Seller to any Owner or to any Related
Person of any Owner, except for those arising after the Effective Time under the
Cooper City Sublease, and accrued insurance premiums owed to Sunland to the
extent specifically included as Current Liabilities in the Closing Date Net
Assets Calculation;

 

(h) all liabilities and obligations of any Seller relating to Seller Cost
Reports with respect to periods ending at or prior to the Effective Time;

 

(i) all liabilities and obligations of any Seller with respect to refund,
recoupment, set-off and other liabilities arising out of billings to third-party
payors, including Medicare and Medicaid, for services rendered to patients of
the Facilities at or prior to the Effective Time;

 

(j) all liabilities and obligations of any Seller for violations of any Legal
Requirement, including the Anti-Kickback Law, the False Claims Act, the Stark
Law and other Legal Requirements pertaining to Medicare, Medicaid or health care
fraud or abuse;

 

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(k) all liabilities and obligations of any Seller under any Contract or Lease
assumed by Purchaser pursuant to Section 1.4, which liability or obligation
arises after the Effective Time but arises out of or relates to any breach or
default by any Seller that occurred at or prior to the Effective Time;

 

(l) all liabilities and obligations of any Seller under any of the Excluded
Contracts;

 

(m) except as provided in Section 1.4(d) (relating to taxes on accrued, unpaid
vacation and sick pay), Section 1.11 (relating to proration of property taxes),
and the third sentence of Section 12.9 (relating to transfer Taxes), all
liabilities and obligations of any Seller for Taxes, including (i) any Taxes
arising as a result of the operation of any Facility or other operations of any
Seller, or the ownership of any Assets, prior to the Effective Time, (ii) any
Taxes with respect to Sellers that arise or will arise as a result of the sale
or transfer of any of the Assets pursuant to this Agreement, and (iii) any
liability or obligation of any Seller to pay the Taxes of any other Person under
any tax sharing, tax allocation or tax indemnity agreement or otherwise;

 

(n) all liabilities and obligations of any Seller arising out of or resulting
from any Seller’s compliance or noncompliance with any Legal Requirement or
order, injunction, judgment, decree, ruling, assessment or arbitration award of
any government, governmental agency, governmental authority, governmental body,
court or arbitrator;

 

(o) all liabilities and obligations of any Seller in connection with claims of
professional malpractice;

 

(p) all liabilities and obligations of any Seller arising out of any Proceeding
pending as of the Effective Time;

 

(q) all liabilities and obligations of any Seller arising out of any Proceeding
commenced after the Effective Time to the extent arising out of or relating to
any occurrence or event happening at or prior to the Effective Time;

 

(r) all liabilities and obligations of any Seller for commissions or fees owed
to any finder or broker in connection with the transactions contemplated hereby;
and

 

(s) all liabilities and obligations of any Seller under this Agreement or any
other document executed in connection with the transactions contemplated hereby;

 

provided, however, for purposes of this Section 1.5, the term “Seller” or
“Sellers” shall exclude DIA and Focus DE.

 

1.6 Actions Taken on Execution Date. Concurrently with the execution and
delivery of the Original Purchase Agreement:

 

(a) The Seller Representative (as the agent of Sellers), Purchaser and The
Bank/First Citizens Bank, as Escrow Agent (the “Escrow Agent” ), executed and
delivered an Execution Date Escrow Agreement (Focus) (the “Execution Date Escrow
Agreement”), pursuant

 

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to which the Execution Date Escrow Deposit was deposited with the Escrow Agent
and the same and all earnings thereon are now held, invested and disbursed by
the Escrow Agent;

 

(b) Purchaser deposited One Million Six Hundred Seventy-Three Thousand Five
Hundred Eighty-Six Dollars ($1,673,586) in escrow with the Escrow Agent pursuant
to the Execution Date Escrow Agreement (the “Execution Date Escrow Deposit“);

 

(c) Byron DeFoor, Chuck Jabaley and Nelson Bowers each executed and delivered to
Purchaser a Non-Competition Agreement which shall restrict certain actions of
each such individual (collectively, the “Noncompetition Agreements”); and

 

(d) Purchaser entered into a Right of First Refusal Agreement with each of
(i) Focus Healthcare of Tennessee, LLC and Veranda Property Investment, LLC,
with respect to the behavioral health facility known as Focus Healthcare of
Tennessee located in Chattanooga, Tennessee, and (ii) Knollwood Psychiatric and
Chemical Dependency Center, Inc. and Knollwood Investment Associates, LLC, with
respect to the behavioral health facility known as Knollwood Hospital located in
Riverside, California, which agreements granted a right of first refusal to
Purchaser to acquire such facilities and their related assets as further
described therein for a period of eighteen (18) months, commencing as of the
Effective Time (collectively, the “Right of First Refusal Agreements”).

 

1.7 Purchase Price. The total consideration payable for the Assets under this
Agreement and payable as consideration for the Merger and the purchase of the
Focus DE Assets under the Agreement and Plan of Merger (the “Aggregate Purchase
Price”) shall be (a) Sixty-Three Million Eight Hundred Thirty Thousand Five
Hundred Sixty-Six Dollars ($63,830,566) less the aggregate amount of the
outstanding principal and unpaid accrued interest on the HUD Loan as of the date
of the closing under the Agreement and Plan of Merger (the “DE Closing”), but
subject to increase or decrease pursuant to Section 1.12 hereof and Section 3.6
of the Agreement and Plan of Merger, and (b) the assumption of the Assumed
Liabilities pursuant to Section 1.4 hereof and the assumption of the Focus DE
Assumed Liabilities pursuant to Section 3.3 of the Agreement and Plan of Merger.
In accordance with Section 1.10 hereof and Section 4.3 of the Agreement and Plan
of Merger, on the terms and subject to the conditions of this Agreement, at the
Closing or the DE Closing, as applicable, subject to the adjustments
contemplated by the preceding sentence, the Aggregate Purchase Price shall be
delivered by Purchaser to Sellers and, in the case of the Merger Purchase Price
(as defined in the Agreement and Plan of Merger), to the Members named in the
Agreement and Plan of Merger and, in the case of the Focus DE Asset Purchase
Price (as defined in the Agreement and Plan of Merger), to Focus DE, as follows:

 

(i) Forty-Nine Million Five Hundred Eighty-Three Thousand Three Hundred
Ninety-Four Dollars ($49,583,394) (the “Closing Purchase Price Payment”) by wire
transfer to an account designated by the Seller Representative; provided,
however, that One Hundred Thousand Four Hundred Fifteen Dollars ($100,415) of
the aggregate deposit of One Hundred Fifty Thousand Dollars ($150,000) made by
Purchaser pursuant to the Letter of Intent prior to the Execution Date (the “LOI
Deposit”) shall be credited against and constitute payment of a like amount of
the Closing Purchase Price Payment;

 

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(ii) Three Million Six Hundred Thousand Dollars ($3,600,000) for the Focus DE
Assets, but (a) at the DE Closing, subject to increase or decrease based upon
the change in the amount of cash of Focus DE immediately prior to the DE Closing
as compared to immediately prior to the Closing hereunder as described in
Section 3.6 of the Agreement and Plan of Merger, and (b) at the DE Closing,
subject to possible decrease pursuant to Section 4.10 hereof, and the assumption
of the Focus DE Assumed Liabilities all as more specifically provided in the
Agreement and Plan of Merger, shall be paid as the Focus DE Purchase Price
pursuant to the Agreement and Plan of Merger; provided, however, that Two
Million Dollars ($2,000,000) of such amount shall be paid to Focus DE at the
Closing under this Agreement (the “Additional Closing Purchase Price Payment“)
to be credited against and constitute payment of a like amount of the Focus DE
Asset Purchase Price in the event the DE Closing occurs under the terms of the
Agreement and Plan of Merger, and to be repaid to Purchaser in the event the
Agreement and Plan of Merger is terminated prior to consummation of the DE
Closing.

 

(iii) Seven Million Three Hundred Thousand Dollars ($7,300,000) for the
acquisition of DIA, less the aggregate amount of the outstanding principal and
unpaid accrued interest as of the date of the DE Closing on the HUD Loan, plus
the aggregate amount of funds of DIA as of the date of the DE Closing escrowed
with the HUD Lender for taxes, insurance, mortgage insurance premiums,
replacements or other items which require funds to be escrowed pursuant to the
HUD Loan (the “HUD Escrow Funds“) but only to the extent such HUD Escrow Funds
are not included in the Net Assets under Section 1.12 of this Agreement, shall
be paid as the Merger Purchase Price on the date of the DE Closing pursuant to
the Agreement and Plan of Merger;

 

(iv) Three Million Three Hundred Forty-Seven Thousand One Hundred Seventy-Two
Dollars ($3,347,172) (the “Closing Date Escrow Deposit”) by wire transfer to the
Escrow Agent for deposit in escrow pursuant to a Closing Date Escrow Agreement
(Focus) substantially in the form attached hereto as Exhibit A to be executed
and delivered at the Closing by Purchaser, the Seller Representative (as the
agent of Sellers) and the Escrow Agent (the “Closing Date Escrow Agreement”);
provided, however, that an amount equal to the sum of the Execution Date Escrow
Deposit made pursuant to Section 1.6(b), the Extension Escrow Deposit made as
described in Section 8.1(f), and all earnings thereon to the Closing Date shall
be credited against and constitute payment of a like amount of the Closing Date
Escrow Deposit; and

 

(v) the Assumed Liabilities shall be assumed by the execution and delivery of
the Bills of Sale.

 

1.8 Closing Date. The consummation of the transactions contemplated by this
Agreement (the “Closing”) shall take place (a) at 10:00 a.m. Central time at the
offices of Strasburger & Price, L.L.P., on or before five (5) business days
after the day on which the last of the conditions set forth in Articles 6 and 7
is fulfilled or waived (other than any conditions that are not capable of being
satisfied until the Closing, but subject to the satisfaction or waiver of those
conditions), or (b) at such other date, time and place as Purchaser and the
Seller Representative shall mutually agree upon in writing (the date on which
the Closing actually occurs, the “Closing Date”). The Closing, the transfer of
the Assets and the assumption of the Assumed Liabilities shall be deemed to have
occurred and to be effective as of 12:01 a.m. Eastern time, on the Closing Date
(the “Effective Time”).

 

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1.9 Items to be Delivered by Sellers at Closing. Subject to Section 12.3(b), at
the Closing, Sellers shall deliver to Purchaser the following items, duly
executed by Sellers or the Seller Representative where appropriate and in the
form provided for below or otherwise reasonably satisfactory to Purchaser and
counsel for Purchaser:

 

(a) the Closing Date Escrow Agreement executed by the Seller Representative and
the Escrow Agent;

 

(b) multiple forms of General Assignment, Bill of Sale and Assumption of
Liabilities (Focus) as contemplated by the forms attached hereto as Exhibits B-1
and B-2 for all Sellers (the “Bills of Sale”);

 

(c) Limited Warranty Deeds for all Sellers excluding DIA and Focus DE with
respect to the Real Property in forms reasonably satisfactory to Purchaser;

 

(d) original certificates of existence and good standing, or comparable status,
of each Seller, issued by the state of each such Seller’s organization and each
state in which such Seller operates a Facility or owns any of the Real Property,
as applicable, dated no earlier than a date which is fourteen (14) calendar days
prior to the Closing Date;

 

(e) an opinion of counsel for Sellers substantially as described in Exhibit C
attached hereto;

 

(f) a certificate of Sellers, executed by a duly authorized officer of each
Seller, certifying to Purchaser that (i) all the representations and warranties
of Sellers 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, and
(ii) Sellers have performed or complied with the covenants and agreements
required of Sellers set forth in this Agreement to be performed or complied with
by the Closing Date;

 

(g) a certificate of Sellers, executed by a duly authorized officer of each
Seller, certifying to Purchaser (i) the incumbency of the officers of the
respective Sellers on the Restatement Execution Date and on the Closing Date and
bearing the authentic signatures of all such officers who shall execute this
Agreement or any additional documents contemplated by this Agreement, and
(ii) the due adoption and text of the resolutions of the members or managers, as
applicable, of the respective Sellers authorizing (A) the transfer of the Assets
and Assumed Liabilities to Purchaser, and (B) the execution, delivery and
performance of this Agreement and all ancillary documents and instruments by
Sellers, and (iii) that such resolutions have not been amended or rescinded and
remain in full force and effect on the Closing Date;

 

(h) complete releases (or bank release letters in a form reasonably acceptable
to Purchaser) of any and all pledges, liens, mortgages, security interests,
restrictions, easements, conditions, covenants, charges, licenses, leases and
other encumbrances of any nature whatsoever (collectively, “Liens”) with respect
to the Assets (excluding the Assets of DIA but including the Assets of Focus
DE), including the real property matters described in Section 7.8, other than
Permitted Encumbrances;

 

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(i) payment of the premiums, costs and charges relating to the Title Policies in
the amount required to be paid by Sellers hereunder and payment of all other
Taxes, fees and expenses required to be paid by Sellers pursuant to Sections
4.11 and 12.9, to the extent determinable at Closing;

 

(j) multiple forms of Limited Power of Attorney for use of Pharmacy Licenses,
DEA and Other Registration Numbers, and DEA Order Forms (Focus) for each
Facility, substantially in the form of Exhibit D attached hereto (the “Powers of
Attorney”);

 

(k) all consents to the assignment of the Contracts and the Leases from third
parties required to assign the Contracts and Leases to Purchaser without
violation or breach of the Contract or Lease in question (the “Contract and
Lease Consents”), except for those Contracts and Leases as to which the
provisions of clauses (a) or (b) of the first sentence of Section 7.5, and the
provisions of the second sentence of Section 7.5, if applicable to the Contract
or Lease in question, have been satisfied;

 

(l) [Reserved];

 

(m) Assignments and Assumption of Real Estate Leases in forms reasonably
satisfactory to Purchaser and the Seller Representative (the “Assignments of
Leases“), pursuant to which:

 

(i) Highpoint LLC will assign without recourse its interest, as landlord, in
that certain Lease Agreement dated as of April 16, 1999, by and between
Highpoint LLC and Focus FL (the “Cooper City Prime Lease“), to Purchaser or its
Designee;

 

(ii) Focus FL will assign without recourse its interest, as tenant, in the
Cooper City Prime Lease to Purchaser or its Designee; and

 

(iii) Focus FL will assign without recourse its interest, as sublandlord, in
that certain Sub-Lease dated as of December 6, 2002, by and between Focus FL and
Lighthouse Care Centers (the “Cooper City Sublease“) to Purchaser or its
Designee;

 

(n) evidence of termination, together with mutual releases by the parties
thereto, of all leases of the Real Property, other than the Cooper City Prime
Lease, the Cooper City Sublease and that certain Lease Agreement dated as of
January 19, 1999, by and between DIA and Focus DE (as amended, the “DE Lease“);

 

(o) possession of the tangible Assets at the respective Facilities; and

 

(p) such other instruments, certificates, consents, affidavits, no-change survey
affidavits, or other documents which are reasonably necessary to carry out the
transactions contemplated by this Agreement and to comply with the terms hereof
or which Purchaser or a title company issuing one of the Title Policies may
otherwise reasonably request.

 

1.10 Items to be Delivered by Purchaser at Closing. Subject to Section 12.3(b),
at the Closing, Purchaser shall execute and deliver or cause to be delivered to
Sellers the following, duly executed by Purchaser where appropriate:

 

(a) the Closing Date Escrow Agreement executed by Purchaser;

 

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(b) the Closing Purchase Price Payment in accordance with Section 1.7(i) and the
Additional Closing Purchase Price Payment in accordance with Section 1.7(ii) by
wire transfer to the account specified by the Seller Representative, which
account the Seller Representative shall specify to Purchaser not less than three
(3) business days prior to the Closing Date in writing;

 

(c) the Closing Date Escrow Deposit in accordance with Section 1.7(iv) by wire
transfer to the Escrow Agent for deposit in escrow pursuant to the Closing Date
Escrow Agreement;

 

(d) the Bills of Sale;

 

(e) original certificate of existence and good standing, or comparable status,
of Purchaser, issued by the Delaware Secretary of State dated no earlier than a
date which is fourteen (14) calendar days prior to the Closing Date;

 

(f) an opinion of counsel for Purchaser substantially as described in Exhibit E
attached hereto;

 

(g) a certificate of Purchaser, executed by the President or any Vice President
of Purchaser, certifying to Sellers that (i) 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, and (ii) Purchaser has performed or complied with the covenants and
agreements required of Purchaser set forth in this Agreement required to be
performed or complied with by the Closing Date;

 

(h) a certificate of Purchaser, executed by the corporate Secretary of
Purchaser, certifying to Sellers (i) the incumbency of the officers of Purchaser
on the Restatement Execution Date and on the Closing Date and bearing the
authentic signatures of all such officers, who shall execute this Agreement or
any additional documents contemplated by this Agreement, and (ii) the due
adoption and text of the resolutions of the Board of 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;

 

(i) the Powers of Attorney;

 

(j) the Assignments of Leases; and

 

(k) 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 or which may be reasonably
requested by the Seller Representative.

 

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1.11 Prorations and Utilities. To the extent not included in the calculation of
the Net Assets Adjustment Amount or otherwise prorated pursuant to this
Agreement, at the Closings, Purchaser and Sellers shall prorate (as of the
respective Effective Times), to the extent applicable to the Assets, 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 the Closings
because current bills are not obtainable, the Parties shall allocate such income
or expense at such closing on the best available information, subject to
adjustment after such closing upon receipt of the final bill or other evidence
of the applicable item of income or expense. There shall be no proration of
rents or other items between Purchaser and Sellers under any of the Real
Property Leases, and Purchaser shall not be responsible for the security
deposit, if any, deposited pursuant to any such leases nor shall any such
security deposit be transferred to Purchaser.

 

1.12 Net Assets Adjustment.

 

(a) As used herein, (i) the term “Net Assets” means the amount determined by
subtracting the “Current Liabilities” of Sellers from the “Current Assets” of
Sellers and (ii) the term “Base Net Assets” means Two Million Three Hundred
Forty-Six Thousand Four Hundred Thirty Dollars ($2,346,430). Sellers represent
and warrant that none of the HUD Escrow Funds are included in the Base Net
Assets.

 

(b) At least ten (10) days prior to the Closing, the Seller Representative shall
deliver to Purchaser a written determination of the Net Assets as of 11:59 p.m.
Eastern Time on December 31, 2005 (“Estimated Net Assets”), which written
determination shall contain reasonable detail and supporting documents showing
the computation of such determination and the components of Current Assets and
Current Liabilities included therein and which shall not include any of the HUD
Escrow Funds. The principles, specifications and methodologies for determining
Estimated Net Assets, including the components of the Current Assets and the
components of the Current Liabilities to be included therein, shall be as
specified in Schedule 1.12. The “Net Assets Adjustment Amount” shall equal the
difference between Estimated Net Assets and Base Net Assets. If Estimated Net
Assets exceeds Base Net Assets, the Net Assets Adjustment Amount 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 Adjustment Amount.

 

(c) Within one hundred eighty (180) days after the Effective Time, Purchaser
shall deliver to the Seller Representative a written determination of the Net
Assets as of 11:59 p.m. Eastern Time on the day before the Closing Date
(“Closing Date Net Assets”), which written determination shall contain
reasonable detail and supporting documents showing the computation of such
determination and the components of Current Assets and Current Liabilities
included therein and which shall not include any of the HUD Escrow Funds. The
principles, specifications and methodologies for determining Closing Date Net
Assets, including the components of the Current Assets and the components of the
Current Liabilities to be included therein, shall be as specified in Schedule
1.12. Each Party shall have full access to the financial books and records of
the Sellers or pertaining to the Facilities to confirm or audit Closing Date Net
Assets computations. If the Seller Representative disagrees with Purchaser’s
determination of Closing Date Net Assets, the Seller Representative shall notify
Purchaser in writing within twenty (20) days after Purchaser’s delivery of its
determination of Closing Date Net Assets and

 

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state in reasonable detail the basis for such disagreement. Failure of the
Seller Representative to deliver such a notice of disagreement within such
twenty (20) day period shall constitute Sellers’ acceptance of Purchaser’s
determination of Closing Date Net Assets as delivered to the Seller
Representative under this Section 1.12(c). If the Seller Representative and
Purchaser fail to agree within thirty (30) days after the Seller
Representative’s delivery of notice of disagreement on the amount of Closing
Date 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 the amount of
Closing Date Net Assets under this Section 1.12.

 

(d) In the event that the Seller Representative and Purchaser are not able to
agree on the Closing Date Net Assets within thirty (30) days after the Seller
Representative’s delivery of notice of disagreement pursuant to Section 1.12(c),
the Seller Representative and Purchaser shall each have the right to require
that such disputed determination be submitted to Grant Thornton LLP, or if Grant
Thornton LLP is not available for any reason or does not maintain its
independent status, such other independent certified public accounting firm as
the Seller Representative 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 arbitrator, shall promptly decide the proper
amounts of such disputed entries (which decision shall also include a final
calculation of Closing Date 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 Closing Date Net Assets under this
Section 1.12. If issues are submitted to the Accounting Firm for resolution,
(i) each Seller and Purchaser shall furnish or cause to be furnished to the
Accounting Firm such work papers and other documents and information relating to
the disputed issues as the Accounting Firm may request and are available to that
Party or its agents, and the Seller Representative and Purchaser shall be
afforded the opportunity to present to the Accounting Firm any material relating
to the disputed issues and to discuss the issues with the Accounting Firm;
(ii) the determination by the Accounting Firm, as set forth in a notice to be
delivered to both the Seller Representative and Purchaser within sixty (60) days
of the submission to the Accounting Firm, of the issues remaining in dispute,
shall be final, binding and conclusive on the Parties and shall be used in the
calculation of Closing Date Net Assets; and (iii) one-half of the Accounting
Firm’s fees and expenses shall be paid by Sellers (excluding DIA if the DE
Closing occurs), and one-half of such fees and expenses shall be paid by
Purchaser. The final calculation of Closing Date Net Assets pursuant to this
Section 1.12, as determined pursuant to this Section 1.12, is referred to herein
as the “Closing Date Net Assets Calculation.”

 

(e) The Aggregate Purchase Price shall be increased or decreased based on the
difference between Closing Date Net Assets and Estimated Net Assets (the “Final
Net Assets Settlement Amount”) up to, but not exceeding, a total adjustment
amount of Three Hundred Thirty-Four Thousand Seven Hundred Fifteen Dollars
($334,715). Within ten (10) days after the date the final determination of
Closing Date Net Assets is agreed to or settled upon by the Parties pursuant to
this Section 1.12 (the “Final Net Assets Settlement Date“), (i) if Closing Date
Net Assets exceed Estimated Net Assets, the Final Net Assets Settlement Amount
shall be paid in cash by Purchaser to an account specified by the Seller
Representative by wire transfer of immediately-available funds and as an
increase to the Aggregate Purchase Price, or (ii) if Estimated Net Assets exceed
Closing Date Net Assets, the Final Net Assets Settlement Amount

 

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shall be paid in cash to Purchaser pursuant to the Closing Date Escrow Agreement
as a decrease in the Aggregate Purchase Price; provided, however, that the
increase or decrease pursuant to this sentence shall not exceed Three Hundred
Thirty-Four Thousand Seven Hundred Fifteen Dollars ($334,715).

 

(f) If the Closing occurs but the Agreement and Plan of Merger is terminated
before consummation of the DE Closing, Purchaser and the Seller Representative
shall determine the net amount of the Final Net Assets Settlement Amount which
relates to DIA and Focus DE, and such difference shall be paid in cash by wire
transfer of immediately-available funds by the Party who received the benefit of
such difference to the other Party or shall be netted against the payment to be
made in Section 1.12(e).

 

1.13 Risk of Loss. The risk of loss or damage to any of the Personal Property,
the Real Property, the Facilities and all other assets and property of Sellers,
the transfer of which is contemplated by this Agreement or by the Agreement and
Plan of Merger, shall remain with Sellers until the respective Effective Times
of the transactions contemplated by such agreements. Sellers shall maintain in
effect through the applicable Effective Times, without material change, all
insurance policies covering the Personal Property, the Real Property, the
Facilities and all other assets and property of Sellers.

 

(a) With respect to the Real Property, if prior to the respective closing date,
all or any part of the Real Property is damaged or destroyed by fire or the
elements or by any other cause where such damage or destruction is in the
aggregate (the “Aggregate Damage”) less than ten percent (10%) of the Aggregate
Purchase Price and Sellers have duly maintained the insurance policies described
above, the Parties’ duties and obligations under this Agreement or the Agreement
and Plan of Merger shall not be affected and the applicable closing shall
proceed as scheduled; provided, however, at such closing, Sellers shall assign,
transfer and set over to Purchaser all of Sellers’ right, title and interest in
and to any insurance proceeds on account of such damage or destruction and
Sellers (excluding DIA if the DE Closing occurs) shall pay to Purchaser an
amount of cash equal to the amount of any applicable deductibles under such
insurance policies, and, if the sum of such insurance proceeds and deductible
amounts are insufficient to repair, restore and/or replace the damaged or
destroyed Real Property, the Aggregate Purchase Price and the Closing Purchase
Price Payment or any other applicable component thereof shall be reduced by an
amount equal to difference between the cost to repair, restore and/or replace
and the sum of such insurance proceeds and deductible amounts. If prior to the
applicable closing, all or any part of the Real Property is damaged or destroyed
by fire or the elements or by any other cause where the Aggregate Damage equals
or exceeds ten percent (10%) of the Aggregate Purchase Price, Purchaser may
elect to (i) purchase or acquire such Real Property, in which case the
applicable closing shall proceed as scheduled; provided, however, at such
closing, Sellers shall assign, transfer and set over to Purchaser all of
Sellers’ right, title and interest in and to any insurance proceeds on account
of such damage or destruction and Sellers (excluding DIA if the DE Closing
occurs) shall pay to Purchaser an amount of cash equal to the amount of any
applicable deductibles under such insurance policies, and, if the sum of such
insurance proceeds and deductible amounts are insufficient to repair, restore
and/or replace the damaged or destroyed Real Property, the Aggregate Purchase
Price and the Closing Purchase Price Payment or any other applicable component
thereof shall be reduced by an amount equal to the difference between the cost
to repair, restore and/or replace and the sum of such insurance proceeds and
deductible amounts, (ii) not purchase such Real Property, and, in such event, an

 

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appropriate reduction of the Aggregate Purchase Price, utilizing a methodology
to be agreed upon, shall be made by Purchaser and the Seller Representative, or
(iii) elect to terminate this Agreement by written notice to the Seller
Representative. If Purchaser and the Seller Representative are unable to agree
upon the amount of the Aggregate Damage and any applicable Aggregate Purchase
Price reduction within ten (10) days after Purchaser notifies the Seller
Representative of an election made by Purchaser pursuant to subsection (ii) of
the preceding sentence, the amount of the Aggregate Damage and any applicable
Aggregate Purchase Price reduction shall be determined by a consulting firm
mutually selected by the Seller Representative and Purchaser (the “Independent
Consultant”) pursuant to Section 1.13(d).

 

(b) With respect to any Assets other than Real Property which are damaged or
destroyed by fire or the elements or by any other cause prior to the applicable
closing, Sellers shall assign, transfer and set over to Purchaser all of
Sellers’ right, title and interest to any insurance proceeds on account of such
damage or destruction and Sellers (excluding DIA if the DE Closing occurs) shall
pay to Purchaser an amount of cash equal to the amount of any applicable
deductibles under such insurance policies, and, if such insurance proceeds and
deductible amounts are insufficient to repair, restore and/or replace the
damaged or destroyed Assets, the Aggregate Purchase Price and the Closing
Purchase Price Payment or other applicable component thereof shall be reduced by
an amount equal to the difference between the cost to repair, restore and/or
replace and the sum of such insurance proceeds and deductible amounts.

 

(c) If prior to the applicable closing, all or any part of a parcel of the Real
Property is made subject to an eminent domain or condemnation proceeding which
would in Purchaser’s reasonable judgment materially adversely impair access to
such Real Property or be materially adverse to the operations of the Facility
located on such Real Property, Purchaser may elect to (i) purchase or acquire
such affected Real Property, and such closing shall proceed as scheduled;
provided, however, at such closing, Sellers shall assign, transfer and set over
to Purchaser all of Sellers’ right, title and interest in and to any award in
such eminent domain or condemnation proceeding, (ii) not purchase the affected
Real Property and the Facility and related Assets located thereon, and, in such
event, an appropriate reduction of the Aggregate Purchase Price, utilizing a
methodology to be agreed upon, shall be made by Purchaser and the Seller
Representative, or (iii) terminate this Agreement by written notice to the
Seller Representative. If Purchaser and the Seller Representative are unable to
agree upon the amount of the Aggregate Purchase Price reduction within ten
(10) days after Purchaser notifies the Seller Representative of an election made
by Purchaser pursuant to subsection (ii) of the preceding sentence, the amount
of the Aggregate Purchase Price reduction shall be resolved by the Independent
Consultant pursuant to Section 1.13(d).

 

(d) If pursuant to either Section 1.13(a) or 1.13(c), the amount of the
Aggregate Damage (and any applicable Aggregate Purchase Price reduction) is to
be determined by the Independent Consultant, within the ten (10) day period
referred to in Section 1.13(a) or 1.13(c), as applicable (the “Submittal Date”),
Purchaser and the Seller Representative shall each submit to the other and to
the Independent Consultant its proposed Aggregate Damage if applicable (and any
applicable Aggregate Purchase Price reduction) as a result of the event(s)
contemplated by either Section 1.13(a) or 1.13(c), along with a detailed
description of the basis for such amount and any applicable reduction. Within
ten (10) calendar days after the Submittal Date, the Independent Consultant,
acting as an expert and not as an arbitrator, shall determine the

 

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Aggregate Damage if applicable (and any applicable Aggregate Purchase Price
reduction), taking into account any submissions by the Seller Representative or
Purchaser made by the Submittal Date. The decision of the Independent Consultant
shall be conclusive and binding as between Purchaser and Sellers. One-half of
the costs of such review shall be paid by Sellers (excluding DIA if the DE
Closing occurs), and one-half of the costs of such review shall be paid by
Purchaser. Upon any such determination of the adjustment to the Aggregate
Purchase Price in accordance with this Section 1.13(d), the Parties shall,
subject to the terms and conditions of this Agreement, consummate the
transactions contemplated by this Agreement or the Agreement and Plan of Merger,
as applicable, at a mutually agreeable time and place, in accordance with the
provisions of this Agreement or the Agreement and Plan of Merger, as applicable,
which shall be no later than the fifteenth (15th) calendar day following the
Submittal Date unless Purchaser and the Seller Representative mutually agree
upon a later date.

 

1.14 Seller Representative.

 

(a) Each Seller hereby ratifies and affirms the appointment of Seller
Representative, LLC, a Tennessee limited liability company, as its
representative and true and lawful attorney in fact (the “Seller
Representative“), with full power and authority in each of their names and on
behalf of each of them:

 

(i) to act on behalf of each of them in the absolute discretion of the Seller
Representative, but only with respect to the following provisions of this
Agreement and corresponding provisions of the Agreement and Plan of Merger, with
the power to: (A) designate the account for payment of the Aggregate Purchase
Price pursuant to Section 1.7 or 1.10 or corresponding provisions of the
Agreement and Plan of Merger, or other payments to be made to any Seller or any
Member pursuant to this Agreement, the Agreement and Plan of Merger or either
Escrow Agreement, (B) act pursuant to Sections 1.11, 1.12 and 1.13 with respect
to prorations and Aggregate Purchase Price adjustments (including the Net Assets
Adjustment Amount and the Final Net Assets Settlement Amount) and related
matters, including executing any amendment hereto or to the Agreement and Plan
of Merger to reflect any Aggregate Purchase Price adjustment or reduction agreed
to pursuant to Section 1.12 or 1.13, or corresponding provisions of the
Agreement and Plan of Merger, (C) execute, deliver and act under each Escrow
Agreement, (D) grant any waiver or consent under Article 6, Section 8.1 or
Section 12.14 of this Agreement or under the equivalent articles or sections of
the Agreement and Plan of Merger, make any determination under Article 6 or
Section 8.1 of this Agreement or under the equivalent articles of the Agreement
and Plan of Merger (including a determination that the conditions in Article 6
hereof have been satisfied), or terminate this Agreement pursuant to Section 8.1
or terminate the Agreement and Plan of Merger pursuant to Article 11 thereof,
(E) act in connection with any matter as to which any Sellers, jointly and
severally, have or are alleged to have obligations, or as to which any Seller is
or claims to be an Indemnified Person, under Article 10 or pursuant to Article
13 of the Agreement and Plan of Merger, (F) consent to the assignment of rights
under this Agreement or the Agreement and Plan of Merger in accordance with
Section 12.3(a) hereof, (G) give and receive notices pursuant to Section 12.6
hereof or Section 15.2 of the Agreement and Plan of Merger, and (H) receive and
accept such notices or correspondence, execute such other documents, and take
such other actions as are provided herein or in the Agreement and Plan of Merger
to be received, accepted, executed or taken by the Seller Representative; and

 

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(ii) in general, to do all things and to perform all acts, including executing
and delivering all agreements, certificates, receipts, instructions and other
instruments contemplated by or deemed advisable to effectuate the provisions of
this Section 1.14.

 

(b) The foregoing appointment and grant of power and authority is coupled with
an interest and is in consideration of the mutual covenants made herein and is
irrevocable and shall not be terminated by any act of any Seller or by operation
of law or by the occurrence of any other event.

 

(c) Each Seller consents to the taking by the Seller Representative of any and
all actions and the making by the Seller Representative of any decisions
required or permitted to be taken or made by the Seller Representative pursuant
to this Section 1.14, and agrees that each such action or decision shall bind
such Seller. Each Seller hereby authorizes, approves and ratifies the execution
of the Execution Date Escrow Agreement by the Seller Representative on such
Seller’s behalf and further acknowledges and agrees that such Seller is bound
thereby as if such Seller had executed the Execution Date Escrow Agreement
directly.

 

(d) Each Seller agrees that the Seller Representative shall have no obligation
or liability to any Person for any action or omission taken or omitted by the
Seller Representative in good faith hereunder. Sellers (excluding DIA if the DE
Closing occurs), jointly and severally, shall indemnify and hold the Seller
Representative harmless from and against any and all loss, damage, expense or
liability (including reasonable counsel fees and expenses) which the Seller
Representative may sustain as a result of any such action or omission by the
Seller Representative hereunder.

 

(e) Purchaser and the Escrow Agent shall be entitled to conclusively rely,
without any independent verification or inquiry, upon any document or other
paper delivered by or other action taken by the Seller Representative as
(i) genuine and correct and (ii) having been duly signed or sent or taken by the
Seller Representative, and neither Purchaser nor the Escrow Agent shall be
liable to any Seller for any action taken or omitted to be taken by Purchaser or
such Escrow Agent in such reliance.

 

(f) Payments made to or as directed by the Seller Representative under
Section 1.10 or any other provision of this Agreement, the Agreement and Plan of
Merger or under either Escrow Agreement, are binding to the same extent as
though such payments were made directly to Sellers or to the Members of DIA, as
applicable. Neither Purchaser nor the Escrow Agent shall have any responsibility
or liability for any further delivery or application of any such payment, it
being agreed that, on the terms set forth herein, (i) any payment Purchaser is
required to make hereunder, any payment Purchaser is required to make or cause
to be made under the Agreement and Plan of Merger and any payment the Escrow
Agent is required to make under either Escrow Agreement, may be made to or as
directed by the Seller Representative on behalf of Sellers or to the Members of
DIA, as applicable, (ii) Sellers or such Members, as applicable, shall determine
among themselves the amount due to each Seller or such Members, as applicable,
from each payment made to or as directed by the Seller Representative hereunder
under the Agreement and Plan of Merger or under either Escrow Agreement, and
(iii) each Seller or such Members, as applicable, shall look solely to the
Seller Representative for each Seller’s or Member’s respective share of any
payment made to or as directed by the Seller Representative hereunder, under the
Agreement and Plan of Merger or under either Escrow Agreement.

 

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(g) Notwithstanding any other provision to the contrary in this Section 1.14,
the Seller Representative’s power and authority and ability to act under this
Section 1.14 with respect to DIA shall terminate as of the effective time of the
DE Closing.

 

ARTICLE 2

REPRESENTATIONS AND WARRANTIES OF SELLERS

 

Sellers, jointly and severally, represent and warrant to Purchaser as follows:

 

2.1 Authority. Each Seller has full limited liability company power and
authority (a) to enter into this Agreement and all documents delivered or to be
delivered by such Seller in connection herewith, and (b) to carry out and
perform the transactions contemplated hereby or thereby.

 

2.2 Authorization/Execution. All limited liability company action and other
actions required to be taken by any Seller to authorize the execution, delivery
and performance of this Agreement, all documents executed or to be executed by
any Seller in connection herewith, and all transactions contemplated hereby or
thereby, have been duly and properly taken or obtained. No other limited
liability company action or other action on the part of any Seller is necessary
to authorize the execution, delivery and performance of this Agreement, any
document executed or to be executed by any Seller in connection herewith, or any
transaction contemplated hereby. This Agreement and all documents executed or to
be executed by any Seller in connection herewith have been (or will be, as
applicable) duly and validly executed and delivered by each Seller party thereto
and (assuming due and valid execution by, and enforceability against, Purchaser
if Purchaser is a party thereto) this Agreement and all documents executed or to
be executed by any Seller in connection herewith constitute (or will constitute,
when executed and delivered) valid and binding obligations of each Seller party
thereto enforceable in accordance with their respective terms.

 

2.3 Organization and Good Standing; No Subsidiaries; No Conflicts.

 

(a) Each Seller is a limited liability company duly organized, validly existing
and in good standing under the laws of the state of its organization. Each
Seller is duly qualified and in good standing in each state in which such Seller
owns any real property, if different from the state of its organization, and all
such states are listed for each Seller on Schedule 2.3(a). Each Seller has full
power and authority to own, operate and lease its properties and to carry on its
business as now conducted.

 

(b) Except as set forth on Schedule 2.3(b), no Seller has any subsidiary,
whether direct or indirect, that is not also a Seller hereunder. No Seller has
any equity interest or investment in, or any other right or obligation to
purchase any equity interest or other investment in, any other Person that is
not also a Seller hereunder. No Seller is a partner of or joint venturer with
any other Person.

 

(c) Except as set forth 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 any Seller is or will be a party do not and will not (i) violate any
decree or judgment of any court or governmental authority which is applicable to
or binding upon any Seller, (ii) violate in any material respect

 

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any Legal Requirement applicable to any Seller, (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 under, any contract, lease, sales order, purchase order, indenture,
mortgage, note, bond, instrument, license or other agreement to which any Seller
is a party, or by which any Seller is bound, which violation, conflict, breach
or default would have a Material Adverse Effect on any Seller or Facility,
(iv) require the consent, waiver or approval of or notice to any Person, which,
if not obtained, would have a Material Adverse Effect on any Seller or Facility,
(v) permit the acceleration of the maturity of any indebtedness of any Seller,
or (vi) violate or conflict with any provision of the certificate of formation
or organization, limited liability company agreement or regulations, or similar
organizational documents of any Seller.

 

2.4 Financial Statements; Changes; Related Matters.

 

(a) Sellers have delivered to Purchaser the financial statements of Sellers
listed in Schedule 2.4(a). To the Knowledge of Sellers, except as set forth in
Schedule 2.4(a), such financial statements fairly present in all material
respects the financial condition and the results of operations of Sellers as at
the respective dates of and for the periods referred to in such financial
statements, all in accordance with GAAP.

 

(b) Sellers have delivered to Purchaser unaudited, unconsolidated balance sheets
(the “Interim Balance Sheets“) of Sellers at October 31, 2005 (the “Interim
Balance Sheet Date”) and the related unaudited, unconsolidated statements of
operations of Sellers for the ten (10) month period then ended. To the Knowledge
of Sellers, except as set forth in Schedule 2.4(b), such financial statements
fairly present in all material respects (and the financial statements delivered
pursuant to Section 4.5 will fairly present in all material respects) the
financial condition and the results of operations of Sellers as at the
respective dates of and for the periods referred to in such financial
statements. To the Knowledge of Sellers, except as set forth in Schedule 2.4(b),
such interim financial statements reflect (and in the case of financial
statements delivered pursuant to Section 4.5 will reflect when delivered) all
adjustments necessary for a fair presentation of the financial information
contained therein other than normal year-end adjustments which are consistent
with past practices.

 

(c) To the Knowledge of Sellers, the financial statements referred to in this
Section 2.4 and delivered pursuant to Section 4.5 reflect and will reflect the
consistent application in all material respects of accounting principles
throughout the periods involved, except as disclosed in the notes to such
financial statements. To the Knowledge of Sellers, all such financial statements
have been and will be prepared from and are and will be in accordance with the
accounting records of Sellers. To the Knowledge of Sellers, the accounting
records of Sellers, all of which have been made available to Purchaser, are
complete and correct in all material respects and represent actual, bona fide
transactions and have been maintained in accordance with sound business
practices.

 

(d) Sellers have delivered to Purchaser copies of all letters from Sellers’
auditors to any Seller during the twenty-four (24) months preceding the
execution of this Agreement, together with copies of all responses thereto.

 

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(e) Except as set forth in Schedule 2.4(e), since the Interim Balance Sheet
Date, whether or not in the ordinary course of business, there has not been:

 

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

 

(ii) any strike or other material labor dispute involving any Seller or
employees or personnel at any Facility; or

 

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

 

(f) Except as set forth in Schedule 2.4(f), no Seller has any material
liabilities except for liabilities reflected or reserved against in the Interim
Balance Sheets and current liabilities incurred in the ordinary course of
business of Sellers since the Interim Balance Sheet Date.

 

2.5 Taxes.

 

(a) For purposes of this Agreement,

 

(i) “Tax“ or “Taxes“ means any income, gross income, gross receipts, premiums,
profits, capital, franchise, withholding, payroll, social security, workers
compensation, unemployment, disability, property, ad valorem, stamp, excise,
registration, occupation, service, sales, use, license, lease, transfer, import,
export, value added, severance, environmental, alternative minimum, estimated or
other similar tax (including any fee, assessment, or other charge in the nature
of or in lieu of any tax) imposed by any governmental entity or political
subdivision thereof, and any interest, penalties, additions to tax, or
additional amounts in respect of the foregoing.

 

(ii) “Tax Return“ means any report of Taxes due, any claims for refund of Taxes
paid, any information return with respect to Taxes, or any other similar report,
statement, declaration, or document required to be filed under the Internal
Revenue Code of 1986, as amended (the “Code“), or other Legal Requirement
relating to Taxes, including any attachments, exhibits, or other materials
submitted with any of the foregoing, and including any amendments or supplements
to any of the foregoing.

 

(b) Except as set forth in Schedule 2.5(b):

 

(i) Each Seller 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 any Seller (whether or not shown on any Tax Return) that have become due and
payable have been paid, except where the failure to pay such Taxes would not
have a Material Adverse Effect on any Seller or Facility.

 

(ii) No Seller is currently the beneficiary of any extension of time within
which to file any Tax Return.

 

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(iii) Each Seller 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.

 

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

 

(v) No deficiencies for any Taxes have been asserted or assessed in writing
against any Seller or any of the Assets, which are unpaid. To the Knowledge of
Sellers, there are no claims, audits, or investigations pending or threatened
against any Seller or any of the Assets for any Tax.

 

(vi) To the Knowledge of Sellers, there is no reasonable basis for any assertion
by any tax authority of any deficiency in Taxes against any Seller or the
Assets, including any assertion by any tax authority for any jurisdiction where
a Seller does not file Tax Returns with respect to a given Tax that the Seller
is or may be subject to such Tax in such jurisdiction.

 

(vii) No Seller has consented to extend to a date later than the Closing Date
the time in which any Tax may be assessed or collected by any tax authority

 

(viii) No Seller is a party to any tax allocation or sharing agreement with any
Person, or a party to any agreement to indemnify any Person with respect to
Taxes.

 

(ix) None of the Assets shown on any Interim Balance Sheet is owned by a Person
other than a Seller such that Purchaser will not acquire ownership of the Asset
for tax purposes as a result of the transactions contemplated by this Agreement.

 

(x) None of the Assets is (A) required to be or is being depreciated under the
alternative depreciation system under Code Section 168(g)(2), or (B) subject to
Code Section 168(f).

 

(xi) No “industrial development bonds” within the meaning of Section 103 of the
Internal Revenue Code of 1954, as amended and in effect prior to the enactment
of the Tax Reform Act of 1986, “private activity bonds” within the meaning of
Code Section 141, or other tax exempt financings are outstanding which have been
used to finance Assets of any Seller, whether leased or owned.

 

(xii) The consummation of the transactions contemplated by this Agreement will
not adversely affect the continued validity and effectiveness of any Tax
exemptions, Tax holidays or other Tax reduction agreements or orders that relate
to the Assets.

 

(xiii) None of the Assumed Liabilities is an obligation to make a payment that
is not deductible under Code Sections 280G or 162(m) or any corresponding
provision of any other applicable Tax law.

 

(xiv) No Seller is a partner in any entity classified as a partnership for
federal income Tax purposes that is not also a Seller hereunder.

 

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(xv) No election under Treasury Regulations Section 301.7701-3 or corresponding
provisions of any other applicable Tax law has been made to classify any Seller
entity other than in accordance with the default classification for such entity.

 

(xvi) No Seller is a “foreign person” within the meaning of Treasury Regulation
Section 1.1445-2(b).

 

2.6 Material Contracts. Schedule 2.6 lists each Material Contract to which any
Seller is a party or to which any of its properties are subject or by which any
thereof is bound, other than the Excluded Contracts listed in Schedule 1.3(b).
Except as set forth in Schedule 2.6, each such Material Contract was entered
into in the ordinary course of business. As used herein, “Material Contract”
means any contract or agreement that (a) after the Interim Balance Sheet Date,
obligates any Seller or Sellers to pay an amount of Twenty-Five Thousand Dollars
($25,000) or more in any one twelve-month period or obligates any Seller or
Sellers to pay an aggregate amount of Fifty Thousand Dollars ($50,000) or more,
(b) has an unexpired term as of the Interim Balance Sheet Date in excess of
twelve (12) months that is not terminable upon sixty (60) days or less notice by
the Seller party thereto at any time during the term, without penalty,
(c) contains a covenant not to compete or otherwise restricts the ability of any
Seller to conduct its business, including as to manner or place, (d) grants a
power of attorney, agency or similar authority to another Person or entity,
(e) contains a right of first refusal, (f) constitutes a collective bargaining
agreement including any collective bargaining agreement with physicians or any
other referral source, (g) constitutes an employment or severance agreement with
any Facility Worker or any member, manager, director, officer or employee of any
Seller or any Affiliate of any Seller, (h) represents a contract upon which the
business of any Facility is substantially dependent or a contract which is
otherwise material to the business of any Facility, (i) represents a contract
with a physician, or to the Knowledge of Sellers, an immediate family member of
a physician or any other referral source, including any contract with a pharmacy
or any other supplier of medical products to patients of any Facility, (j) to
the Knowledge of Sellers, represents a contract with an entity in which a
referring physician (as that term is defined in 42 U.S.C. § 1395m(h)(5)) or a
referring physician’s immediate family member has an ownership or investment
interest, (k) represents a third-party payor, managed care or preferred provider
organization contract, (l) represents an agreement providing for the lease to
any Seller of any Facility Workers, or (m) was not made in the ordinary course
of business. Except as set forth on Schedule 2.6, (i) true, correct and complete
copies of the Material Contracts and the Excluded Contracts, including all
amendments and supplements thereto, have been delivered to Purchaser, (ii) each
Material Contract is valid and subsisting, (iii) each Seller party thereto has
duly performed in all material respects all its obligations thereunder to the
extent that such obligations to perform have accrued, and (iv) 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 Seller
party thereto (or, to the Knowledge of Sellers, 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.

 

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

 

(a) Each Seller has good and valid title in and to the Real Property shown as
owned by such Seller on any Schedule hereto, and to all Personal Property and
other Assets, free and clear of Liens, subject only to (i) any Liens for taxes
not yet due and payable, (ii) any lease

 

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obligations included in the Assumed Liabilities, (iii) any Liens securing the
HUD Loan, if any, (iv) those exceptions and other matters set forth in Schedule
B-Sections 1 and 2 of the title commitment for the respective parcels of Real
Property as set forth in Exhibits F-1, F-2 and F-3 attached hereto (the “Title
Commitments“), other than those exceptions and other matters identified therein
to be satisfied or complied with by Sellers, and (v) any easements and other
restrictions that are visible and apparent on any of the Real Property on the
Execution Date and do not materially interfere with the operations of any
Facility on any of the Real Property in any manner consistent with the current
operation thereof by Sellers (items (i), (ii), (iii), (iv) and (v),
collectively, the “Permitted Encumbrances”). Except as shown in Schedule 2.7(a)
and to Seller’s Knowledge, no material defects exist with respect to the
condition or state of maintenance or repair of any Assets that would restrict or
prevent the operations of any Facility on any of the Real Property in a manner
consistent with the current operation thereof by Sellers. Except for Permitted
Encumbrances, on or after the Execution Date, no Seller shall take, or consent
to, any steps or actions which will in any manner adversely alter the status of
the title to any of the Real Property without Purchaser’s prior written consent.
Except for Permitted Encumbrances, no Seller shall execute, grant or record any
Liens or other agreements or matters with respect to any of the Real Property
without Purchaser’s prior written consent.

 

(b) The Real Property listed in Schedule 1.2(a) consists of all real property
owned by any Seller and, together with the real property leased pursuant to
those certain Apartment Lease Agreements between Taplin Falls LTD. and Focus FL
identified on Schedule 1.2(e) (the “Focus FL Apartment Leases”), constitutes all
real property used in the conduct of the business of the Facilities.

 

(c) Other than leases of the Real Property from one Seller to another Seller or
to an Owner, all of which leases are identified on Schedule 2.7(c) (the “Real
Property Leases”) and which, except for the Cooper City Sublease, the Cooper
City Prime Lease and the DE Lease, shall be terminated at or prior to Closing at
no cost to Purchaser, there are no leases of any of the Real Property.

 

(d) Sellers have heretofore made available to Purchaser a true, correct and
complete copy of all of the Leases. Except as set forth in Schedule 2.7(d), no
consents are required to be obtained from any third party for the assignment of
any of the Leases to Purchaser hereunder.

 

(e) At Closing, Sellers will convey to Purchaser good and valid title to the
Real Property and all other Assets and, except as otherwise provided herein, a
valid leasehold interest in all of Sellers’ leased property, free and clear of
all Liens, conditional sales agreements, rights of first refusal or options,
except for Permitted Encumbrances and the rights of any lessor or licensor of
leased or licensed Personal Property expressly set forth in the applicable
written Lease or license Contract.

 

(f) The Leases, the Real Property Leases and the Focus FL Apartment Leases
constitute all of the agreements to which any Seller is a party with respect to
the leasehold interests in properties which are demised pursuant thereto and
pertain to all real and personal property leased by any Seller and used in the
conduct of the business of any Facility.

 

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(g) Except as set forth in Schedule 2.7(g), 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 the Seller party thereto or,
to the Knowledge of Sellers, any other party thereunder.

 

(h) Sellers have no Knowledge of, and, during the past three (3) years, no
Seller has received any written notice of, non-compliance in any material
respect with any Legal Requirement or other restriction with respect to any of
the Real Property.

 

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

 

(j) Sellers have no Knowledge of, and, during the past three (3) years, no
Seller has received any notice of, any proposed special assessments, threatened
condemnation or any proposed material changes in property tax or land use Legal
Requirements affecting any of the Real Property.

 

(k) The Assets include in all material respects all of the property used by
Sellers to operate the Facilities as of the Execution Date.

 

(l) Sellers have not conveyed or otherwise granted access or parking rights for
the benefit of “Parcel 2” (as identified on the Plat recorded in Plat Book 27,
Page 193, Records of Glynn County, Georgia) on or across the Real Property
(identified as “Parcel 1” on such Plat). The Permitted Encumbrance for the
parking shown on such Plat shall identify the same as an encroachment from
Parcel 1 upon Parcel 2.

 

2.8 Intangible Property. Schedule 1.2(m) lists any and all marks and other
material items of intangible property described in Section 1.2(m) (the
“Intangible Property“) in which any Seller has an interest and the nature of
such interest. Except as set forth in Schedule 1.2(m), Sellers have valid rights
to use or ownership of all of the Intangible Property and any other material
intangible property required for use in connection with the business of the
Facilities. Except as set forth in Schedule 2.8, no Seller uses any Intangible
Property by consent of any other Person and no Seller is required to or does
make any payments to others with respect thereto. Except as set forth in
Schedule 2.8, the Intangible Property is held by Sellers and fully assignable
free and clear of any Liens. To the Knowledge of Sellers, each Seller has
performed in all material respects all obligations required to be performed by
such Seller, and no Seller is in default in any material respect, under any
contract relating to any of the foregoing. No Seller has received any notice to
the effect (or otherwise has Knowledge) that any Intangible Property or any use
thereof by any Seller conflicts with or infringes (or allegedly conflicts with
or infringes upon) the rights of any Person.

 

2.9 Legal Proceedings. Except as set forth in Schedule 2.9, there is no
Proceeding or order pending, or, to the Knowledge of Sellers threatened, against
or affecting any Seller, or any of its respective properties or assets.
Schedule 2.9 lists each Proceeding and each order that involves a claim of
aggregate liability in excess of Twenty Five Thousand Dollars ($25,000) against,
or that enjoins or seeks to enjoin or excludes or seeks to exclude the conduct
of any activity by, any Seller.

 

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2.10 [Reserved].

 

2.11 Insurance. Schedule 2.11 lists all insurance policies and bonds that are
currently maintained by any Seller and indicates the type of insurance, policy
number, term, identity of insurer, premiums and coverage amounts and coverages
(including applicable deductibles) for each such insurance policy and bond. No
Seller is in default in any material respect under any insurance policy or bond.
Each Seller has timely filed claims with its respective insurers with respect to
all matters and occurrences for which it believes it has coverage. Schedule 2.11
lists all claims in excess of $20,000 which have been made by any Seller in the
last two (2) years under any insurance policy and bond. Except as set forth in
Schedule 2.11, all insurance policies and bonds maintained by any Seller are in
full force and effect. Except as shown in Schedule 2.11, no Seller has received
notice from any insurer or agent of any intent to cancel or not to renew any of
such insurance policies or 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 any Seller requiring or recommending any
action which has not been taken.

 

2.12 Employees.

 

(a) By letter dated December 6, 2005, Sellers have provided Purchaser with a
complete list (as of the date set forth therein) of names, departments and
current annual salaries or wage rates, bonus and other compensation and/or
benefit arrangements, accrued vacation 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 any Seller and all Facility Workers and indicating
whether such employee or Facility Worker works part time or full time at any
Facility. Except as set forth in Schedule 2.12(a), there are no employment
agreements or severance agreements with any employee of any Seller or any
Facility Worker or arrangements requiring the payment of a bonus or other
compensation as a result of the consummation of the transactions contemplated by
this Agreement.

 

(b) There are no labor union or collective bargaining agreements in effect with
respect to any employees of any Seller or any Facility Worker. There is no
unfair labor practice complaint against any Seller pending, or to the Knowledge
of Sellers 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 Sellers threatened by or
involving any employees of any Seller or any Facility Worker.

 

(c) The agreements between Sellers and Atlantic Professional Employers, Inc.
(“APE”) listed on Schedule 2.6 (the “Seller APE Leases”) constitute the only
agreements pursuant to which any Facility Workers are leased by any Seller.

 

2.13 Employee Benefits.

 

(a) Except to the extent that any Seller may be an adopting employer of a 401(k)
Plan maintained by APE as a multiple employer plan under Section 413(c) of the
Code, Seller does not maintain any pension, retirement, savings, deferred
compensation, profit-sharing plan, bonus or other incentive plan, severance
plan, health, group insurance or other welfare plan, or other similar plan and
any “employee benefit plan” within the meaning of Section 3(3)

 

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of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”),
under which any Facility Worker or other Person has or may have any current or
future right to benefits (the term “plan” includes any contract, agreement,
policy or understanding, and each such plan is referred to in this Agreement
individually as a “Plan”).

 

(b) There are no actions pending, or, to the Knowledge of Sellers, threatened,
with respect to any Plan of APE with respect to any Facility Worker, other than
claims for benefits in the ordinary course. To the Knowledge of Sellers, each
Plan of APE with respect to any Facility Worker has been administered in
accordance with its terms and with all applicable laws (including ERISA).

 

(c) No Seller or any Commonly Controlled Entity contributes to or has an
obligation to contribute to, nor has any Seller 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. Each Seller has performed timely and shall timely perform all obligations
of such Seller 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 any Seller
within the meaning of Section 414(b), (c), (m), or (o) of the Code or
Section 4001 of ERISA.

 

(d) To the Knowledge of Sellers, each employee, nonemployee worker, former
employee and independent contractor of each Seller has been properly classified
as such for all purposes under the Code and ERISA.

 

2.14 Certain Interests. Except as set forth in Schedule 2.14, (a) no Related
Person of any Owner has any material interest in any property used in or
pertaining to the business of any Facility, (b) no Related Person of any Owner
is indebted or otherwise obligated to any Seller, (c) no Seller is indebted or
otherwise obligated to any Related Person of any Owner, 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, and (d) 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 any Seller or the successor or assign of any
thereof to any Person, which in the case of clauses (a) through (d) above will
adversely affect the business conducted by the Purchaser at the Facilities after
the Closing or impose any obligations or liabilities on Purchaser. Schedule 2.14
contains a complete and accurate listing of all business functions and
activities of each Facility which are performed, in whole or in part, by any
Related Person of any Owner. Except as set forth in Schedule 2.14, no Seller has
engaged in any transaction with any Related Person of any Owner.

 

2.15 Inventory. All Inventory of each Seller is of a quality and quantity and
that is sufficient for the operation of the Facilities in the ordinary course of
business, consistent with past practices. The value at which any Inventory is
carried on the books of Sellers reflects the customary Inventory valuation
policy of the applicable Seller for stating inventory in accordance with GAAP
consistently applied.

 

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2.16 Receivables. To Seller’s Knowledge, the accounts receivable (including the
accounts receivable arising or payable to any Seller under any Government
Program) reflected on the books and records of each Seller and each Facility
arose from bona fide commercial transactions, and the financial statements
referred to in Section 2.4 include all refunds, discounts or setoffs payable or
assessable with respect to such accounts receivable (including the accounts
receivable arising or payable to any Seller under any Government Program), taken
as a whole. Each Seller adequately records in all material respects on its
financial statements all estimates for future Seller Cost Report settlements for
all years open to settlement. Each Seller records Government Program recoupments
on its financial statements in the period in which the recoupment is assessed.

 

2.17 Third-Party Payors and Suppliers. Schedule 2.17 lists all Material
Contracts for the year ended December 31, 2004, attributable to the five
(5) largest third-party payors (or such fewer payors if such Facility has less
than five (5) material payors), and any sole-source suppliers of material goods
or services (other than electricity, gas, telephone or water) to the business of
each such Facility with respect to which alternative sources of supply are not
readily available on comparable terms and conditions.

 

2.18 Worker Adjustment and Retraining Notification (WARN). Each Seller has
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 the operation of any Facility prior to and,
assuming compliance by Purchaser with the applicable requirements of the WARN
Act as relates to the Facility Workers leased by Purchaser from APE as of the
Effective Time upon consummation of the Closing, including the transactions
contemplated by this Agreement.

 

2.19 Environmental Compliance. Except as set forth in Schedule 2.19 or as
disclosed in the Phase I environmental surveys listed in Schedule 2.19:

 

(a) To the Knowledge of Sellers, the Assets are in material compliance with all
applicable Environmental Laws. As used herein, “Environmental Laws” means all
applicable Legal Requirements relating to pollution or protection of the
environment (including ambient air, surface water, ground water, land or surface
or subsurface strata), including all applicable 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 applicable Legal Requirements 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) To the Knowledge of Sellers, Sellers have obtained all permits required
under applicable Environmental Laws for the use, operation or ownership of the
Real Property and the business of the Facilities, and the Real Property and the
Facilities are in material compliance with each such applicable permit. No
federal, state or local governmental entity has notified any Seller that any
such permits may or will be suspended, cancelled, revoked or modified, or cannot
be renewed in the ordinary course of business.

 

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(c) No Seller has received from any federal, state or local governmental entity
or other Person any order, directive, information request, notice of violation,
notice of alleged violation, notice of noncompliance, notice of liability or
potential liability, regarding compliance with, or liability or potential
liability under, applicable Environmental Laws concerning any of the Real
Property or the business of any 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 Proceeding or claim is pending or, to the Knowledge of Sellers,
threatened, under any applicable Environmental Law pursuant to which any Seller
is or to the Knowledge of Sellers could be reasonably expected to be named as a
party with respect to the Real Property or the business operations of the
Facilities.

 

(e) No Seller has entered into any agreement with any federal, state or local
governmental entity or any other Person pursuant to which a Seller assumed
responsibility for the investigation or remediation of any condition resulting
from the release, treatment, storage or disposal of hazardous substances, which
matter has not been completed or resolved.

 

(f) Sellers have 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
possession, custody or control of any Seller, relating to any past and present
(i) environmental conditions concerning the business of the Facilities 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 Facilities, and
(iii) activities relating to hazardous substances on, or any off-site disposal
of a hazardous substance from, the Real Property or used in connection with the
business of the Facilities. Sellers have disclosed and made available to
Purchaser any and all documents that are in the possession, custody or control
of any Seller relating to projected necessary environmental expenditures for the
business of the Facilities 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) To the Knowledge of Sellers, there is no soil or groundwater contamination
on, under, or about any Real Property.

 

(h) No Seller holds or is 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.).

 

2.20 Powers of Attorney. Except as contemplated by this Agreement, no Seller has
given any currently outstanding power of attorney (irrevocable or otherwise) to
any Person for any purpose relating to the business of any Facility, other than
powers of attorney given to regulatory authorities in connection with routine
qualifications to do business.

 

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

 

(a) Each Facility is duly accredited by the Joint Commission on Accreditation of
Healthcare Organizations (“JCAHO”) as evidenced by such Facility’s most recent
JCAHO accreditation survey reports and is duly licensed by the state in which
such Facility is located as shown on Schedule 2.21(a). Sellers have the lawful
authority and all federal, state or local governmental authorizations,
certificates of authority, certificates of need, licenses or permits necessary
for or required to conduct the business operations of the Facilities as such are
presently being conducted. In order to conduct the business operations of the
Facilities as presently conducted, no Seller is required to hold any licenses,
permits or other governmental approvals or authorizations except for those items
currently held by such Seller as listed in Schedule 2.21(a). The items listed in
Schedule 2.21(a) are in full force and effect and each Seller is in compliance
in all material respects with all requirements of each license, permit or other
governmental approval or authorization that it holds. Each Seller has made all
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
any Seller is bound or to which any Seller is subject which relate in any manner
to the business of any Facility. No Seller has received nor, to the Knowledge of
Sellers is any Seller subject to, any notice, subpoena, demand letter,
administrative inquiry or formal or informal complaint or claim from any
governmental department, commission, agency or instrumentality which relate in
any manner to the business operations of any Facility.

 

(b) The applicable facilities, equipment, staffing and operations of the
business of the Facilities satisfy the accreditation standards of JCAHO. Sellers
have previously delivered or made available to Purchaser true, correct and
complete copies of (i) each Facility’s most recent JCAHO accreditation survey
report, a list of deficiencies, if any, and, if applicable, a plan of
correction, (ii) each Facility’s most recent state health or licensing agency
surveys, lists of deficiencies, if any, and, if applicable, plans of correction,
(iii) each Facility’s fire marshal’s surveys for the past two (2) years and
lists of deficiencies, if any, and (iv) each Facility’s boiler inspection
reports for the past two (2) years and lists of deficiencies, if any. Sellers
have taken all reasonable steps to correct all such deficiencies and a
description of any uncorrected deficiency is set forth in Schedule 2.21(b).

 

(c) Except for the Facility operated by Focus FL which does not receive any
Medicare payments and except that only the DE Facility is a Medicaid provider,
each Facility 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 Government Program. All such provider numbers of the
Facilities, as well as any supplier numbers of the Facilities, are listed in
Schedule 2.21(c) by Facility to the extent applicable. Except as set forth in
Schedule 2.21(c), each Seller is in material compliance with the conditions of
participation for the Government Programs.

 

(d) Sellers have timely filed in accordance with instructions from the Centers
for Medicare & Medicaid Services or the applicable fiscal intermediary, carrier
or payor and applicable Legal Requirements, and shall cause to be timely filed
in accordance with instructions from the Centers for Medicare & Medicaid
Services or the applicable fiscal intermediary, carrier or payor and applicable
Legal Requirements, all cost reports and other reports that are required to

 

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have been filed or made on or before the Closing Date with respect to the
purchase of services of the business of the Facilities, including Government
Programs and other insurance carriers, and, except as disclosed in
Schedule 2.21(d), all such reports are or when filed shall be complete and
accurate. Except as disclosed in Schedule 2.21(d), each Seller is and has been
in compliance with all filing requirements with respect to cost reports of such
Seller, and such reports do not claim, and such Seller has not received, payment
or reimbursement materially in excess of the amount provided or allowed by
applicable Legal Requirements or any applicable agreement, except where excess
reimbursement was noted on the cost report. True and correct copies of all such
reports for the 2004 fiscal year, 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 2.21(d) and except for claims, actions and appeals in the
ordinary course of business that are not material to any Seller or Facility, no
Seller has either initiated or 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
Centers for Medicare & Medicaid Services, with respect to any Government Program
cost reports or claims filed on behalf of any Seller with respect to the
business of any of the Facilities. Schedule 2.21(d) indicates which of such cost
reports have been audited by the fiscal intermediary and finally settled.

 

(e) Except as disclosed in Schedule 2.21(e), no validation review or program
integrity review related to any Facility, the operation of any Facility, 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 Knowledge of Sellers, no such reviews
are scheduled, pending or threatened against or affecting any Seller with
respect to any Facility or the consummation of the transactions contemplated by
this Agreement.

 

(f) All billing practices of Sellers with respect to the Facilities to all
third-party payors, including the Government Programs and private insurance
companies, are and have been in compliance with all applicable Legal
Requirements and all policies of such third-party payors and Government
Programs, and no Seller or Facility has billed or received any payment or
reimbursement in excess of amounts allowed by law which would materially
adversely affect Purchaser.

 

(g) To the Knowledge of Sellers, (i) no Facility Worker, employee or independent
contractor of any Seller, and no physician currently on the medical staff at any
Facility, is, or is listed on the website of the Office of Inspector General of
the United States Department of Health and Human Services as having been,
excluded from participating in Medicare or any other Government Program, and
(ii) none of the business of any Facility, or any Seller or any Seller’s
officers, managers, 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 Government Program 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 Law or any similar Legal Requirement.

 

(h) In the five (5) year period immediately preceding the Execution Date and
since the Execution Date, to the Knowledge of Sellers, no employee of any Seller
and no Facility

 

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Worker has committed a violation in any material respect of any Legal
Requirement regulating health care fraud, including the Anti-Kickback Law, the
Stark Law, and the False Claims Act.

 

2.22 Compliance Program. Sellers have made available to Purchaser (i) a copy of
each 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 employees,
independent contractors, vendors, physicians or any other Person asserting that
any Facility or any Seller has violated any health care Legal Requirement,
including the Anti-Kickback Law, the Stark Law, and any similar Legal
Requirement. No Seller (a) is 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 reporting obligations pursuant to any settlement
agreement entered into with any Governmental Program, (c) to the Knowledge of
Sellers, has been the subject of any Government Program investigation conducted
by any federal or state enforcement agency during the past five (5) years,
(d) to the best Knowledge of Sellers, has been a defendant in any qui tam/False
Claims Act litigation during the past five (5) years, or (e) has 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
such Seller).

 

2.23 HIPAA. Each Seller has complied in all material respects with all
applicable provisions of the Health Insurance Portability and Accountability Act
of 1996, and the rules and regulations promulgated thereunder, from and after
the applicable effective dates for such requirements.

 

2.24 Restricted Grant and Loan Programs. The transactions contemplated by this
Agreement will not result in any obligation on any Seller 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 any Facility.

 

2.25 Experimental Procedures. No Seller has performed or authorized the
performance of any experimental or research procedures or studies involving
patients of any Facility that require the prior approval of any governmental
entity that has not been obtained.

 

2.26 Medical Staff; Physician Relations. Sellers have made available to
Purchaser complete and genuine copies of the bylaws and rules and regulations of
the medical staff and medical executive committees of each Facility.
Schedule 2.26 sets forth (a) the name and status on the medical staff of each
member of the medical staff of each 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 2.26, there are no pending or, to
the Knowledge of Sellers, threatened disputes with any Facility’s 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.

 

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2.27 Solvency. No Seller is insolvent or will 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 a Seller’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) each
Seller is able to pay its debts or obligations in the ordinary course as they
mature, and (c) each Seller has capital sufficient to carry on its businesses
and all businesses which it is about to engage.

 

2.28 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 any
Seller, or any Affiliate of any Seller, 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.

 

2.29 Improper Payments. To the Knowledge of Sellers, no Related Person or
employee of any Owner, and no Facility Worker, has made any illegal bribes,
kickbacks or other illegal payments to, or received any such illegal payments
from, customers, vendors, suppliers or other Persons contracting with any Seller
and has not proposed or offered to make or receive any such illegal payments.

 

2.30 No Misrepresentations. All representations, warranties and statements made
by any Seller in 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 in order to make any such representation,
warranty or statement, in light of the circumstances under which they were made,
not materially misleading.

 

ARTICLE 3

REPRESENTATIONS AND WARRANTIES OF PURCHASER

 

Purchaser represents and warrants to Sellers as follows:

 

3.1 Authority. Purchaser has full corporate power and authority (a) to enter
into this Agreement and all documents executed or to be executed by Purchaser in
connection herewith, and (b) to carry out and perform the transactions
contemplated hereby and thereby.

 

3.2 Authorization/Execution. All corporate action and other actions required to
be taken by Purchaser to authorize its execution, delivery and performance of
this Agreement, all documents executed or to be executed by Purchaser in
connection herewith, and all transactions contemplated hereby or thereby, have
been duly and properly taken or obtained by Purchaser. No other corporate action
or other action on the part of Purchaser is necessary to authorize Purchaser’s
execution, delivery and performance of this Agreement, any document executed or
to be executed by Purchaser in connection herewith, or any transaction
contemplated hereby. This Agreement and all documents executed or to be executed
by Purchaser in connection herewith have been (or will be, as applicable) duly
and validly executed and delivered by Purchaser and (assuming due and valid
execution by, and enforceability against, any other Person that is a party
thereto) this Agreement and all documents executed or to be executed by

 

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Purchaser in connection herewith constitute (or will constitute when executed
and delivered) the valid and binding obligations of Purchaser enforceable in
accordance with their respective terms.

 

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.

 

(b) The execution and delivery by Purchaser of this Agreement and the
performance by Purchaser 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 and will not (i) violate
any decree or judgment of any court or governmental authority which is
applicable to or binds Purchaser, (ii) violate any Legal Requirement 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, 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, (v) following the
receipt of the Governmental Approvals and the Contract and Lease Consents and
the expiration of the applicable waiting period, and any extensions thereof,
under the HSR Act, require the consent of any third party, or (vi) violate or
conflict with any provision of the Certificate 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 Affiliate of Purchaser, 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.

 

3.5 Due Diligence. Purchaser has commissioned the Phase I environmental surveys
of the Real Property listed in Schedule 2.19 as ordered by Purchaser and the
Title Commitments and has reviewed and is familiar with the results of such
surveys and reports.

 

3.6 Financial Ability. Purchaser has the financial ability to consummate the
transactions contemplated by this Agreement, the Agreement and Plan of Merger,
the Right of First Refusal Agreements, and the Lighthouse Purchase Agreement.

 

3.7 No Misrepresentations. All representations, warranties and statements made
by Purchaser in 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 in order to make any such representations,
warranty or statement, in light of the circumstances under which they were made,
not materially misleading.

 

ARTICLE 4

COVENANTS OF SELLERS

 

4.1 Access and Information; Inspection Period. From the Execution Date through
the consummation of the Closings, Sellers (or after the Closing, but before the
DE Closing, DIA and

 

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Focus DE) shall afford to the officers, employees, contractors and agents of
Purchaser, at Purchaser’s sole cost and expense, (which shall include
accountants, attorneys, bankers and other consultants and agents of Purchaser)
full and complete access during normal business hours to and the right to
inspect the plants, properties, books, accounts, records and all other relevant
documents and information with respect to the assets, liabilities and business
of the applicable Sellers, the Facilities, the Real Property and all of the
other Assets to be purchased or acquired by Purchaser hereunder or under the
Agreement and Plan of Merger. From the Execution Date through the consummation
of the Closings, Sellers (or after the Closing, but before the DE Closing, DIA
and Focus DE) shall furnish Purchaser with such additional financial and
operating data and other information in any Seller’s possession as to businesses
and properties of the applicable Sellers, the Facilities, the Real Property and
all of the Assets as Purchaser or its representatives may from time to time
reasonably request, without regard to where such information may be located.
Such access shall include consultations with the personnel of any Seller if
requested by Purchaser. Purchaser agrees that Purchaser’s right of access and
inspection shall be exercised in such a manner as not to interfere unreasonably
with the operations of the Facilities. Further, Purchaser may, at its sole cost
and expense undertake environmental, mechanical, engineering, and structural
inspections, tests and surveys of the Facilities and the Real Property.
Purchaser agrees that, after performing any inspections, tests or surveys,
Purchaser shall restore the Facilities and the Real Property as nearly as
possible to its condition immediately prior to such inspections, tests or
surveys and repair any damage to same caused by the performance of such
inspections, tests, or surveys. Purchaser agrees that, prior to the entry of
Purchaser or its officers, employees, contractors or agents onto the Facilities
or the Real Property to perform any such inspections, tests, or surveys,
Purchaser shall, or shall cause its officers, employees, contractors or agents
to, maintain levels of liability and other insurance as are considered generally
acceptable in the industry for such activities to be undertaken on the
Facilities or the Real Property. Purchaser agrees to defend, indemnify and save
Sellers harmless from and against any claim, damage, liability, cost or expense
(including reasonable attorneys’ fees and expenses) arising from acts or
omissions of Purchaser (and from the acts or omissions of Purchaser’s officers,
employees, contractors or agents) in any way pertaining to any entry upon, or
inspection, test or survey of, the Facilities or the Real Property (or any parts
thereof) prior to consummation of the applicable closing. Purchaser’s
obligations under this Section with respect to acts or omissions occurring prior
to each closing, but not thereafter, shall survive the Closings or termination
hereunder.

 

4.2 Conduct of Business. On and after the Execution Date and prior to
consummation of the Closings, and except as otherwise consented to or approved
in writing by an authorized officer of Purchaser or required by this Agreement,
each Seller (or after the Closing, but before the DE Closing, DIA and Focus DE)
shall:

 

(a) carry on its businesses in substantially the same manner as presently
conducted and not make any material change in personnel, operations, finance,
accounting policies (unless the applicable Seller is required to adopt such
changes under GAAP), Tax elections or Tax Returns or real or personal property;

 

(b) maintain the Facilities and the Real Property and all parts thereof and all
other Assets in operating condition in a manner consistent with past practices,
ordinary wear and tear excepted;

 

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(c) perform all of its material obligations under agreements relating to or
affecting any of the Facilities, the Real Property, their operations or the
Assets;

 

(d) keep in full force and effect present insurance policies or other comparable
self-insurance;

 

(e) use commercially reasonable efforts to maintain and preserve its business
organization intact, retain its present employees and Facility Workers at the
Facilities and maintain its relationships with physicians, suppliers, customers
and others having business relationships with any Facility;

 

(f) pay all of its liabilities as they become due; and

 

(g) collect all Accounts Receivable in the ordinary course of business
consistent with Sellers’ past practices.

 

4.3 Negative Covenants. From the Execution Date until consummation of the
Closings, no Seller (or after the Closing, but before the DE Closing, DIA and
Focus DE) shall, without the prior written consent of Purchaser or except as may
be required by law:

 

(a) amend or terminate any of the Contracts or Leases, enter into any new
contract or commitment, or incur or agree to incur any liability, except in the
ordinary course of business, and in no event with respect to any such contract,
commitment or liability as to which the total to be paid in the future under the
contract, commitment or liability exceeds Twenty Five Thousand Dollars
($25,000);

 

(b) increase compensation payable or to become payable or make any bonus payment
to or otherwise enter into one or more bonus, severance or other agreements with
or for the benefit of any employee or Facility Worker, except in the ordinary
course of business in accordance with Sellers’ customary personnel policies;

 

(c) create, assume or permit to exist any new debt, mortgage, deed of trust,
pledge or other lien or encumbrance (other than Permitted Encumbrances) upon any
of the Assets;

 

(d) acquire (whether by purchase or lease) or sell, assign, lease, or otherwise
transfer or dispose of any property, plant or equipment, except in the ordinary
course of business with comparable replacement thereof;

 

(e) except with respect to expenditures budgeted by Sellers and disclosed to
Purchaser prior to the Execution Date, purchase capital assets or incur costs in
respect of construction in progress;

 

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

 

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

 

(h) make any efforts to collect or reduce Accounts Receivable between the
Execution Date and the respective Effective Times except in the ordinary course
of business.

 

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4.4 Consents. Sellers shall use commercially reasonable efforts to obtain all
Contract and Lease Consents and shall cooperate with Purchaser and its
representatives and attorneys: (a) in Purchaser’s efforts to obtain all other
consents, approvals, authorizations, clearances, certificates of need and
licenses required to carry out the transactions contemplated by this Agreement
and the Agreement and Plan of Merger (including those of governmental and
regulatory authorities) or which Purchaser reasonably deems necessary or
appropriate, and (b) in the preparation of any document or other material which
may be required by any governmental agency as a predicate to or result of the
transactions contemplated in this Agreement and the Agreement and Plan of
Merger. Notwithstanding anything to the contrary in this Agreement or the
Agreement and Plan of Merger, to the extent Sellers are unable to obtain any of
the Contract and Lease Consents, if either closing is consummated without such
Consents Sellers shall cooperate with Purchaser to ensure that Purchaser obtains
the benefits of each such Contract or Lease and Sellers (excluding DIA if the DE
Closing occurs) shall indemnify and hold harmless Purchaser and its Affiliates
from and against any and all Damages as a result, directly or indirectly, of the
failure to obtain any such Contract or Lease Consent.

 

4.5 Additional Financial Information. Within thirty (30) calendar days following
the end of each calendar month ending after October 2005 and prior to the
Closings, Sellers (or after the Closing, but before the DE Closing, DIA and
Focus DE) shall deliver to Purchaser a complete copy of the unaudited,
unconsolidated balance sheets and related unaudited, unconsolidated statements
of operations of Sellers for such month then ended, together with corresponding
year-to-date amounts. All such financial statements shall be prepared consistent
with the representations of Sellers in Sections 2.4(b) and 2.4(c).

 

4.6 No-Shop. From and after the Execution Date until the earlier of the
consummation of the Closings or the termination of this Agreement, Sellers (or
after the Closing, but before the DE Closing, DIA and Focus DE) agree that none
of them nor any of their respective Affiliates shall, without the prior written
consent of Purchaser, directly or indirectly: (a) offer for sale or lease any
assets of any Facility or any of the Assets other than in the ordinary course of
business consistent with past practices, (b) solicit offers to buy all or any
material portion of the assets of any Facility or any of the Assets, (c) hold
discussions with any Person (other than Purchaser) looking toward such an offer
or solicitation, or (d) enter into any negotiations or agreement with any Person
(other than Purchaser) with respect to the sale or other disposition of any
Facility or any of the Assets or any business combination transaction involving
any Seller (including the sale of equity interests in any Seller or the merger
or consolidation of any Seller).

 

4.7 Sellers’ Efforts to Close. Sellers shall use commercially reasonable efforts
to satisfy all of the conditions precedent set forth in Articles 6 and 7 to its
or Purchaser’s obligations under this Agreement or set forth in Articles 9 and
10 of the Agreement and Plan of Merger to its or Purchaser’s obligations under
the Agreement and Plan of Merger to the extent that any Seller’s action or
inaction materially can control or influence the satisfaction of such
conditions.

 

4.8 Notification; Updating of Disclosure Schedules. Between the Execution Date
and the Closings, Sellers (or after the Closing, but before the DE Closing, DIA
and Focus DE) shall notify Purchaser in writing (i) if any Seller becomes aware
of (A) any fact or condition that causes or constitutes a breach of any Seller’s
representations and warranties made herein or in

 

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the Agreement and Plan of Merger, or (B) the occurrence after the Execution Date
of any fact or condition that would or be reasonably likely to (except as
expressly contemplated by this Agreement or the Agreement and Plan of Merger)
cause or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or any
Seller’s discovery of, such fact or condition, and (ii) of any changes,
additions, or events which may cause any change in or addition to the Disclosure
Schedules delivered by Sellers under this Agreement or the Agreement and Plan of
Merger; in each case promptly after the discovery or occurrence of the same and
again at the applicable closing by delivery of appropriate updates or
supplements to all such Schedules. No notification of a change or addition to a
Disclosure Schedule made pursuant to this Section 4.8 shall be deemed to cure
any breach of any representation or warranty unless in any such case Purchaser
specifically agrees thereto in writing, nor shall any such notification be
considered to constitute or give rise to a waiver by Purchaser of any condition
set forth in this Agreement or in the Agreement and Plan of Merger, unless in
any such case Purchaser specifically agrees thereto in writing or if following
such notification Purchaser proceeds to close the transactions contemplated by
this Agreement or the Agreement and Plan of Merger, as applicable. Nothing
contained herein shall be deemed to create or impose on Purchaser any duty to
examine or investigate any matter or thing for the purposes of verifying the
representations and warranties made by Sellers herein or in the Agreement and
Plan of Merger.

 

4.9 Facility Repairs. At or prior to Closing, Sellers, at their sole expense,
shall perform the repairs described in Schedule 4.9 (the “Facility Repairs”) to
the reasonable satisfaction of Purchaser.

 

4.10 DE Facility Remediation. Prior to the DE Closing, Sellers (excluding DIA if
the DE Closing occurs), at their sole expense, shall remove the fully grown
trees and vegetation around the drainage pit in the rear of the Facility
operated by Focus DE as required by the State of Delaware Department of Special
Services (the “Delaware Remediation”) to the reasonable satisfaction of
Purchaser. To the extent any of the Delaware Remediation has not been completed
prior to the date of the DE Closing, the Aggregate Purchase Price shall be
reduced as a reduction to the portion of the Focus DE Asset Purchase Price
payable at the DE Closing under the Agreement and Plan of Merger by an amount
equal to the amount of the reasonable estimated cost of such portion of the
Delaware Remediation as is not completed by the DE Closing Date.

 

4.11 Payment of Taxes. At or prior to each closing, Sellers shall pay (a) all
past-due property Taxes, together with all penalties and interest thereon, owing
with respect to any of the Real Property, and (b) all Taxes referred to on
Schedule 2.5(b), together with all penalties and interest thereon.

 

4.12 [Reserved].

 

4.13 Required Approvals; Other Actions. In addition to Sellers’ obligations
under Section 4.4, between the Execution Date and the consummation of the
Closings, each Seller (or after the Closing, but before the DE Closing, DIA and
Focus DE) shall (a) make as promptly as practicable all filings required by
applicable law to be made by it or any of its Affiliates in order to consummate
the transactions contemplated hereby and in the Agreement and Plan of Merger
(including making all filings and submissions under any applicable Antitrust
Laws), (b) comply at the earliest practicable date with any request for
additional information or documentary

 

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material (or any similar request for information and/or documents) respectively
received by Purchaser or any Seller, or any of their respective Affiliates, from
the Federal Trade Commission (“FTC“), the Antitrust Division of the Department
of Justice (“DOJ“) or any other governmental authority pursuant to any
applicable Antitrust Law in connection with the transactions contemplated hereby
and in the Agreement and Plan of Merger, (c) promptly inform Purchaser of any
material communication made by such Seller to, or received by such Seller from,
the FTC, the DOJ or any other governmental authority regarding any of the
transactions contemplated hereby, (d) cooperate in connection with any filing
under applicable Antitrust Law and in connection with resolving any
investigation or other inquiry concerning the transactions contemplated hereby
and in the Agreement and Plan of Merger, commenced by the FTC, the DOJ, any
state attorney general or any other governmental authority pursuant to any
applicable Antitrust Law, and (e) cooperate with each Seller and Purchaser and
use commercially reasonable efforts to obtain all consents required to be
obtained under applicable Antitrust Laws to permit the consummation of the
transactions contemplated hereby and in the Agreement and Plan of Merger, and
with respect to all other filings any Seller or Purchaser elects to make or is
required to make in connection with the transactions contemplated hereby or by
the Agreement and Plan of Merger. Notwithstanding the foregoing or anything else
in this Agreement, nothing in this Agreement or the Agreement and Plan of Merger
shall require any Seller or any of its Affiliates to dispose of or make any
change in any portion of its business or to incur any other similar burden to
obtain any Governmental Approval.

 

4.14 HUD Loan. If all applicable HUD Approvals have been denied, or have not
been obtained on or before November 1, 2006, and the Agreement and Plan of
Merger has not been terminated prior to consummation of the DE Closing, then, as
soon thereafter as is permitted by the terms of the HUD Loan, DIA shall prepay
in full the HUD Loan and Sellers (other than Focus DE and DIA) shall pay all
prepayment penalties, premiums, costs and expenses assessed under the HUD Loan
in connection with such prepayment and if the HUD Loan is so prepaid, Purchaser
shall agree to consummate the DE Transactions under the terms of the Agreement
and Plan of Merger so long as all conditions to the DE Closing contained in the
Agreement and Plan of Merger shall have otherwise been satisfied or are
satisfied at the DE Closing.

 

ARTICLE 5

COVENANTS OF PURCHASER

 

5.1 Purchaser’s Efforts to Close. Purchaser shall use commercially reasonable
efforts to satisfy all of the conditions precedent set forth in Articles 6 and 7
to its or Sellers’ obligations under this Agreement or in Articles 9 and 10 of
the Agreement and Plan of Merger to the extent that Purchaser’s action or
inaction can control or influence the satisfaction of such conditions.

 

5.2 Confidentiality. Until the applicable closing, Purchaser shall, and shall
cause its employees, representatives and agents (including all parties to whom
access is granted pursuant to Section 4.1) to, hold in strict confidence, unless
compelled to disclose by judicial or administrative process or, in the
reasonable opinion of Purchaser’s counsel, by other requirements of law, all
Confidential Information, Purchaser shall not disclose the Confidential
Information to any Person, except as otherwise may be reasonably necessary to
carry out the transactions contemplated by this Agreement or the Agreement and
Plan of Merger, including any business or diligence review by or on behalf of
Purchaser, and Purchaser shall not use the Confidential Information other than
as is reasonably necessary or appropriate in connection with

 

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the transactions contemplated by this Agreement or the Agreement and Plan of
Merger or to the detriment of any Seller or any Related Person; provided,
however, that the foregoing shall not limit in any way any rights of Purchaser
under any other provision hereof or the enforcement by Purchaser of any of its
legal rights or claims. For the purposes hereof, “Confidential Information”
shall mean (i) all information of any kind concerning Sellers (or after the
Closing and before the DE Closing, only DIA and Focus DE) or the business of the
Facilities (or after the Closing and before the DE Closing, the DE Facility) and
existing or relating to any period prior to the applicable effective time,
except information (A) ascertainable or obtained from public or published
information, (B) received from a third party that is not known by Purchaser to
be under an obligation to any Seller or any Affiliate of any Seller to keep such
information confidential, (C) which is or becomes known to the public (other
than through a breach of this Agreement or the Agreement and Plan of Merger), or
(D) which was in Purchaser’s possession prior to disclosure thereof to Purchaser
in connection herewith, and (ii) all “Individually Identifiable Health
Information,” as such term is defined in 45 C.F.R. §160.102, of patients and
others receiving services from the Facilities to the extent relating to any time
prior to the applicable effective time. In the event of any termination of this
Agreement or the Agreement and Plan of Merger, Purchaser shall, in addition to
complying with this Section 5.2, return to the Seller Representative any and all
such Confidential Information (including all notes, memoranda, written or
electronic records relating to the same (without maintaining copies thereof) and
Individually Identifiable Health Information in Purchaser’s possession without
retaining copies thereof. Notwithstanding the foregoing or Section 12.8,
Purchaser shall have the right to issue a press release announcing the execution
of this Agreement, the Agreement and Plan of Merger and the Lighthouse Purchase
Agreement, which press release shall be in form and substance reasonably
satisfactory to the Seller Representative.

 

5.3 Waiver of Bulk Sales Law Compliance. Subject to Section 10.2(g), Purchaser
hereby waives compliance by Sellers with the requirements, if any, of Article 6
of the Uniform Commercial Code as in force in any state in which any of the
Assets are located and all other similar laws applicable to bulk sales and
transfers.

 

5.4 Required Approvals; Other Actions. Between the Execution Date and the
consummation of the Closings, Purchaser shall (a) make as promptly as
practicable all filings required by applicable law to be made by it or any of
its Affiliates in order to consummate the transactions contemplated hereby or
the Agreement and Plan of Merger (including making all filings and submissions
under any applicable Antitrust Laws), (b) comply at the earliest practicable
date with any request for additional information or documentary material (or any
similar request for information and/or documents) respectively received by
Purchaser or any Seller, or any of their respective Affiliates, from the FTC,
the Antitrust Division of the DOJ, or any other governmental authority pursuant
to any applicable Antitrust Law in connection with the transactions contemplated
hereby or by the Agreement and Plan of Merger, (c) promptly inform the Seller
Representative of any material communication made by Purchaser to, or received
by Purchaser from, the FTC, the DOJ or any other governmental authority
regarding any of the transactions contemplated hereby or by the Agreement and
Plan of Merger, (d) cooperate in connection with any filing under applicable
Antitrust Law and in connection with resolving any investigation or other
inquiry concerning the transactions contemplated hereby or by the Agreement and
Plan of Merger, commenced by the FTC, the DOJ, any state attorney general or any
other governmental authority pursuant to any applicable Antitrust Law, and
(e) cooperate with Sellers and use commercially reasonable efforts to obtain all
consents

 

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required to be obtained under applicable Antitrust Laws to permit the
consummation of the transactions contemplated hereby or in the Agreement and
Plan of Merger, and with respect to all other filings any Seller or Purchaser
elects to make or is required to make in connection with the transactions
contemplated hereby or by the Agreement and Plan of Merger. Notwithstanding the
foregoing or anything else in this Agreement, nothing in this Agreement or in
the Agreement and Plan of Merger shall require Purchaser or any of its
Affiliates to dispose of or make any change in any portion of its business or to
incur any other similar burden to obtain any Governmental Approval.

 

5.5 Financing. Immediately upon the execution of this Agreement, Purchaser shall
diligently pursue and use its commercially reasonable efforts to obtain
financing from one or more third parties in an aggregate amount sufficient to
enable Purchaser to meet its obligation to pay the Aggregate Purchase Price as
contemplated by this Agreement and the Agreement and Plan of Merger, and to pay
the purchase price pursuant to the Lighthouse Purchase Agreement, on or before
January 31, 2006.

 

ARTICLE 6

CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLERS

 

Sellers’ obligation to sell the Assets and to close the transactions
contemplated by this Agreement shall be subject to the satisfaction of each of
the following conditions at or prior to the Closing except to the extent
specifically waived in writing by the Seller Representative in whole or in part
at or prior to the Closing:

 

6.1 Accuracy of Representations and Warranties. Each representation and warranty
of Purchaser in this Agreement shall have been accurate in all material respects
as of the date of this Agreement and shall be accurate in all material respects
as of the time of the Closing as if then made.

 

6.2 Purchaser’s Performance. Each covenant and obligation that Purchaser is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing shall have been performed and complied with in all material
respects.

 

6.3 Governmental Authorizations. Purchaser and Sellers shall have obtained for
the benefit of Purchaser all material licenses, permits, approvals, certificates
of need and authorizations from governmental agencies or governmental bodies
that are necessary or required for completion of the transactions contemplated
by this Agreement. All waiting periods, and any extensions thereof, applicable
to the transactions contemplated hereby under the HSR Act shall have expired or
been terminated.

 

6.4 Other Consents. All consents, waivers, and approvals listed on Schedule 6.4
shall have been obtained and be in full force and effect.

 

6.5 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 claim or Proceeding 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.

 

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6.6 Signing and Delivery of Instruments. Subject to Section 12.3(b), Purchaser
shall have executed and delivered all documents, instruments and certificates
required to be executed and delivered by it pursuant to Section 1.10.

 

6.7 Simultaneous Closing Under Lighthouse Purchase Agreement. The closing of the
transactions contemplated by the Lighthouse Purchase Agreement shall be
consummated simultaneously with the Closing hereunder.

 

ARTICLE 7

CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER

 

Purchaser’s obligation to purchase the Assets and to close the transactions
contemplated by this Agreement shall be subject to the satisfaction of each of
the following conditions at or prior to the Closing except to the extent
specifically waived in writing by Purchaser in whole or in part at or prior to
the Closing:

 

7.1 Accuracy of Representations and Warranties. Each representation and warranty
of any Seller in this Agreement shall have been accurate in all material
respects as of the date of this Agreement, and shall be accurate in all material
respects as of the time of the Closing as if then made giving effect to any
supplement to the Disclosure Schedules delivered to Purchaser at or prior to
Closing. In addition, for purposes of this Section 7.1, each of the
representations and warranties in Sections 2.2 and 2.4, and each of the
representations and warranties of any Seller in this Agreement that contains an
express materiality qualification, shall have been accurate in all respects as
of the time of the Closing as if then made giving effect to any supplement to
the Disclosure Schedules delivered to Purchaser at or prior to Closing.

 

7.2 Seller’s Performance. Each covenant and obligation that any Seller is
required to perform or to comply with pursuant to this Agreement at or prior to
the Closing shall have been performed and complied with in all material
respects.

 

7.3 Governmental Authorizations. Purchaser and Sellers 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 completion of the transactions contemplated by this Agreement, and the
operation of the Facilities by Purchaser after the Closing. All waiting periods,
and any extensions thereof, applicable to the transactions contemplated hereby
under the HSR Act shall have expired or been terminated.

 

7.4 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 claim or Proceeding 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.

 

7.5 Required Consents. All Contract and Lease Consents shall have been received
or obtained in form and substance reasonably satisfactory to Purchaser without
the imposition of any unreasonable burdens or conditions materially adverse to
Purchaser and shall be in full force and effect, unless (a) Sellers shall have
provided to Purchaser the benefit of such arrangements without the consent of
such third party and in a manner reasonably satisfactory to Purchaser or (b) the
absence of such consent would not have a Material Adverse Effect upon any Seller
or

 

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Facility, or adversely affect in any material respect Purchaser or the operation
of any Facility by Purchaser after the Closing in light of Section 9.3.
Notwithstanding the immediately preceding sentence, those certain Contract and
Lease Consents, consents, waivers and approvals listed on Schedule 7.5 shall
have been obtained in form and substance reasonably satisfactory to Purchaser
without the imposition of any unreasonable burdens or conditions materially
adverse to Purchaser and shall be in full force and effect.

 

7.6 No Material Adverse Change. There shall not have been any Material Adverse
Change with respect to any Seller or Facility subsequent to the Execution Date.

 

7.7 Disclosure Schedules. Sellers shall have updated the Disclosure Schedules in
accordance with the requirements of Section 4.8 hereof.

 

7.8 Real Property Title Matters.

 

(a) Purchaser shall have received a pro forma A.L.T.A. extended Owner’s Title
Policy with respect to each parcel of the Real Property (collectively, the
“Title Policies”) 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 and reasonable 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) Sellers shall have delivered full and complete releases in recordable form
of the Liens listed in Schedule 7.8(b) (or a commitment from such lenders to
deliver releases upon receipt of payment in full of the debt secured), and
Sellers shall have satisfied or complied with all of the requirements and other
matters set forth in Schedule B-Sections 1 and 2 of the Title Commitments which
are identified to be satisfied or complied with by any Seller.

 

7.9 Milestones Program Agreement. Sellers shall have obtained an amendment, in
form and substance reasonably satisfactory to Purchaser, to that certain
Management Services Agreement dated as of March 10, 2005, by and between Focus
FL and Milestones In Recovery, Inc., which amendment shall (a) permit the
assignment of such agreement to Purchaser or its Designee, and (b) amend such
agreement so that nothing therein shall restrict Purchaser, its Designee or any
of their respective Affiliates (as the assignee of Focus FL under such agreement
after Closing) from owning or operating any eating disorder program at any
facility owned or operated by any of them so long as such eating disorder
program is not similar to the Milestones Residential Treatment Program provided
by Milestones In Recovery, Inc. pursuant to the Management Services Agreement
referred to above in this Section 7.9.

 

7.10 Facility Repairs. The Facility Repairs shall have been completed by Sellers
to the reasonable satisfaction of Purchaser.

 

7.11 [Reserved].

 

7.12 APE Contracts. Sellers shall have amended the Seller APE Leases to the
reasonable satisfaction of Purchaser, such that effective as of the Effective
Time, none of the Facility Workers will be leased to any Seller pursuant to such
leases other than the Facility Workers at the DE Facility. Purchaser and APE
shall have entered into an agreement, in form

 

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and substance reasonably satisfactory to Purchaser, for the lease of the
Facility Workers by APE (other than the Facility Workers at the DE Facility) to
Purchaser or its Designees commencing as of the Effective Time.

 

7.13 Signing and Delivery of Instruments. Each Seller shall have executed and
delivered all documents, instruments and certificates required to be executed
and delivered by it pursuant to Section 1.9.

 

7.14 Simultaneous Closing Under Lighthouse Purchase Agreement. The closing of
the transactions contemplated by the Lighthouse Purchase Agreement shall be
consummated simultaneously with the Closing hereunder.

 

ARTICLE 8

TERMINATION

 

8.1 Termination. This Agreement may be terminated at any time prior to Closing:

 

(a) by the mutual written consent of Purchaser and the Seller Representative;

 

(b) by Purchaser if a material breach of this Agreement or the Agreement and
Plan of Merger has been committed by any Seller and such breach has not been
(i) waived by Purchaser or (ii) cured by Sellers to the reasonable satisfaction
of Purchaser within fifteen (15) business days after notice from Purchaser to
the Seller Representative which describes the nature of such breach;

 

(c) by the Seller Representative if a material breach of this Agreement or the
Agreement and Plan of Merger has been committed by Purchaser and such breach has
not been (i) waived by the Seller Representative or (ii) cured by Purchaser to
the reasonable satisfaction of the Seller Representative within fifteen
(15) business days after notice from the Seller Representative to Purchaser
which describes the nature of such breach;

 

(d) by either Purchaser or the Seller Representative if the Lighthouse Purchase
Agreement is terminated prior to the closing of the transactions contemplated
thereby;

 

(e) by Purchaser if the Closing has not occurred on or before February 1, 2006,
unless Purchaser is in material breach of this Agreement or the Agreement and
Plan of Merger; or

 

(f) by the Seller Representative if the Closing has not occurred on or before
February 1, 2006, unless any Seller is in material breach of this Agreement or
the Agreement and Plan of Merger; it being acknowledged that pursuant to
Section 8.1(f) of the Original Purchase Agreement Purchaser delivered Three
Hundred Thirty-Four Thousand Seven Hundred Fifteen Dollars ($334,715) (the
“Extension Escrow Deposit”) by wire transfer to the Escrow Agent for deposit in
escrow pursuant to the Execution Date Escrow Agreement prior to 5:00 p.m.,
Central time, on December 21, 2005 in order to extend the date in this Section
to February 1, 2006 from the date stated in the Original Purchase Agreement.

 

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8.2 Effect of Termination; Other Matters.

 

(a) Except as expressly provided below in this Section 8.2, if this Agreement is
terminated pursuant to Section 8.1, this Agreement and the Agreement and Plan of
Merger shall be void and all obligations of the parties hereto and thereto under
this Agreement and the Agreement and Plan of Merger shall terminate; provided,
however, that the obligations in Section 5.2, this Section 8.2 and Article 12
(except for those in Section 12.13) shall survive any termination of this
Agreement and the Agreement and Plan of Merger and the obligations in
Section 1.7(ii) relating to repayment of the Additional Closing Purchase Price
Payment and Section 1.12(f) of this Agreement shall survive termination of the
Agreement and Plan of Merger.

 

(b) Notwithstanding Section 8.2(a):

 

(i) If this Agreement is terminated pursuant to any provision of Section 8.1,
Sellers shall be entitled to retain the LOI Deposit.

 

(ii) If (A) this Agreement is terminated (i) pursuant to Section 8.1(c), or
(ii) pursuant to Section 8.1(d) as a result of termination of the Lighthouse
Purchase Agreement pursuant to Section 8.1(c) of the Lighthouse Purchase
Agreement, and (B) at the time of any such termination of this Agreement
referred to in the preceding clause (A), (i) no Seller is in material breach of
this Agreement or the Agreement and Plan of Merger and (ii) no Lighthouse Entity
is in material breach of the Lighthouse Purchase Agreement, then Sellers shall
be entitled (x) to retain the LOI Deposit and (y) to receive a payment under the
Execution Date Escrow Agreement of all escrow funds then held in escrow pursuant
to the Execution Date Escrow Agreement.

 

(iii) If (A) this Agreement is terminated (i) pursuant to Section 8.1(e) solely
because the condition set forth in Section 7.3 is not satisfied through no fault
of any Seller, or (ii) pursuant to Section 8.1(d) as a result of the termination
of the Lighthouse Purchase Agreement pursuant to Section 8.1(e) of the
Lighthouse Purchase Agreement solely because the condition set forth in
Section 7.3 of the Lighthouse Purchase Agreement is not satisfied through no
fault of any Lighthouse Entity, and (B) at the time of any such termination of
this Agreement or the Lighthouse Purchase Agreement referred to in the preceding
clause (A), (i) Purchaser has deposited the Extension Escrow Deposit in escrow
pursuant to the Execution Date Escrow Agreement, (ii) no Seller is in material
breach of this Agreement or the Agreement and Plan of Merger, and (iii) no
Lighthouse Entity is in material breach of the Lighthouse Purchase Agreement,
then Sellers shall be entitled (x) to retain the LOI Deposit and (y) to receive
a payment under the Execution Date Escrow Agreement in an amount equal to the
amount of the Extension Escrow Deposit.

 

(iv) If (A) this Agreement is terminated (i) pursuant to Section 8.1(f) solely
because the condition set forth in Section 6.3 is not satisfied through no fault
of any Seller, or (ii) pursuant to Section 8.1(d) as a result of the termination
of the Lighthouse Purchase Agreement pursuant to Section 8.1(f) of the
Lighthouse Purchase Agreement solely because the condition set forth in
Section 6.3 of the Lighthouse Purchase Agreement is not satisfied through no
fault of any Lighthouse Entity, and (B) at the time of any such termination of
this Agreement or the Lighthouse Purchase Agreement referred to in the preceding
clause (A), (i) Purchaser has deposited the Extension Escrow Deposit in escrow
pursuant to the Execution Date Escrow Agreement, (ii) no Seller is in material
breach of this Agreement or the Agreement and Plan of

 

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Merger, and (iii) no Lighthouse Entity is in material breach of the Lighthouse
Purchase Agreement, then Sellers shall be entitled (x) to retain the LOI Deposit
and (y) to receive a payment under the Execution Date Escrow Agreement in an
amount equal to the amount of the Extension Escrow Deposit.

 

(v) Except as otherwise required by clause (b)(ii), (b)(iii) or (b)(iv) of this
Section 8.2, upon any termination of this Agreement pursuant to Section 8.1, all
remaining escrow funds held in escrow pursuant to the Execution Date Escrow
Agreement shall be paid to Purchaser.

 

(vi) If this Agreement is terminated pursuant to Section 8.1(b) or
Section 8.1(c), Sellers or Purchaser, as the case may be, shall be liable for
damages caused by such breach of this Agreement or the Agreement and Plan of
Merger notwithstanding the return of escrow funds to Purchaser pursuant to
clause (b)(v) of this Section 8.2. Notwithstanding the preceding provisions of
this clause (b)(vi) or anything herein to the contrary, Sellers shall not be
entitled to recover damages upon any termination of this Agreement covered by
the preceding provisions of this clause (b)(vi) except to the extent that such
aggregate damages suffered by all Sellers that would otherwise be recoverable by
them pursuant to the terms of this clause (b)(vi) exceeds the sum of (A) the LOI
Deposit and (B) the amount of escrow funds, if any, paid to Sellers pursuant to
the Execution Date Escrow Agreement.

 

ARTICLE 9

POST-CLOSING MATTERS

 

Each of the parties hereto covenants as follows after the Closings of the
transactions contemplated by this Agreement and the Agreement and Plan of
Merger, commencing in each case after the respective effective time of such
closing (except that, after the DE Closing, for purposes of this Article 9, DIA
shall not be deemed to be a Seller but rather shall be deemed to be the same as
Purchaser to the extent the context permits):

 

9.1 Excluded Assets and Excluded Liabilities. Subject to Sections 9.4, 9.5 and
11.2, any asset, liability, remittance, mail or other communication that
constitutes an Excluded Asset or an Excluded Liability (a) pursuant to the terms
of this Agreement or the Agreement and Plan of Merger, (b) as otherwise
determined by mutual written agreement of Purchaser and the Seller
Representative, or (c) absent such agreement, as determined by adjudication by a
court or similar tribunal, and which comes into the possession, custody or
control of Purchaser, shall within five (5) business days following receipt by
Purchaser be delivered by it to the Seller Representative. Except for such
delivery obligation, Purchaser shall not have any right, title or interest in or
obligation or responsibility with respect to such asset, liability, remittance,
mail or communication except that pending delivery thereof to the Seller
Representative Purchaser shall hold such asset in trust for the benefit of
Sellers.

 

9.2 Preservation and Access to Records After the Closing.

 

(a) From the respective Closing Dates until seven (7) years after such closing
date or such longer period as required by law (the “Document Retention Period”),
Purchaser shall keep and preserve all medical records, patient records, medical
staff records and other books and records which are among the Assets delivered
to it or owned by it as of such

 

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applicable effective time, but excluding any books and records which are among
the Excluded Assets. Purchaser will afford to the Seller Representative and its
representatives, including its counsel and accountants, full and complete access
to, and copies of, such records with respect to time periods prior to such
effective time (including access to records of patients treated at the
Facilities prior to such effective time) during normal business hours after such
effective time, to the extent reasonably requested by Sellers for business
purposes and all in such manner as not to unreasonably interfere with the
operations of the Facilities. After the expiration of the Document Retention
Period, if Purchaser intends to destroy or otherwise dispose of any of the
documents covered by this Section 9.2(a), Purchaser shall provide written notice
to the Seller Representative of Purchaser’s intention no later than forty-five
(45) days prior to the date of such intended destruction or disposal. During
such forty-five (45) day period, the Seller Representative shall have the right,
at Sellers’ sole cost, to take possession of such documents to be destroyed or
disposed of by Purchaser. To the extent the Seller Representative does not take
possession of such documents during such forty-five (45) day period, Purchaser
shall be free to destroy or otherwise dispose of such documents upon the
expiration of such forty-five (45) day period. The confidentiality obligations
of Section 5.2 applicable to Purchaser shall apply to the Seller Representative
(and its representatives) and Sellers with respect to access to and use of
Purchaser’s books and records pursuant to this Section, except that such
obligations do not expire at the respecting closing.

 

(b) Purchaser and its representatives shall be given access by Sellers during
normal business hours to the extent reasonably needed by Purchaser for business
purposes to all documents, records, correspondence, work papers and other
documents retained by Sellers pertaining to any of the Assets or with respect to
the operation of the Facilities prior to the respective effective time, all in
such manner as to not interfere unreasonably with Sellers’ business.

 

9.3 Provision of Benefits of Contracts and Leases. If, as of the applicable
Effective Times for assignment of a Contract or Lease, Sellers have not obtained
a required Contract and Lease Consent or Purchaser is unable to enter into a new
third-party contract with respect to such Contract or Lease, and a closing is
nevertheless consummated, then (i) such Contract or Lease shall not be assigned
to Purchaser as part of the Assets, and the Assumed Liabilities shall not
include such Contract or Lease or any liability or obligation arising
thereunder, (ii) until such Contract and Lease Consent is obtained or a new
third-party contract is obtained, Sellers shall use reasonable commercial
efforts to provide Purchaser the benefits of such Contract or Lease only with
respect to the applicable Facility and cooperate in any reasonable and lawful
arrangement designed to provide such benefits to Purchaser, and (iii) from and
after such closing, Purchaser shall use reasonable commercial efforts to
perform, on behalf of Sellers, the obligations of the applicable Seller
thereunder or in connection therewith for so long as Purchaser is receiving the
benefits thereof as contemplated by the preceding clause (ii), limited to those
obligations of the applicable Facility thereunder that arise after the
applicable effective time, 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 Purchaser had it received the
required Contract and Lease Consent with respect to such Contract or Lease or
had it entered into a new third-party contract on substantially similar terms as
the applicable Contract or Lease.

 

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9.4 Misdirected Payments, Etc. Subject to Section 9.5, after each closing,
Sellers and Purchaser covenant and agree to remit, with reasonable promptness,
to the other any payments received, which payments are on or in respect of
accounts or notes receivable owned by the other as a result of such closing. In
addition, and without limitation, in the event of a determination by any
governmental or third-party payor that payments to any Seller or any Facility
resulted in an overpayment or other determination that funds previously paid by
any program or plan to any Seller or any Facility must be repaid, Sellers shall
be solely responsible for repayment of said monies (or defense of such actions)
if such overpayment or other repayment determination was for services rendered
at or prior to the applicable effective time and Purchaser shall be responsible
for repayment of said monies (or defense of such actions) if such overpayment or
other repayment determination was for services rendered at the Facilities after
the applicable effective time. In the event that, following the applicable
effective time, Purchaser suffers any offsets against reimbursement under any
third-party payor or reimbursement programs due to Purchaser, relating to
amounts owing under any such programs by any Seller or any of its Affiliates and
not included as Current Liabilities in the Closing Date Net Assets Calculation,
Sellers shall promptly upon demand from Purchaser pay to Purchaser the amounts
so billed or offset. In the event that, following the applicable effective time,
any Seller suffers any offsets against reimbursement under any third-party payor
or reimbursement programs due to such Seller, relating to amounts owing under
any such programs by Purchaser or any of its Affiliates and not relating to any
act or occurrence at or prior to the applicable effective time, Purchaser shall
promptly upon demand from the Seller Representative pay to Sellers the amounts
so billed or offset. Any remittances or payments to be made by Purchaser to any
Seller pursuant to this Section 9.4 shall be made to the Seller Representative
for further delivery by the Seller Representative to the Seller or Sellers
entitled thereto.

 

9.5 Collection of Receivables. In order to protect the ownership by Purchaser of
all Accounts Receivable acquired pursuant to this Agreement and the Agreement
and Plan of Merger and to facilitate the receipt by Purchaser of the proceeds of
the Accounts Receivable from time to time as requested by Purchaser after the
applicable Effective Times of the Closings, Sellers shall send notices to the
account debtors on the Accounts Receivable in the form or forms specified by
Purchaser (and reasonably acceptable to Sellers’ counsel) directing the account
debtors to make payments on such Accounts Receivables to such location or
locations as are specified in the notices. Sellers agree to cause each financial
institution that maintains any Deposit Account (hereafter defined) to have its
records reflect that only those Persons designated by Purchaser are authorized
to make withdrawals or otherwise transfer funds from any depository account
maintained by any Seller at any financial institution to which payments
(“Payments”) on any Accounts Receivable are credited (“Deposit Account”),
whether such Payments are made by check or other instrument payable to any
Seller (each a “Check Payment”) that are delivered to a lockbox or Deposit
Account or by a funds transfer within the meaning of Article 4A of the Texas
Uniform Commercial Code (“Funds Transfer”); and such financial institutions are
irrevocably authorized to transfer funds from such Deposit Accounts pursuant to
the instructions of such designees. Any financial institution receiving any
Check Payment through lockbox or otherwise may endorse the Check Payment in the
name of the relevant Seller that is the payee in blank or to Purchaser
immediately upon receipt and, without crediting such Check Payment to any
account of any Seller, deposit such Check Payment in an account maintained by
Purchaser. Any financial institution receiving a Funds Transfer may, to the
extent not prohibited by law, credit such Funds Transfer to an account
maintained by Purchaser rather than to the Deposit Account specified in the
payment order related to such

 

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Funds Transfer. Sellers agree (a) that so long as any of them holds or is deemed
to hold any proceeds of such Accounts Receivable, such proceeds shall be held in
trust for Purchaser and shall not be commingled with any property of any Seller,
(b) to deliver to Purchaser or such other Person as may be specified by
Purchaser such proceeds promptly upon demand by Purchaser, and (c) to notify
each financial institution that may receive any such proceeds for credit to any
Deposit Account that no Seller claims any interest therein and that all such
proceeds are the exclusive property of Purchaser. To the extent any Deposit
Account is the “pay to” account designated as such with any payor of any
Accounts Receivable, Sellers shall keep each such Deposit Account open and in
existence until the expiration of two-hundred seventy (270) days after the
respective effective time or such earlier date as is approved by Purchaser in
writing, and shall take no action to change such “pay to” account designation
except as directed in writing by Purchaser. Effective from and after the
applicable effective time, Purchaser has the right to attempt to collect, at no
cost to Sellers but in Sellers’ names if Purchaser deems appropriate, all
Accounts Receivable, and, to the extent necessary to effect collection Sellers
appoint Purchaser as Sellers’ exclusive collection agent with respect to such
Accounts Receivables.

 

9.6 Termination Cost Reports. Sellers shall file with Government Programs and
third-party payors any cost reports relating to periods ending on or before the
applicable effective time or required to be filed as a result of the
consummation of (a) the transfer of the Assets to Purchaser or the Merger or the
transfer of the Focus DE Assets to Purchaser pursuant to the Agreement and Plan
of Merger and (b) the transactions contemplated by this Agreement or the
Agreement and Plan of Merger (the “Seller Cost Reports”). All such Seller Cost
Reports shall be filed by Sellers in a manner that is consistent with applicable
Legal Requirements. Sellers shall provide Purchaser with a reasonable
opportunity to review such reports before filing.

 

9.7 Change of Sellers’ Name. Not later than thirty (30) days after the Closing
Date, each Seller shall change its corporate name to a name which does not
include any of the words “Focus,” “Lighthouse,” “High Point,” “Meadowood” or
“Jedburg;” provided, however, that Sellers shall not be required to change the
name of Focus DE until after the DE Closing or the name of Focus Healthcare of
Tennessee, LLC (but such name may only be used following the Closing in
connection with the operation of the behavioral health facility operated by
Focus Healthcare of Tennessee, LLC at the Execution Date and located in
Chattanooga, Tennessee).

 

9.8 Other Actions.

 

(a) After the respective Closing Dates, Sellers (except for DIA if the DE
Closing occurs) shall pay and perform, or make adequate provision for the
payment and performance of, as and when due, all Excluded Liabilities and other
liabilities and obligations of Sellers under this Agreement and the Agreement
and Plan of Merger. Purchaser shall pay and perform and make adequate provision
for the payment and performance of, as and when due, all Assumed Liabilities and
other liabilities and obligations of Purchaser under this Agreement and the
Agreement and Plan of Merger.

 

(b) On or before the respective Closing Dates, Sellers shall remove all Excluded
Assets (including the DIA Excluded Assets and the Focus DE Excluded Assets as
defined in the Agreement and Plan of Merger) from all Facilities and other Real
Property or leased real property to be acquired or occupied by Purchaser
hereunder. Such removal shall be done in such manner as to avoid any damage to
the Facilities and other properties to be occupied

 

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by Purchaser and any disruption of the business operations to be conducted by
Purchaser after the respective closing. The cost to repair any damage to the
Assets or to the Facilities or other properties resulting from such removal
shall be paid by Sellers to Purchaser at the respective closing. If Sellers fail
to remove the Excluded Assets as required by this Section prior to the
applicable closing date, Purchaser, subsequent to providing the Seller
Representative with notice and the reasonable opportunity to remove such
Excluded Assets, shall have the right, but not the obligation, (a) to remove the
Excluded Assets at Sellers’ sole cost and expense, (b) to store the Excluded
Assets and to charge Sellers all storage costs associated therewith, (c) to
treat the Excluded Assets as unclaimed and to proceed to dispose of the same
under the laws governing unclaimed property, or (d) to exercise any other right
or remedy conferred by this Agreement or the Agreement and Plan of Merger or
otherwise available at law or in equity. Sellers shall promptly reimburse
Purchaser for all costs and expenses incurred by Purchaser in connection with
any Excluded Assets not removed from the Facilities by Sellers on or before the
applicable closing date. For purposes of this Section, the term “Sellers,” with
respect to DIA under the Agreement and Plan of Merger, shall mean Focus DE.

 

(c) After each closing, each Party shall cooperate with the other and its
counsel in the contest or defense of, and make available to the other Party each
Party’s personnel and provide any testimony and reasonable access to each
Party’s books and records in connection with, any Proceeding involving or
relating to (a) any transaction contemplated hereby or in the Agreement and Plan
of Merger, or (b) any action, activity, circumstance, condition, conduct, event,
fact, failure to act, incident, occurrence, plan, practice, situation, status or
transaction on or before the applicable closing date involving any Party or any
business, asset or activity of any Party.

 

(d) Purchaser and the appropriate Seller (and/or its Affiliates) shall use
commercially reasonable efforts to negotiate, execute and deliver a Transition
Services Agreement, in form and substance reasonably satisfactory to Purchaser
and the Seller Representative, pursuant to which Purchaser will provide Sellers
with VPN access to the servers listed in Schedule 1.2(b) and associated
software, and to the data associated therewith to the extent relating
exclusively to the operations of the behavioral health facilities subject to the
Right of First Refusal Agreements, for a period of one hundred eighty (180) days
following the Effective Time.

 

(e) Sellers (other than DIA if the DE Closing occurs), at their sole expense,
shall pay, as and when due, all costs payable to or required by HUD or the
lender of the HUD Loan in connection with the granting of approval or consent by
HUD or such lender to the acquisition by Purchaser of DIA which owns the DE
Facility subject to the HUD Loan.

 

9.9 Certain Excluded Assets. After the applicable closing, Purchaser agrees to
attempt to collect on Sellers’ behalf, and at no cost to Sellers, those certain
accounts receivable listed at item 4 on Schedule 1.3(m) (the “Excluded
Government Receivables”). Purchaser shall apply to the collection of the
Excluded Government Receivables pursuant to this Section 9.9 the level of
diligence, effort and resources that Purchaser ordinarily and customarily
applies in the collection of its own accounts receivable; provided, however,
that (a) Purchaser does not guarantee the extent to which any Excluded
Government Receivables will be collected, (b) Purchaser shall not be required to
institute any legal or other proceedings to collect any Excluded Government
Receivables, (c) Purchaser shall not be obligated to incur any costs and
expenses

 

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payable to third parties in any such collection efforts, and (d) the methods of
collecting Excluded Government Receivables shall at all times be within the
reasonable discretion of Purchaser and in accordance in all material respects
with applicable law.

 

ARTICLE 10

SURVIVAL AND INDEMNIFICATION

 

10.1 Survival. All representations, warranties, covenants and obligations in
this Agreement, the Disclosure Schedules, the supplements to the Disclosure
Schedules, or the certificates, writings and instruments delivered pursuant to
Section 1.9 or Section 1.10 (including the Bills of Sale and the Limited
Warranty Deeds) or in the Agreement and Plan of Merger or the certificates,
writings and instruments delivered pursuant to Sections 4.2 and 4.3 of the
Agreement and Plan of Merger, shall survive the respective Closings and the
consummation of the transactions contemplated hereby and thereby, subject to
Section 10.5.

 

10.2 Indemnification and Reimbursement by Sellers. Subject to the proviso at the
end of this Section 10.2, each Seller, jointly and severally, shall indemnify
and hold harmless Purchaser, DIA (after the DE Closing) and each Designee, if
any (collectively, the “Purchaser Indemnified Persons”), against, and shall
reimburse the Purchaser Indemnified Persons for, any loss, liability, claim,
demand, obligation, judgment, damage, cost, fee, expense (including reasonable
attorneys’ fees and expenses), penalties or fines, whether or not involving a
Third-Party Claim (collectively, “Damages”), arising from or in connection with:

 

(a) any breach of any representation or warranty made by any Seller in (i) this
Agreement or the Agreement and Plan of Merger, (ii) the Disclosure Schedules, as
supplemented at or prior to Closing pursuant to Section 4.8, (iii) the
certificates delivered pursuant to Section 1.9(f) hereof or Section 4.2(d) of
the Agreement and Plan of Merger (for this purpose, each such certificate under
this Agreement will be deemed to have stated that each Seller’s representations
and warranties in this Agreement fulfill the requirements of Section 7.1 as of
the Closing Date as if made on the Closing Date after giving effect to any
supplement to the Disclosure Schedules delivered to Purchaser pursuant to
Section 4.8 at or prior to Closing and, in the case of the certificates
delivered under the Agreement and Plan of Merger, each such certificate will be
deemed to have stated that each Seller’s representations and warranties in the
Agreement and Plan of Merger fulfill the requirements of Article 10 thereof
relating to its respective representations and warranties as of the date of the
DE Closing as if made on the date of the DE Closing after giving effect to any
supplement to the Disclosure Schedules delivered to Purchaser at or prior to the
DE Closing), (v) any transfer instrument, or (vi) any other certificate, writing
or instrument delivered by any Seller pursuant to Section 1.9 hereof or under
Section 4.2 of the Agreement and Plan of Merger;

 

(b) any breach of any covenant or obligation of any Seller in this Agreement or
in any certificate, writing or instrument delivered by any Seller pursuant to
Section 1.9;

 

(c) any breach of any covenant or obligation of DIA or Focus DE in the Agreement
and Plan of Merger or in any certificate, writing or instrument delivered by DIA
or Focus DE pursuant to Section 4.2 of the Agreement and Plan of Merger;

 

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(d) the ownership or operation of any of the Assets, or any act or omission of
any Seller, prior to the respective Effective Times under this Agreement and the
Agreement and Plan of Merger, other than the Assumed Liabilities and, after the
effective time of the DE Closing, the Focus DE Assumed Liabilities and the DIA
Retained Liabilities as described in the Agreement and Plan of Merger;

 

(e) any claim of any Person for brokerage or finder’s fees or commissions or
similar payments based upon any agreement or understanding made, or alleged to
have been made, by such Person with any Seller (or any Person acting on behalf
of any Seller) in connection with any of the transactions contemplated by this
Agreement or the Agreement and Plan of Merger;

 

(f) subject to the provisions of Section 12.9 regarding sales or transfer Taxes,
all Taxes resulting from or payable in connection with the sale of the Assets
pursuant to this Agreement, or the Merger or the sale of the Focus DE Assets
pursuant to the Agreement and Plan of Merger, regardless of the Person on whom
such Taxes are imposed by any Legal Requirement;

 

(g) any noncompliance with any bulk sales laws or fraudulent transfer law in
respect of the transactions contemplated hereby or by the Agreement and Plan of
Merger;

 

(h) any liability under the WARN Act or any similar Legal Requirement that may
result from an “Employment Loss,” as defined by 29 U.S.C. § 2101(a)(6), caused
by any action of any Seller at or prior to the respective closing applicable to
such Seller;

 

(i) any Plan adopted, established or maintained by any Seller;

 

(j) any Excluded Assets or any DIA Excluded Assets or Focus DE Excluded Assets
under the terms of the Agreement and Plan of Merger; or

 

(k) any Excluded Liabilities or any DIA Excluded Liabilities or Focus DE
Excluded Liabilities under the terms of the Agreement and Plan of Merger;

 

provided, however, that for purposes of the introduction to this Section (but
not elsewhere in this Section), after the DE Closing DIA shall no longer be
deemed a Seller but shall instead be a “Purchaser Indemnified Person.”

 

10.3 Indemnification and Reimbursement by Purchaser. Purchaser shall indemnify
and hold harmless Sellers (other than DIA after the DE Closing) against, and
shall reimburse Sellers (other than DIA after the DE Closing) for, any Damages
arising from or in connection with:

 

(a) any breach of any representation or warranty made by Purchaser in this
Agreement or the Agreement and Plan of Merger or in any certificate, writing or
instrument delivered by Purchaser pursuant to Section 1.10 hereof or Section 4.3
of the Agreement and Plan of Merger;

 

(b) any breach of any covenant or obligation of Purchaser in this Agreement or
in any certificate, writing or instrument delivered by Purchaser pursuant to
Section 1.10 or in

 

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the Agreement and Plan of Merger or in any certificate, writing or instrument
delivered by Purchaser pursuant to Section 4.3 of the Agreement and Plan of
Merger;

 

(c) any claim of any Person for brokerage or finder’s fees or commissions or
similar payments based upon any agreement or understanding made, or alleged to
have been made, by such Person with Purchaser (or any Person acting on
Purchaser’s behalf) in connection with any of the transactions contemplated by
this Agreement or the Agreement and Plan of Merger;

 

(d) any Assumed Liabilities or, after the DE Closing, the Focus DE Assumed
Liabilities and the DIA Retained Liabilities as described in the Agreement and
Plan of Merger;

 

(e) the ownership and operation of the Assets or the Facilities subsequent to
the respective effective time of the applicable closing, other than Excluded
Liabilities and, after the effective time of the DE Closing, the Focus DE
Excluded Liabilities and the DIA Excluded Liabilities as described in the
Agreement and Plan of Merger; or

 

(f) any liability under the WARN Act or any similar Legal Requirement that may
result from an “Employment Loss,” as defined by 29 U.S.C. § 2101(a)(6), caused
by any action of Purchaser.

 

10.4 Limitations On Amount.

 

(a) Sellers (excluding DIA if the DE Closing occurs) shall have no liability
with respect to claims under Section 10.2(a) until the total of all Damages with
respect to all such matters exceeds Two Hundred Thousand Dollars ($200,000) and
then only for the amount by which such Damages exceed Two Hundred Thousand
Dollars ($200,000). The maximum aggregate liability of Sellers (excluding DIA as
a Seller after the DE Closing) to Purchaser with respect to claims under
Section 10.2(a) shall not exceed the sum of (i) Twelve Million Nine Hundred
Thousand Dollars ($12,900,000) plus (ii) twenty percent (20%) of the aggregate
amount of the Current Liabilities included in the Closing Date Net Assets
Calculation. Notwithstanding the foregoing, this Section 10.4(a) will not apply
to any claims based on fraud.

 

(b) Purchaser will have no liability with respect to claims under
Section 10.3(a) until the total of all Damages with respect to all such matters
exceeds Two Hundred Thousand Dollars ($200,000) and then only for the amount by
which such Damages exceed Two Hundred Thousand Dollars ($200,000).
Notwithstanding the foregoing, this Section 10.4(b) will not apply to any claims
based on fraud.

 

10.5 Limitations.

 

(a) Subject to Section 10.5(e), if the Closing occurs and if the DE Closing
occurs, Sellers (excluding DIA if the DE Closing occurs) will have liability
under this Agreement (other than with respect to any claim based on fraud, or
any claim arising from or in connection with or relating to any of the Excluded
Liabilities or, after the DE Closing, the DIA Excluded Liabilities or the Focus
DE Excluded Liabilities as described in the Agreement and Plan of Merger, or any
breach of any of the Specified Representations, it being agreed that any such
claim may be brought at any time prior to the expiration of the applicable
statute of limitations), only if on or before the one year anniversary of the
Closing (except for claims under

 

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the Agreement and Plan of Merger, which shall be before the one year anniversary
of the DE Closing), a Purchaser Indemnified Person notifies the Seller
Representative of a claim specifying the factual basis of the claim in
reasonable detail to the extent then known by such Purchaser Indemnified Person.

 

(b) Subject to Section 10.5(e), if the Closing occurs and if the DE Closing
occurs, Purchaser will have liability under this Agreement (other than with
respect to any claim based on fraud, or any claim arising from or in connection
with any of the Assumed Liabilities or, after the DE Closing, the Focus DE
Assumed Liabilities or the DIA Retained Liabilities as described in the
Agreement and Plan of Merger, it being agreed that any such claim may be brought
at any time prior to the expiration of the applicable statute of limitations),
only if on or before the one year anniversary of the Closing (except for claims
under the Agreement and Plan of Merger, which shall be before the one year
anniversary of the DE Closing), the Seller Representative notifies Purchaser of
a claim specifying the factual basis of the claim in reasonable detail to the
extent then known by any Seller (excluding DIA if the DE Closing occurs).

 

(c) All indemnification payments pursuant to this Article 10 shall be paid by
the indemnifying party net of any net Tax benefits or insurance benefits that
are actually received by the Party indemnified hereunder with respect to the
claim in question (taking into account any tax or other consequences arising
from the payment of the claim, the receipt of the indemnification payment, or
the receipt of any insurance benefits).

 

(d) Notwithstanding anything to the contrary contained in this Article 10,
Sellers (excluding DIA if the DE Closing occurs) shall have no obligation to
make any payments to any Purchaser Indemnified Person pursuant to Section 10.2
(other than from the escrow account established pursuant to the Closing Date
Escrow Agreement) unless and until the escrow account established pursuant to
the Closing Date Escrow Agreement shall be exhausted by (i) distributions or
payments made under the Closing Date Escrow Agreement, (ii) the amount of claims
made by Purchaser under the Closing Date Escrow Agreement pending resolution
thereunder, or (iii) any combination of the matters referred to in the preceding
clauses (i) or (ii).

 

(e) Except for (i) post-closing covenants contained in Section 4.4, Article 9,
Article 11 or Article 12 hereof or in the corresponding provisions of the
Agreement and Plan of Merger, (ii) obligations pursuant to the Closing Date
Escrow Agreement, the Noncompetition Agreements, or the Right of First Refusal
Agreements, and (iii) claims based on fraud, in each case as to which the
limitations in Sections 10.5(a), 10.5(b), and 10.5(d) shall not apply and as to
which the Parties shall have all remedies available to them at law or in equity,
if the Closing occurs and if the DE Closing occurs, the sole and exclusive
remedy of the parties hereto for any breach or nonperformance of any provision
of this Agreement or the Agreement and Plan of Merger shall be the
indemnification provided by this Article 10.

 

(f) Notwithstanding any other provision contained herein to the contrary, no
Purchaser Indemnified Person or Seller (excluding DIA if the DE Closing occurs)
shall be entitled to indemnification under Section 10.2(a) or Section 10.3(a)
for Damages arising from or in connection with a breach of a representation or
warranty if such Indemnified Person had actual knowledge of such breach at any
time on or before the respective closing.

 

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10.6 Escrow. Upon notice to the Seller Representative specifying in reasonable
detail the basis therefor, Purchaser may give notice under the Closing Date
Escrow Agreement of a claim in such amount to which any Purchaser Indemnified
Person may be entitled under this Article 10. The failure to give a notice of a
claim under the Closing Date Escrow Agreement will not constitute an election of
remedies or limit any Purchaser Indemnified Person in any manner in the
enforcement of any other remedies that may be available to it.

 

10.7 Third-Party Claims.

 

(a) Promptly after receipt by a Seller (excluding DIA if the DE Closing occurs)
or a Purchaser Indemnified Person entitled to indemnity under Section 10.2 or
10.3 (an “Indemnified Person”) of notice of the assertion of a Third-Party Claim
against it, such Indemnified Person shall give notice to the Person obligated to
indemnify under such Section (an “Indemnifying Person”) of the assertion of such
Third-Party Claim, provided that the failure to notify the Indemnifying Person
will not relieve the Indemnifying Person of any liability that it may have to
any Indemnified Person, except to the extent that the Indemnifying Person proves
that the defense of such Third-Party Claim is prejudiced by the Indemnified
Person’s failure to give such notice.

 

(b) If an Indemnified Person gives notice to the Indemnifying Person pursuant to
Section 10.7(a) of the assertion of a Third-Party Claim, the Indemnifying
Person, at its sole cost and expense, shall be entitled to participate in the
defense of such Third-Party Claim and, to the extent that it wishes (unless
(i) the Indemnifying Person is also a Person against whom the Third-Party Claim
is made and the Indemnified Person determines in good faith that joint
representation would be inappropriate or (ii) the Indemnifying Person fails to
provide reasonable assurance to the Indemnified Person of its financial capacity
to defend such Third-Party Claim and provide indemnification with respect to
such Third-Party Claim), to assume the defense of such Third-Party Claim with
counsel satisfactory to the Indemnified Person. After notice from the
Indemnifying Person to the Indemnified Person of its election to assume the
defense of such Third-Party Claim, the Indemnifying Person shall not, so long as
it diligently conducts such defense, be liable to the Indemnified Person under
this Article 10 for any fees of other counsel or any other expenses with respect
to the defense of such Third-Party Claim, in each case subsequently incurred by
the Indemnified Person in connection with the defense of such Third-Party Claim,
other than reasonable costs of investigation. Notwithstanding the assumption of
defense by the Indemnifying Person, the Indemnified Person may, at its sole cost
and expense, file any motion, answer or other pleadings that the Indemnified
Person may deem necessary or appropriate to protect its interests or those of
the Indemnifying Person and which is not prejudicial, in the reasonable judgment
of the Indemnifying Person, to the Indemnifying Person. If requested by the
Indemnifying Person, the Indemnified Person agrees, at the sole cost and expense
of the Indemnifying Person, to cooperate with the Indemnifying Person and its
counsel in contesting any Third-Party Claim that the Indemnifying Person assumes
the defense of and 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 Person or any of its Affiliates). The Indemnified
Person may participate in, but not control, any defense or settlement of any
Third-Party Claim controlled by the Indemnifying Person pursuant to this
Section 10.7(b), and except as specifically provided in this Section 10.7(b),
the Indemnified Person will bear its own costs and expenses with respect to such
participation. If the Indemnifying Person assumes the defense of a

 

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Third-Party Claim, (i) such assumption will conclusively establish for purposes
of this Agreement that the claims made in that Third-Party Claim are within the
scope of and subject to indemnification, and (ii) no compromise or settlement of
such Third-Party Claim may be effected by the Indemnifying Person without the
Indemnified Person’s written consent unless (A) there is no finding or admission
of any violation of any Legal Requirement or any violation of the rights of any
Person, (B) the sole relief provided is monetary damages that are paid in full
by the Indemnifying Person, and (C) the Indemnified Person shall have no
liability with respect to any compromise or settlement of such Third-Party Claim
effected without its written consent.

 

(c) Notwithstanding the provisions of Section 10.7(b), if an Indemnified Person
determines in good faith that there is a reasonable probability that a
Third-Party Claim may adversely affect it or any of its Affiliates other than as
a result of monetary damages for which it would be entitled to indemnification
under this Agreement, the Indemnified Person may, by notice to the Indemnifying
Person, assume the exclusive right to defend, compromise or settle such
Third-Party Claim, but the Indemnifying Person will not be bound by any
compromise or settlement of any Third-Party Claim so defended for the purposes
of this Agreement if such compromise or settlement is effected without its
written consent (which may not be unreasonably withheld).

 

(d) If notice is given to an Indemnifying Person of the assertion of any
Third-Party Claim and the Indemnifying Person does not, within ten (10) days
after the Indemnified Person’s notice is given, give notice to the Indemnified
Person of its election to assume the defense of such Third-Party Claim, or if
the Indemnifying Person gives such a notice but fails to prosecute diligently or
settle the Third-Party Claim, then the Indemnified Person will have the right to
defend, at the sole cost and expense of the Indemnifying Person, the Third-Party
Claim by all appropriate proceedings. In such event, the Indemnified Person will
have full control of such defense and proceedings, including any compromise or
settlement thereof, and the Indemnifying Person will be bound by any
determination made in such Third-Party Claim or any compromise or settlement
effected by the Indemnified Person; provided, however, that if requested by the
Indemnified Person, the Indemnifying Person agrees, at the sole cost and expense
of the Indemnifying Person, to cooperate with the Indemnified Person and its
counsel in contesting any Third-Party Claim which the Indemnified Person 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 Person or
any of its Affiliates).

 

(e) Each Party consents to the nonexclusive jurisdiction of any court in which a
Proceeding in respect of a Third-Party Claim is brought against any Indemnified
Person for purposes of any claim that an Indemnified Person may have under this
Agreement with respect to such Proceeding or the matters alleged therein and
agrees that process may be served on any Party with respect to such a claim
anywhere in the world.

 

(f) With respect to any Third-Party Claim subject to indemnification under this
Article 10: (i) both the Indemnified Person and the Indemnifying Person, as the
case may be, shall keep the other Person fully informed of the status of such
Third-Party Claim and any related Proceedings at all stages thereof where such
other Person is not represented by its own counsel, and (ii) the parties agree
(each at its own expense except as specifically provided in this Section 10.7)
to render to each other such assistance as they may reasonably require of each

 

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other and to cooperate in good faith with each other in order to ensure the
proper and adequate defense of any Third-Party Claim.

 

10.8 Other Claims. Subject to Section 10.5(d), a claim for indemnification for
any matter not involving a Third-Party Claim may be asserted by notice to the
Party from whom indemnification is sought.

 

ARTICLE 11

TAX AND COST REPORT MATTERS

 

11.1 Tax Matters; Allocation of Aggregate Purchase Price.

 

(a) Sellers shall promptly after the Closing prepare and file all Tax Returns
and other reports and returns required by any Legal Requirement relating to any
Seller or any business, asset, or activity of any Seller, to and including the
Effective Time. Sellers (other than DIA if the DE Closing occurs) shall prepare
and file all Tax Returns required to be filed by DIA for periods ending on or
before the date of the DE Closing. In accordance with Section 12.2 and other
provisions of this Agreement, Purchaser and its Affiliates and DIA (after the DE
Closing) will cooperate with Sellers (other than DIA if the DE Closing occurs)
in providing information required to prepare such Tax Returns and in effecting
any such filings.

 

(b) After each respective 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 with respect to the operation of the Facilities or ownership of the
Assets for all periods prior to the respective Effective Times and shall
preserve all such information, records and documents at least until the
expiration of any applicable statute of limitations or 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. Without limiting any other
obligations hereunder, Purchaser and DIA (after the DE Closing) specifically
covenant to cooperate with Sellers after the respective closing dates in
effecting any Tax Return filings required to be made by Sellers (other than DIA
if the DE Closing occurs) with respect to DIA under Section 11.1(a).

 

(c) The Seller Representative and Purchaser shall cooperate in the preparation
of a joint schedule (the “Allocation Schedule”) allocating the Aggregate
Purchase Price (including, for purposes of this Section, any other consideration
paid by Purchaser for the Assets and any Assumed Liabilities), among the Assets
of all Sellers. Sellers and Purchaser each agree to file IRS Form 8594, and all
federal, state, local and foreign tax returns, in accordance with the Allocation
Schedule. Sellers and Purchaser each agree to provide the other promptly with
any other information required to complete the Allocation Schedule. If, however,
the Seller Representative and Purchaser are unable to complete such schedule on
or before the Final Net Assets Settlement Date, or by such later date as may
agreed upon by the Seller Representative and Purchaser, each of Sellers and
Purchaser may file IRS Form 8594, and any federal, state, local and foreign tax
returns, allocating the Aggregate Purchase Price (as defined for purposes of
this Section) among the Assets in the manner each believes appropriate, provided
such allocation is reasonable and in accordance with Section 1060 of the Code
and the regulations thereunder.

 

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(d) Sellers and Purchaser shall cooperate with each other, and shall cause their
respective representatives and attorneys to cooperate with each other, in
obtaining any tax clearance certificates or similar documentation necessary for
avoiding Tax withholding with respect to the payment of the Aggregate Purchase
Price or the assumption of the Assumed Liabilities. Purchaser shall be entitled
to withhold amounts from the Aggregate Purchase Price (including the Merger
Purchase Price and the Focus DE Asset Purchase Price payable pursuant to the
Agreement and Plan of Merger) and pay such amounts over to applicable tax
authorities as required under applicable Tax laws, and any such withholding tax
payments shall be deemed to be a payment to Sellers in accordance with the
requirements of this Agreement, or a payment to the Members in accordance with
the requirements of the Agreement and Plan of Merger, as applicable. Sellers
(excluding DIA if the DE Closing occurs) shall indemnify Purchaser and hold
Purchaser harmless for any liability of Purchaser for any amount that was
required to be withheld from the Aggregate Purchase Price (including the Merger
Purchase Price and the Focus DE Asset Purchase Price payable pursuant to the
Agreement and Plan of Merger) with respect to any Tax of any Seller, or any Tax
of any Member, and that was not so withheld.

 

11.2 Cost Report Matters.

 

(a) Purchaser shall forward to the Seller Representative any and all
correspondence received by Purchaser relating to the Seller Cost Reports or
rights to settlements and retroactive adjustments on Seller Cost Reports
(“Agency Settlements”), within ten (10) business days of receipt by Purchaser.
Purchaser shall not reply to any such correspondence without the Seller
Representative’s written approval. Within ten (10) business days after receipt
by Purchaser, Purchaser shall remit or forward to the Seller Representative any
receipts relating to the Seller Cost Reports or the Agency Settlements and any
demand for payments. Sellers shall retain all rights to Seller Cost Reports
including any payables resulting therefrom or receivables relating thereto and
the right to appeal any Medicare determinations relating to the Agency
Settlements and Seller Cost Reports.

 

(b) Upon reasonable notice and during normal business office hours, Purchaser
will cooperate with Sellers in regard to (i) the preparation, filing, handling,
and appeals of Seller Cost Reports, and (ii) 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 Facilities and the coordination with the Seller Representative pursuant
to adequate notice of Medicare and Medicaid exit conferences or meetings.

 

ARTICLE 12

MISCELLANEOUS PROVISIONS

 

12.1 Entire Agreement. This Agreement (including the first paragraph and the
Recitals, and the Disclosure Schedules, Exhibits and other documents referred to
in this Agreement, all of which are incorporated herein as integral parts of
this Agreement, together with the Agreement and Plan of Merger and all
schedules, exhibits and other documents referred to in the Agreement and Plan of
Merger) contains the entire understanding between the Parties thereto with
respect to the subject matter hereof and supersedes all prior or contemporaneous
agreements, understandings, representations and statements, oral or written,
between Parties thereto with respect to such subject matter (including the
Letter of Intent, and any confidentiality

 

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agreement between Purchaser and any Seller). The Parties agree that the Escrow
Agreements, the Noncompetition Agreements and the Right of First Refusal
Agreements shall survive the execution and delivery of the Original Purchase
Agreement, this Agreement, the Agreement and Plan of Merger and the consummation
of the Closings.

 

12.2 Further Assurances. The Parties shall cooperate reasonably with each other
and with their respective representatives in connection with any steps required
to be taken as part of their respective obligations under this Agreement and the
Agreement and Plan of Merger, and shall (a) furnish upon request to each other
such further information, (b) execute and deliver to each other such other
documents, and (c) do such other acts and things, all as any other Party may
reasonably request for the purpose of carrying out the intent of this Agreement
and the Agreement and Plan of Merger and the transactions contemplated hereby
and thereby.

 

12.3 Assignments, Successors and No Third Party Rights.

 

(a) Subject to Section 12.3(b), no Party may assign any of its rights or
delegate any of its obligations under this Agreement or the Agreement and Plan
of Merger without the prior written consent of the other Parties. Subject to the
preceding sentence, this Agreement and the Agreement and Plan of Merger will
apply to, be binding in all respects upon and inure to the benefit of (i) the
successors and permitted assigns of the Parties hereto and thereto, and (ii) any
Designee. Nothing expressed or referred to in this Agreement or the Agreement
and Plan of Merger will be construed to give any Person other than the Parties
hereto and thereto any legal or equitable right, remedy or claim under or with
respect to this Agreement or the Agreement and Plan of Merger or any provision
of this Agreement or the Agreement and Plan of Merger, except such rights as
shall inure to a successor, permitted assignee or Designee pursuant to this
Section 12.3.

 

(b) Notwithstanding anything herein to the contrary:

 

(A) Purchaser may (i) assign any of its rights or delegate any of its duties
under this Agreement or the Agreement and Plan of Merger to any one or more
subsidiaries that are wholly-owned, directly or indirectly, by Purchaser, or
(ii) at or prior to Closing, designate one or more of such subsidiaries as the
entity to acquire some or all of the Assets, enter into the Merger or the
purchase of the Focus DE Assets contemplated by the Agreement and Plan of Merger
or assume some or all of the Assumed Liabilities or, in the case of the
Agreement and Plan of Merger, assume some or all of the Focus DE Assumed
Liabilities or the DIA Retained Liabilities (any such subsidiary to whom such an
assignment, delegation or designation is made, a “Designee”); and in the event
of any such assignment, delegation or designation by Purchaser, the term
“Purchaser,” as used herein, shall include such Designee or Designees as
appropriate in connection with the nature and extent of such assignment,
delegation or designation. No such assignment, delegation or designation by
Purchaser shall relieve Purchaser from any of its obligations hereunder in the
event of any Designee’s breach or failure to perform any of the matters assigned
or delegated to it; and

 

(B) Purchaser may collaterally assign its rights under this Agreement and under
the Agreement and Plan of Merger to any financial institution providing
financing to Purchaser.

 

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12.4 Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Texas as applied to
contracts made and to be performed entirely within the State of Texas and
without regard to conflicts-of-laws principles that would require the
application of any other law. 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 or in connection with this
Agreement or the transactions contemplated hereby.

 

12.5 Amendments. Neither this Agreement nor the Agreement and Plan of Merger may
be amended, supplemented or otherwise modified other than by a written agreement
signed by or on behalf of the Party to be charged with such amendment,
supplement or modification.

 

12.6 Notices. All notices, consents, waivers and other communications required
or permitted by this Agreement shall be in writing and shall be deemed given to
a Party when (a) delivered to the appropriate address by hand or by nationally
recognized overnight courier service (costs prepaid), (b) sent by facsimile with
confirmation of transmission by the transmitting equipment, or (c) received or
rejected by the addressee, if sent by certified mail, return receipt requested,
in each case to the following addresses or facsimile numbers and marked to the
attention of the Person (by name or title) designated below (or to such other
address, facsimile number or Person as a Party may designate by notice to the
other Parties):

 

If to any Seller (other than

DIA after the DE

Closing), to the Seller

Representative:

  

Seller Representative, LLC

7201 Shallowford Road, Suite 200

Chattanooga, TN 37421

Attention: Chief Manager

Facsimile No.: (423) 308-1844

With a copy to:    Hugh Sharber      Miller & Martin PLLC      Suite 1000,
Volunteer Building      832 Georgia Avenue      Chattanooga, TN 37402     
Facsimile No.: (423) 785-8480

If to Purchaser or to DIA

after the DE Closing:

   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  
   Strasburger & Price, L.L.P.      901 Main Street, Suite 4400      Dallas,
Texas 75202      Attention: Patrick Owens, Esq.      Facsimile No.: (214)
651-4330

 

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12.7 Headings. The section and other headings contained in this Agreement,
including the Disclosure Schedules and Exhibits, or in the Agreement and Plan of
Merger, including Exhibits, 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, including the Disclosure Schedules
and Exhibits or the Agreement and Plan of Merger, including Exhibits.

 

12.8 Confidentiality and Publicity. Without the prior written consent of the
Purchaser (in the case of a proposed disclosure by any Seller) or the Seller
Representative (in the case of a proposed disclosure by Purchaser), neither
Purchaser nor any Seller shall discuss with, or provide to, any third party
(except for such disclosing Party’s attorneys, accountants, directors, officers
and employees, the directors, officers and employees of any Affiliate of any
Party hereto, and other consultants and professional advisors) any non-public
information contained in or related to this Agreement or concerning this
transaction or the Agreement and Plan of Merger and the transactions
contemplated thereby, except: (a) Purchaser and Sellers shall each be permitted
to provide a copy of this Agreement and the Agreement and Plan of Merger, or
provide information herein or a description thereof, to applicable governmental
or administrative authorities as reasonably required or necessary, (b) as
reasonably necessary to obtain any consents or approvals required hereunder or
thereunder to be obtained, (c) as required in governmental filings or judicial,
administrative or arbitration proceedings, (d) pursuant to public announcements
made with the prior written approval of the Seller Representative and Purchaser,
or (e) as otherwise required by applicable law.

 

12.9 Expenses and Attorneys’ Fees. Except as otherwise provided in this
Agreement or in the Agreement and Plan of Merger, whether or not the
transactions contemplated hereby or thereby are consummated, each Party shall
bear and pay its own fees and expenses incurred in connection with the
preparation, negotiation, execution and performance of this Agreement and the
Agreement and Plan of Merger and the transactions contemplated hereby and
thereby, including all fees and expenses of their respective attorneys,
accountants, advisors, agents and other representatives (except that Sellers
(excluding DIA if the DE Closing occurs) shall bear the fees and expenses of DIA
under the Agreement and Plan of Merger). Purchaser shall pay the following:
(a) all costs of surveys of the Real Property ordered by Purchaser, (b) all
costs of any environmental surveys of any of the Real Property ordered by
Purchaser, and (c) all filing fees under the HSR Act in connection with the
transactions contemplated hereby. All sales or transfer Taxes, recording charges
and escrow fees in connection with the conveyance of the Assets contemplated by
this Agreement, or in connection with the Merger and the sale of the Focus DE
Assets contemplated by the Agreement and Plan of Merger, shall be paid one-half
by Sellers (excluding DIA if the DE Closing occurs) and one-half by Purchaser.
All fees or costs due to any lender of any Seller, if any, in order to secure
any necessary consents or releases in connection with the consummation of the
transactions contemplated herein or in the Agreement and Plan of Merger shall be
paid by Sellers (excluding DIA if the DE Closing occurs). Sellers (excluding DIA
if the DE Closing occurs) shall pay one-half and Purchaser shall pay one-half of
all amounts payable to any title company in respect of any of the Title
Commitments, copies of exceptions and the Title Policies, including reasonable
premiums (including premiums for

 

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endorsements) and search fees; provided, however, that notwithstanding anything
in this sentence to the contrary, Sellers’ liability with respect to premiums
for the Title Policies shall not exceed $.50 per $1,000 of the total amount
insured pursuant to such Title Policies. Notwithstanding the foregoing,
Purchaser shall be solely responsible for all costs, fees or endorsements with
respect to any mortgagee Title Policies required by any creditor or lender of
Purchaser, the cost of which shall be based upon the lower simultaneous issue
premium. Sellers (excluding DIA if the DE Closing occurs) shall pay one-half and
Purchaser shall pay one-half of the fees and expenses of the Escrow Agent under
the Escrow Agreements. If this Agreement or the Agreement and Plan of Merger is
terminated, the obligation of any Party to pay its own fees and expenses will be
subject to any rights of such Party arising from a breach of this Agreement or
the Agreement and Plan of Merger by any other Party. If any action is brought by
any Seller (excluding DIA if the DE Closing occurs) or Purchaser to enforce any
provision of this Agreement or the Agreement and Plan of Merger, the prevailing
Party shall be entitled to recover its court costs and reasonable attorneys’
fees from the other such Party (from Purchaser or Sellers (excluding DIA if the
DE Closing occurs), as the case may be).

 

12.10 Severability. If any term, provision, condition or covenant of this
Agreement or the Agreement and Plan of Merger 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 or the Agreement and
Plan of Merger 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 or the Agreement and Plan of Merger shall be valid and enforceable to
the fullest extent permitted by law.

 

12.11 Execution of Agreements. This Agreement and the Agreement and Plan of
Merger may be executed in one or more counterparts, each of which will be deemed
to be an original copy of this Agreement or the Agreement and Plan of Merger, as
the case may be, and all of which counterparts of any agreement, when taken
together, will be deemed to constitute one and the same agreement. The exchange
of copies of this Agreement or the Agreement and Plan of Merger and of signature
pages by facsimile transmission shall constitute effective execution and
delivery of this Agreement or the Agreement and Plan of Merger as to the parties
and may be used in lieu of the original agreement for all purposes. Signatures
of the Parties transmitted by facsimile shall be deemed to be their original
signatures for all purposes.

 

12.12 Seller Obligations. The liability of each Seller (other than DIA if the DE
Closing occurs) hereunder shall be joint and several with each other Seller.
Where in this Agreement or the Agreement and Plan of Merger provision is made
for any action to be taken or not taken by any Seller, Sellers (other than DIA
if the DE Closing occurs) jointly and severally undertake to cause each Seller
(other than DIA if the DE Closing occurs) to take or not take such action, as
the case may be. Without limiting the generality of the foregoing, each Seller
(other than DIA if the DE Closing occurs) shall be jointly and severally liable
with each other Seller (other than DIA if the DE Closing occurs) for the
indemnities set forth in Article 10.

 

12.13 Enforcement. Sellers acknowledge and agree that Purchaser would be
irreparably damaged if any of the provisions of this Agreement or the Agreement
and Plan of Merger are not performed in accordance with their specific terms and
that any breach of this Agreement or the Agreement and Plan of Merger by any
Seller could not be adequately compensated in all cases

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 66

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by monetary damages alone. Accordingly, in addition to any other right or remedy
to which Purchaser may be entitled, at law or in equity, it shall be entitled to
enforce any provision of this Agreement or the Agreement and Plan of Merger by a
decree of specific performance and to temporary, preliminary and permanent
injunctive relief to prevent breaches or threatened breaches of any of the
provisions of this Agreement or the Agreement and Plan of Merger, without
posting any bond or other undertaking.

 

12.14 Waiver; Remedies Cumulative. The rights and remedies of the Parties to
this Agreement or to the Agreement and Plan of Merger are cumulative and not
alternative. Neither any failure nor any delay by any Party in exercising any
right, power or privilege under this Agreement or the Agreement and Plan of
Merger or any of the documents referred to in this Agreement or the Agreement
and Plan of Merger will operate as a waiver of such right, power or privilege,
and no single or partial exercise of any such right, power or privilege will
preclude any other or further exercise of such right, power or privilege or the
exercise of any other right, power or privilege. To the maximum extent permitted
by applicable law, (a) no claim or right arising out of this Agreement or the
Agreement and Plan of Merger or any of the documents referred to in this
Agreement or the Agreement and Plan of Merger can be discharged by one Party, in
whole or in part, by a waiver or renunciation of the claim or right unless in
writing signed by the other Party, (b) no waiver that may be given by a Party
will be applicable except in the specific instance for which it is given, (c) no
notice to or demand on one Party will be deemed to be a waiver of any obligation
of that Party or of the right of the Party giving such notice or demand to take
further action without notice or demand as provided in this Agreement or the
Agreement and Plan of Merger or the documents referred to in this Agreement or
the Agreement and Plan of Merger, (d) 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 or the
Agreement and Plan of Merger, 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, and (e) 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
or the Agreement and Plan of Merger.

 

12.15 Waiver of Jury Trial. EACH PARTY HERETO AND TO THE AGREEMENT AND PLAN OF
MERGER HEREBY IRREVOCABLY WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO DEMAND THAT
ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR IN ANY WAY RELATED TO
THIS AGREEMENT, THE AGREEMENT AND PLAN OF MERGER OR THE RELATIONSHIPS OF THE
PARTIES HERETO OR THERETO BE TRIED BY JURY. THIS WAIVER EXTENDS TO ANY AND ALL
RIGHTS TO DEMAND A TRIAL BY JURY ARISING FROM ANY SOURCE, INCLUDING THE
CONSTITUTION OF THE UNITED STATES OR ANY STATE THEREIN, COMMON LAW OR ANY
APPLICABLE STATUTE OR REGULATIONS. EACH PARTY HERETO ACKNOWLEDGES THAT IT IS
KNOWINGLY AND VOLUNTARILY WAIVING ITS RIGHT TO DEMAND TRIAL BY JURY.

 

(Remainder of Page Intentionally Left Blank)

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 67

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IN WITNESS WHEREOF, this Agreement has been executed and delivered as of the
Restatement Execution Date.

 

SELLERS:

 

FOCUS HEALTHCARE, LLC,       FOCUS HEALTHCARE OF OHIO, LLC,

a California limited liability company

     

a Delaware limited liability company

By:

  /s/    BYRON DEFOOR              

By:

  /s/    BYRON DEFOOR        

Name:

  Byron DeFoor      

Name:

  Byron DeFoor

Title:

  Manager      

Title:

  Manager FOCUS HEALTHCARE OF DELAWARE,       DELAWARE INVESTMENT ASSOCIATES,

LLC, a Delaware limited liability company

     

LLC, a Delaware limited liability company

By:

  /s/    BYRON DEFOOR              

By:

  /s/    BYRON DEFOOR        

Name:

  Byron DeFoor      

Name:

  Byron DeFoor

Title:

  Manager      

Title:

  Manager FOCUS HEALTHCARE OF FLORIDA,       HIGHPOINT INVESTMENT ASSOCIATES,

LLC, a Delaware limited liability company

     

LLC, a Delaware limited liability company

By:

  /s/    BYRON DEFOOR              

By:

  /s/    BYRON DEFOOR        

Name:

  Byron DeFoor      

Name:

  Byron DeFoor

Title:

  Manager      

Title:

  Manager FOCUS HEALTHCARE OF GEORGIA,        

LLC, a Georgia limited liability company

       

By:

  /s/    BYRON DEFOOR                    

Name:

  Byron DeFoor            

Title:

  Manager             PURCHASER:             HORIZON HEALTH CORPORATION,        

a Delaware corporation

       

By:

  /s/    DONALD W. THAYER                    

Name:

  Donald W. Thayer            

Title:

  Executive Vice President            

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 68

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ACCEPTANCE AND AGREEMENT OF SELLER REPRESENTATIVE

 

The undersigned, being the Seller Representative designated in Section 1.14 of
the foregoing Amended and Restated Asset Purchase Agreement (Focus), agrees to
serve as the Seller Representative and to be bound by the terms of such Amended
and Restated Asset Purchase Agreement (Focus) pertaining thereto. This
Acceptance and Agreement is executed and delivered as of the Restatement
Execution Date.

 

SELLER REPRESENTATIVE, LLC,

a Tennessee limited liability company

By:

  /s/    BYRON DEFOOR        

Name:

  Byron DeFoor

Title:

  Manager

 

AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (FOCUS) – Page 69